Raymond James Finl (NYSE:RJF) reported fourth-quarter financial results on Wednesday. The transcript from the company’s fourth-quarter earnings call has been provided below.
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Summary
Raymond James Finl reported record net revenues of $4.27 billion and record net income for both the fourth quarter and fiscal year 2026, marking the sixth consecutive year of record annual results.
The company experienced strong growth in the Private Client Group with record client assets under administration of $1.87 trillion and net new assets increasing by 88% to a record of over $98 billion.
Significant investments in technology and AI, including a $1.1 billion annual technology spend, have been made to enhance advisor efficiency and client service, with tools like the proprietary AI assistant, Raymond.
The Capital Markets segment saw record investment banking revenues of over $1.1 billion, driven by strong M&A and advisory revenues despite challenging market conditions.
The Asset Management segment reported strong net inflows and the successful integration of Clark Capital, while the Bank segment achieved record loans of $57.5 billion, predominantly from securities-based lending.
Management expressed optimism for fiscal 2027, noting a strong investment banking pipeline and a focus on long-term growth through strategic investments and disciplined capital deployment.
Raymond James Finl announced a new partnership with the PGA Tour, enhancing brand visibility and client relationships.
The company maintained a strong capital position with a Tier 1 leverage ratio of 12.1% and returned $154 million to shareholders during the quarter through dividends and share repurchases.
Full Transcript
Christy Waugh (Senior Vice President of Investor Relations)
Good evening and welcome to Raymond James Finl’s fourth quarter and fiscal 2026 earnings call. This call is being recorded and will be available for replay for the next 30 days on the company Investor Relations website. I’m Christy Waugh, Senior Vice President of Investor Relations. Thank you for joining us. With me on the call today are Chief Executive Officer Paul Shukri and Chief Financial Officer Butch Orlog. The presentation being reviewed today is available on Raymond James Finl Investor Relations website.
Following the prepared remarks, the operator will open the line for questions, calling your attention to Slide 2. Please note that certain statements made during this call may constitute forward-looking statements. These statements include, but are not limited to, information concerning future strategic objectives, business prospects, financial results, industry or market conditions, anticipated timing and benefits of our acquisitions and our level of success in integrating acquired businesses, anticipated results of litigation and regulatory developments, and general economic conditions.
In addition, words such as believes, expects, anticipates, intends, plans, estimates, projects, forecasts and future or conditional verbs such as may, will, could, should and would, as well as any other statement that necessarily depends on future events, are intended to identify forward-looking statements. Please note that there can be no assurance that actual results will not differ materially from those expressed in these statements. We urge you to consider the risks described in our most recent Form 10-K and subsequent Form 10-Q and Forms 8-K, which are available on our website.
Now I’m happy to turn the call over to CEO Paul Shukri. Paul.
Paul Shukri (Chief Executive Officer)
Thank you, Christy. Good evening and thank you for joining us. Some people like to tailgate and eat ham and hot dogs prior to World Series games. Others like to listen to a really good earnings call. I want to thank all of you for being in that latter category and joining our call this evening. Us folks in Tampa Bay are rooting for the Rays to keep this alive tonight, but there are thousands of really great Brew Crew fans who have made the trip down and are ready to pop the champagne.
We will see how things shake out in the next few hours. But first, our results. Raymond James Finl delivered record net revenues and record net income for both the fourth quarter and fiscal year 2026. This was our sixth consecutive year of record annual results, underscoring the strength of our long-term approach and resilient diversified business model, and most importantly, reflecting the commitment of our financial advisors, bankers and associates to serving clients with integrity and putting people first every single day.
In the quarter, we generated record quarterly revenues of $4.27 billion, representing growth of 15% over the prior-year quarter and 9% above the preceding quarter. Record pre-tax income of $862 million increased 18% over the year-ago quarter and 15% over the preceding quarter. What has always set Raymond James Finl apart is our ability to invest for the long term without losing sight of the deeply personal relationships at the heart of our business. That was evident this fiscal year as our investments across the organization in people, technology and capabilities enabled advisors, bankers and associates to meet the increasingly complex needs of their clients. In the Private Client Group, we had a record quarter-end client assets under administration of $1.87 trillion, up 1% from the preceding quarter and 12% year over year.
Strong retention and continued momentum again demonstrated that Raymond James Finl remains a destination of choice for financial advisors across our affiliation options, where our growth remains focused on quality over quantity. For the fiscal year, domestic PCG net new assets increased 88% to a record of more than $98 billion, representing 6.4% of beginning-of-year assets. Contributing to the excellent net new asset results were not only our record recruiting results, which far surpassed the previous year’s records, but also increased net new assets from existing advisors and strong advisor retention.
Over the fiscal year, we recruited financial advisors to our domestic independent contractor and employee channels with trailing 12-month production totaling $538 million and more than $82 billion of client assets at their previous firms. The source of this year’s recruiting success, as well as our current pipeline, remains diverse across all of our affiliation channels. Throughout the year we remain focused on expanding capabilities and empowering advisors. For example, enhanced succession and capital solutions for advisors streamline branch workflows, advisor productivity initiatives support practice continuity, growth planning and advisor transitions. With regard to clients, we have expanded specialized resources available to business owners, high-net-worth families and multigenerational households, helping advisors address clients’ increasingly complex planning, succession and liquidity needs.
Lastly, we continue advancing automation, process improvement and AI as part of our more than $1.1 billion annual technology spend. These enhancements help advisors work more efficiently and deliver increasingly personalized advice, spending less time on administrative tasks and more time with clients. Tools such as our proprietary AI assistant Raymond, an AI-powered integrated CRM solution, Meeting Manager, improve access to institutional knowledge, client insights and workflow support.
In Capital Markets, revenues grew this quarter driven primarily by stronger investment banking results as well as higher affordable housing investment business revenues. We generated record consolidated investment banking revenues of more than $1.1 billion for the fiscal year. We achieved this milestone despite economic and global challenges and uncertainty, including concerns about disruption from emerging technologies. These results reflect the continued investments in our Capital Markets businesses.
During the year we acquired GreensLedge, which provides origination and structuring capabilities that complement our existing structured products distribution. Additionally, we made strategic hires and expanded specialized practices to continue to deepen our expertise, including adding a leveraged finance and debt advisory practice and expanding our ESOP advisory team in our consumer franchise. In Public Finance, the addition of MBS Capital Markets increases our capabilities in land-secured finance and strengthens our ability to serve special districts, master-planned communities and mixed-use developments.
Our investment banking pipeline remains strong and, as we saw this quarter, we believe we are well positioned for future growth. In the Asset Management segment, net inflows into managed fee-based programs in the Private Client Group were strong during the quarter. This reflected the growth from our successful recruiting efforts as well as cross-business collaboration with PCG to provide high-quality investment offerings such as the newly launched Private Portfolios that expand solutions for private wealth clients looking to add alternative investments in their managed portfolios.
Additionally, we experienced solid net flows into Raymond James Investment Management, including the recently acquired Clark Capital, which continues to grow assets by serving advisor-oriented channels with high-touch asset management and model portfolio capabilities. In the Bank segment, loans ended the quarter at a record $57.5 billion, driven predominantly by continued growth in securities-based lending balances. Those balances increased more than $6 billion, or 32% from the year-ago period, and 6% sequentially. This growth continues to reflect the synergy with our expanding Private Client Group business as we deploy our balance sheet in support of clients. Importantly, credit quality across the loan portfolio remains strong.
Our capital deployment strategy remains disciplined and long-term focused, with priorities that include organic growth, technology and platform investments, strategic acquisitions and returning capital to shareholders. Before I turn the call over to Butch, I want to highlight two things we are excited about. First, and most importantly, our satisfaction survey showed that advisors’ overall satisfaction with Raymond James Finl service levels reached an all-time high of 96%, with 87% of our advisors saying that they have experienced an improvement over our already strong service levels over the past year. These remarkable results reflect the collective efforts of our associates to serve advisors and their clients.
Also during the quarter we announced a new partnership with the PGA Tour as a title sponsor of the Go by Raymond James Golf Tournament in Greensboro, North Carolina, one of the Tour’s most historic tournaments. The event will become a championship-level competition featuring the best players in the world. This partnership provides a unique opportunity to invest in our brand and deepen relationships with clients and prospects. Now I’ll turn the call over to Butch Orlog to review our financial results in detail. Butch.
Butch Oorlog (Chief Financial Officer)
Thank you, Paul. I’ll begin on slide 6. The firm reported record net revenues of $4.27 billion for the fiscal fourth quarter. Net income available to common shareholders was $666 million with record earnings per diluted share of $3.40. Adjusted net income available to common shareholders, which excludes acquisition-related expenses, equaled $703 million, resulting in record adjusted earnings per diluted share of $3.59. Our pre-tax margin for the quarter was 20.2% and adjusted pre-tax margin was 21.3%.
We generated annualized return on common equity of 20.6% and annualized adjusted return on tangible common equity of 26.6%. Strong results for the quarter, particularly given our conservative capital base. Turning to slide 7, the Private Client Group generated pre-tax income of $458 million on record quarterly net revenues of $3.06 billion. Revenues grew 15% year over year, primarily driven by higher PCG assets under administration resulting from market appreciation, strong retention, and the continued addition of net new assets. Pre-tax grew 10% over the year-ago quarter as the revenue growth was partially offset by higher financial advisor commissions tied to strong compensable revenue growth and increased expense.
Supporting the record recruiting results Paul mentioned earlier, the Capital Markets segment generated quarterly net revenues of $549 million and pre-tax income of $106 million. Segment net revenues increased year over year and sequentially driven by higher M&A and advisory revenues. This growth was partially offset by lower fixed income brokerage revenues as rising interest rates and increased market volatility created a challenging environment, especially for municipal securities.
Fourth quarter results also benefited from seasonally high revenues in our affordable housing investments business. The Asset Management segment generated record pre-tax income of $170 million on record net revenues of $409 million. Results were largely driven by higher financial assets under management paired with earlier quarter reflecting market appreciation over the past 12 months and strong net inflows into PCG fee-based accounts as well as the addition of Clark Capital. The Bank segment generated net revenues of $483 million and pre-tax income of $180 million.
Segment net revenues increased 5% year over year, largely due to net loan growth over the period. Results also benefited from a loan loss reserve release during the quarter driven by continued strength in credit quality measures as the loan portfolio continues to shift towards lower credit risk securities-based loans and residential mortgages. Turning to consolidated revenues on Slide 8, asset management and related administrative fees were $2.31 billion, up 23% over the prior year and 11% over the preceding quarter. Record quarter-end PCG fee-based assets were $1.16 trillion, up 15% year over year and 1% over the preceding quarter. Looking ahead, we expect fiscal first quarter 2027 asset management and related administrative fees to increase approximately 1% from the fourth quarter level driven by higher PCG assets in fee-based accounts.
At quarter end, brokerage revenues were $614 million, down 2% from the preceding quarter as higher PCG retail brokerage revenues were more than offset by a decline in fixed income trading revenues described earlier. Moving to Slide 9, clients’ Domestic Sweep and Enhanced Savings Program balances ended the quarter at $58 billion, up 3% over the year-ago quarter, down 1% from the preceding quarter. Our client deposit balance mix continues to highlight our diverse funding sources through both the Sweep Program and the Enhanced Savings Program through Raymond James Bank as well as TriState Capital’s deposit-gathering capabilities. Additionally, a portion of the sweep balances held off balance sheet with third-party banks, which totaled over $16 billion at quarter end, is immediately able to fund future loan growth as client demand warrants.
Turning to Slide 10, combined net interest income and RJBDP fees from third-party banks were $674 million, up $16 million or 2% from the prior quarter. Fee revenues earned on RJBDP balances with third-party banks increased $12 million as a result of both an increase in average balances swept to third-party banks in the quarter as well as a 6 basis point increase in the yield on such balances to 2.81%. Firm interest income increased year over year and sequentially as higher interest income driven primarily by higher Bank segment interest-earning assets more than offset higher interest expense.
Looking ahead, based on interest rates that include the full impact of the September rate increase and assuming unchanged quarter-end balances net of the fiscal first quarter rebuilding collection of $2.1 billion, we would expect aggregate NII and RJBDP fees from third-party banks in the first quarter to be up approximately 1% over the fourth quarter level. Keep in mind actual results could be influenced by several variables including any interest rate actions during the upcoming quarter as well as change in loan and deposit balances.
Turning to consolidated expenses on Slide 11, compensation expense was $2.77 billion and the total compensation ratio for the quarter was 65%. The adjusted compensation ratio, which excludes acquisition-related compensation expenses, was 64.6%, a really strong result given the business mix and robust compensable revenue growth in PCG. As we said at our annual in June, we expect to achieve an adjusted compensation ratio of approximately 65% on our mix and, as evident this quarter, improvement in that rate can result from strong performance of the Capital Markets segment.
Non-compensation expenses were $633 million, up 5% from the year-ago quarter. Sequentially, non-compensation expenses increased 6% driven primarily by a lower bank loan benefit for credit losses compared to the preceding quarter as well as higher investment sub-advisory fees that align with higher fee-based assets. Certain non-compensation expenses are tied directly to growth and many of those expenses, particularly those associated with successful recruiting, benefit future periods.
For the fiscal year we delivered adjusted non-compensation expenses excluding the bank loan benefit for credit losses of approximately $2.3 billion, in line with our target. Importantly, we achieved this while absorbing incremental operating expenses from businesses acquired during the year which were not contemplated in our target. Excluding those expenses, we would have come below our target. Looking ahead to fiscal 2027, we expect non-compensation expenses excluding the bank loan loss provision for credit losses, non-GAAP adjustments presented in our non-GAAP financial measures, and any unexpected legal regulatory items to approximately $2.5 billion, representing about an 8% increase year over year. This target reflects the full-year impact of businesses acquired in fiscal 2026, contributing approximately 100 basis points of the expected expense increase.
Slide 12 presents the pre-tax margin trends for the past five quarters. This quarter we achieved adjusted pre-tax margin of 21.3%, a strong result and above our guidance of approximately 20%, helped by higher Capital Markets results and also reflecting an increase in operating leverage in our PCG segment. Our long-term trend and profitability continues to highlight the stability and strength of our diversified businesses to consistently generate strong margins throughout various market cycles.
On Slide 13, at quarter end our total assets were $94.4 billion, which approximated the preceding quarter-end level. Record bank loans of $57.5 billion grew 11% a year-ago quarter and 2% sequentially, with that loan growth largely in support of our clients. Securities-based loans and residential mortgages represent 65% of our total loans held for investment, reflecting 45% and 20% of the total, respectively. RJF corporate cash at the parent ended the quarter at $2.9 billion, providing excess liquidity of $1.7 billion above our $1.2 billion target.
With a Tier 1 leverage ratio of 12.1% and a total capital ratio of 24.2%, we remain well above regulatory requirements with approximately $1.9 billion of excess capital capacity to deploy before reaching our conservative Tier 1 leverage ratio target of 10%. The effective tax rate for the year was 20%. Looking ahead, we estimate our effective tax rate for fiscal 2027 to be approximately 25%, which excludes any impact the corporate-owned life insurance, or COLI, portfolio valuation could have on the rate during the year.
Slide 14 provides a summary of our capital actions. Through the combination of common dividends paid and share repurchases, we returned $154 million of capital to shareholders during the quarter. In the quarter, we repurchased $50 million of common shares at an average price of $166 per share. Over the past 12 months, we repurchased 8 million common shares for approximately $1.25 billion, including dividends. Over that period, we returned $1.7 billion to common shareholders, representing 71% of earnings.
Through successful execution on our capital deployment priorities over the past year, with strategic balance sheet growth, completion of acquisitions, and capital return to shareholders, our Tier 1 leverage ratio has declined 100 basis points over that period to its still strong 12.1% level. We remain committed to operating our businesses over the long run at capital levels consistent with our established targets. I’ll now turn the call back to Paul for his final remarks.
Paul Shukri (Chief Executive Officer)
Paul, thank you, Butch. In summary, we finished fiscal 2026 with record results and an adjusted return on tangible common equity of 23% while investing in future growth. We are entering fiscal 2027 with many tailwinds, including records for client assets and a strong investment banking pipeline. Of course, we also maintain a watchful eye on the uncertain geopolitical and macroeconomic environment. But we avoid trying to time the markets and instead focus on making investments to better support our advisors and their clients over the long term while also maintaining a strong balance sheet with ample liquidity and capital to be nimble and opportunistic in a wide range of potential market environments.
Our leadership team believes what people want more than ever in this world of technology, AI and social media, which I call anti-social media, is deeply personal relationships and, counterintuitively, what’s harder to find than since our founding in 1962 across almost any industry is a deeply personal relationship. To that end, we are making significant investments in technology and AI not with a focus on disintermediating our financial advisors, but instead with a focus on saving our advisors and associates time on administrative tasks so they can spend more time developing deeply personal relationships with their clients.
We believe human financial advice grounded in these relationships will be an even bigger differentiator going forward. I want to thank all of our advisors, bankers and associates for helping Raymond James Finl generate our sixth consecutive year of record results. This concludes our prepared remarks. Operator, will you please open the line with questions?
OPERATOR
We will now begin the question and answer session. Please limit yourself to one question. Should you have a follow up, please re-enter the call queue and we will get to it should we have time. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one. Again, we ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device.
Please stand by while we compile the Q&A roster. Your first question comes from David Smith with Truist Securities. Please go ahead.
David Smith (Analyst at Truist Securities)
Hi, good evening.
Paul Shukri (Chief Executive Officer)
No, really what happened during the quarter was we were evaluating an M&A opportunity and so we kind of suspended buybacks as we were evaluating that opportunity to see if we can get it to progress through the process. As of right now, that opportunity does not look like it will progress. And so right now our plan is to resume buybacks at that $400 million a quarter level going forward. No, we’ll just continue the same level going forward.
OPERATOR
Your next question comes from Bill Katz with TD Cowen. Please go ahead.
Bill Katz (Analyst at TD Cowen)
Okay, thank you very much. Taking a question this evening, I want to sort of hone in a little bit on the balance sheet strategy from here. I heard you in terms of having some of that third-party sweep available to fund loan growth. If I look at your balance sheet, it’s about 90% funded loan to deposits. The NIM went down a bit quarter on quarter. So, strategically, how are you thinking about managing the growth of the strong securities-based lending and the mortgage opportunity, and how might that sort of play through for the NIM outlook?
Thank you.
Paul Shukri (Chief Executive Officer)
Yeah, Bill, good question. I mean really, if you look at our overall cash availability, we have lots of flexibility. The loan-to-deposit ratio for us is not as relevant as a pure-play bank because we do have so much cash with third-party banks. That provides a lot of flexibility. And beyond that we have diversified sources of deposits both from Raymond James Bank and Tri State Capital. So we feel confident in our ability to continue supporting clients with the balance sheets.
And to your point, you know, we’re really more focused on growing NII and BDP fees over time than optimizing NIM. You know, we’re really focused on increasing supporting clients and improving profitability over time. And that’s how, you know, we think about the strategy going forward.
OPERATOR
Your next question comes from Craig Siegenthaler with Bank of America. Please go ahead.
Craig Siegenthaler (Analyst at Bank of America)
Good evening, Paul. Butch. Everyone’s doing well.
Paul Shukri (Chief Executive Officer)
Hey Craig, how are you?
Craig Siegenthaler (Analyst at Bank of America)
I’m good. So just following up on the last one. Does that mean the NIM’s going down despite the fact the Fed’s raising rates? Because in the quarter liability costs, as you know, rose a lot faster than asset yields.
Paul Shukri (Chief Executive Officer)
Yeah, I’ll have Butch speak to the specifics on our near-term outlook. But I think what we’re missing in the long-term perspective is that as deposit costs across the entire industry continue to increase on an incremental basis, you’re going to see that reflected in loan pricing as well over time, whether it’s in higher spreads, just loan pricing. So the returns I think in the industry will keep up with the deposit cost over time, but to the near-term sort of outlook from the latest rate increase—
Butch Oorlog (Chief Financial Officer)
Yeah, one aspect of the NIM decline in the bank segment this particular quarter was you’ll recall that we significantly increased our ESP deposit balances in Q3 and that was a rub-over of that over the quarter. So basically in Q4 we experienced a full-quarter effect of the increase in those higher-cost deposits and that was an impact on NIM. I would also focus that with our third-party bank balances we actually increased the yield from our third-party banks by six basis points.
It kind of offsets the NIM. So as Paul mentioned, we really think about it as managing the aggregate of NII and BDP and going forward, you know, with future rate hikes, you know, all things being equal—meaning no negative impact on the floating nature of our balance sheet— all things being equal, increases in short-term rates would have a positive impact on our NII and typically on our NIM on a longer-term basis.
Craig Siegenthaler (Analyst at Bank of America)
Thank you, Butch. Thank you.
OPERATOR
Next question comes from Michael Cyprys with Morgan Stanley. Please go ahead.
Michael Cyprys (Analyst at Morgan Stanley)
Hey, good evening. Thanks for taking the question. Just wanted to ask about the recruiting backdrop. You’ve obviously had a very strong year here and you’ve talked about the pipeline remaining healthy across the different affiliation options. I was hoping you could maybe give us a sense of how you see the competitive environment evolving, particularly around transition assistance and how you’re seeing the sort of advisors in motion evolving across the broader industry.
How are you thinking about sustainability of the sort of growth you put up here into fiscal ’27?
Paul Shukri (Chief Executive Officer)
Yeah, we feel about our pipelines across all our affiliation options. You know, I pop into a lot of these recruiting meetings and there’s a lot of them happening at our home office. And again, it’s from a wide variety of sources from different firms and they’re evaluating a wide variety of our affiliation options. So it’s a pretty balanced and strong pipeline. You know, I know there’s a lot of questions around the competitive environment and the economics of recruiting right now, because I think there’s been sort of a fallacy of assuming that the economics are binary and consistent across the industry. And I can’t speak for all the participants in the industry, but I could speak for Raymond James in that the recruiting environment and the way we recruit is very economically attractive for Raymond James.
And I always say the proof is in the pudding. You see that this year with an adjusted ROTCE of 23% for Raymond James, with consistently strong recruiting results, record results for us in the last couple of years. And so you may be wondering, well, why are you hearing different things across the industry? I think what makes recruiting attractive economically for Raymond James is really three things. Most importantly, it’s the value proposition. We call it the best of both worlds, where we tell advisors they own their book of business across all of our affiliation options. And we have an advisor-inclined, focused culture and approach which is getting harder to find across the industry.
And we have a full-service offering. You know, we have a company, we have equity research. All the things that advisors may want to help provide to their clients to provide the absolute best financial advice possible. The second thing that’s important in being profitable with recruiting is scale. You know, we invest $1.1 billion in technology. There are a lot of firms we compete with that just can’t keep up with that level of investment given their size. So it’s harder to remain competitive, harder to provide that value proposition that I just described as differentiated, and harder to keep up with demands of clients and advisors. So scale is really important.
And then finally it’s a long-term time horizon that we have as a management team, as a company and that we’ve always had as a team, as a company because like most growth investments, you know, it actually creates a drag on near-term profitability. So if we’re just focused on the next quarter, even the next year, recruiting may not be attractive on an incremental basis, but we’re making decisions for the next five years and beyond. And so with the value proposition that we have that’s differentiated, the scale that we have, and our long-term time horizon, that’s why we’re so excited about the recruiting opportunity and that’s why it’s economically attractive for Raymond James.
Michael Cyprys (Analyst at Morgan Stanley)
Great, thank you.
OPERATOR
Your next question comes from Alex Blostein with Goldman Sachs. Please go ahead.
Alex Blostein (Analyst at Goldman Sachs)
Guys, sum up on that last discussion around recruiting and tying that back maybe to PCG operating margins. I was hoping to double click on a couple things, I guess. One, typically the recruiting transition assistance comes a little ahead of revenues. So presumably that’s still playing out. So couple that with robust recruiting pipeline, all that you alluded to. How should we think about PCG comp rate into ’27 off of this kind of 75-ish percent range that you exited fiscal ’26?
Paul Shukri (Chief Executive Officer)
Yeah, to your point, I mean we’re going to continue investing in growth and we’ve been ramping up. As you know, we had net new assets this year of $98 billion which was a record of 88% year over year, which is remarkable when you think about the level of growth we invested in during the year. And so, yeah, all else being equal, that transition assistance as you ramp up, that does create a higher pressure on the comp ratio and on the margin. But again we have scale and we are being very disciplined in the investments we’re making in non-comp and we just, as you saw this year, were still able to grow pre-tax income in the Private Client Group business despite that investment in growth and also despite the pressure we had in interest rates during the year. So we’re going to continue to fund not what the pre-tax income does just next year, but over the next five to ten years as we grow the business.
Alex Blostein (Analyst at Goldman Sachs)
Gotcha. But just in terms of the pace or trajectory, is that upward bias moderates from here or does it stay at about the same pace?
Butch Oorlog (Chief Financial Officer)
Yeah, I mean in terms of one way to think about the comp rate is it’s impacted by our channels—the employee channel and independent contractor channel. So, you know, the payout on the independent contractor channel, on the financial advisor payout, is higher. But the flip side of that is that they absorb their fixed-cost expenses and so we get leverage in spite of a higher FA comp payout and FA comp ratio. We get leverage in the segment from lower non-comp expenses and you’re basically seeing that with relatively flat non-comp expenses in the PCG segment, and our ability to increase the margin in the segment 10 basis points to 50% of this.
So, you know, while we may see some increase in the comp ratio in the segment, there are other aspects that are creating leverage for the segment.
Alex Blostein (Analyst at Goldman Sachs)
Thank you.
Paul Shukri (Chief Executive Officer)
Thanks, Alex.
OPERATOR
Your next question comes from Steven Chubak with Wolfe Research. Please go ahead.
Chris O’Brien (Analyst)
Hi, this is Chris O’Brien. Thanks so much for taking our question. I wanted to ask on the advisor movement and, across the industry, we’ve seen at some of your competitors large advisory teams that are trying to become their own RIAs. So we were wondering what you’re hearing from some of the larger advisors on your own platform and if you see any risks that advisors might move to become their own RIAs. And even if it stays within the RIA platform, we’re wondering what that might mean for your economics.
Paul Shukri (Chief Executive Officer)
Yeah, we call it Advisor Choice. So we have all the affiliation options, and there are advisors that are attracted to our W-2 channel, our independent contractor channel, our custody channel where RIAs custody, as well as our Financial Institutions Division. The key to Advisor Choice is truly being agnostic to which channel the advisor affiliates with. We want to really convince the advisor and the teams and their clients that we are the best destination as a firm: the culture, the capabilities, the best-of-both-worlds value proposition. How they affiliate with us is based on their individual preferences and how they want to run their business. We are seeing incredible interest across all our affiliation options. As Butch mentioned, in the last couple years the independent contractor channel, in terms of dollar volume, is where we’ve seen the most interest.
But the RIA custody division, on a smaller base, is growing at a high percentage rate as well. So that’s a major benefit of Raymond James Finl’s long-standing multi-affiliation option: we have the largest total addressable market based on having all of the affiliation options at scale. When advisors are thinking about making a move, they don’t have to think about whether or not Raymond James Finl offers a channel — they know that we offer it. They can really just understand whether or not we’re a good fit for them culturally and in terms of the capabilities that we offer.
OPERATOR
Your next question comes from Michael Cho with J.P. Morgan. Please go ahead.
Michael Cho (Analyst at J.P. Morgan)
Hi, good evening. Thanks for taking my question. Paul, you mentioned M&A earlier in the call and I just thought I’d ask, given you’ve done a couple of acquisitions over the last 12 months — you mentioned Clark Capital, Green Pledge is the other one — maybe you can remind us again, as we start fiscal ’27, in terms of your priorities as it relates to M&A and, you know, areas where you may want to either close a capability gap or maybe expand in terms of growth opportunity.
Thank you.
Paul Shukri (Chief Executive Officer)
Well, our biggest business is the wealth management business, so certainly that’s where we look for good acquisitions. And when I say good acquisitions, for us, acquisitions have to be first and foremost a cultural fit, where we really see ourselves working well with the people and the people have aligned values to ours — where they put clients first, make decisions for the long term, and have integrity. That’s the most critical aspect of evaluating any acquisition opportunity.
It has to be a good strategic fit, where one plus one gives us a chance of being more than two — the firm that’s joining Raymond James Finl gets better, and they make us better. We don’t do acquisitions to slash cost. We do acquisitions to grow revenues and to be better firms together over time. And then of course, financially it has to make sense for Raymond James Finl and the sellers and everyone involved. Those are our criteria, which is a pretty strict set of criteria, but we think that’s appropriate because acquisitions are inherently risky.
We evaluate acquisitions in all of our businesses, wealth management being our biggest business. But within Capital Markets, particularly as it relates to M&A and advisory, some of the things that we’ve added already to Fixed Income have been good examples of advisory businesses that we like within Capital Markets. Asset management’s a much tougher business, but Clark was very unique in their focus on serving advisors. And then within the bank, we’re not really pursuing traditional bank-type, brick-and-mortar acquisitions — that’s a very competitive space.
So we are unique in that regard, where we’re really a utility bank serving our clients and the rest of the businesses for the most part.
Michael Cho (Analyst at J.P. Morgan)
Great, thank you.
OPERATOR
Your next question comes from Dan Fannin with Jefferies. Please go ahead.
Dan Fannin (Analyst at Jefferies)
Thanks. Paul, wanted to follow up on your comments around the investment banking pipeline. Seems like the narrative is very similar to what you’ve said in the past, but curious if there’s anything you’d call out that’s different as you sit here in late October versus a quarter ago or a year ago in terms of the business activity or the type of business or client in terms of that interaction.
Paul Shukri (Chief Executive Officer)
No, I mean the pipeline has been strong now for quite a while, and so it was just a matter of whether or not the deals would close and the revenues would be realized. We had a very strong quarter this quarter. I think we are getting further and further away — a lot of the portfolio companies, the majority of our M&A business is driven by financial sponsors, and a lot of these portfolio companies were acquired back in the early 2000s, you know, during COVID.
And so those investments are, you know, probably beyond their original intended holding period. And even if multiples haven’t rebounded to where these financial sponsors have wanted the multiples to expand to, they’ve focused on increasing earnings and getting the cash-on-cash return hurdles that they’ve strived to achieve. So again, our pipeline is continuously strong. We’ve done a lot to invest in the platform, even as recently as this quarter, adding a pretty substantial team. We’re going to continue to enhance and invest in the platform and hopefully continue to take share and provide really great service to our clients on both the buy and sell side.
Dan Fannin (Analyst at Jefferies)
Thanks and good luck to your raise.
Paul Shukri (Chief Executive Officer)
Thanks so much.
OPERATOR
Your next question comes from Ben Butich with Barclays. Please go ahead.
Ben Butich (Analyst at Barclays)
Hi, good evening and thanks for taking my question. I wanted to follow up on some of the earlier commentary on the NIM outlook. Butch, you mentioned that with short-term rates going up, you should see NIM go up over time. Curious if you could talk a little bit more about that — how much of the asset side floats? How long does it take for things to flow through? How should we think about future incremental changes on the liability side? Any color there would be helpful.
Thank you.
Butch Oorlog (Chief Financial Officer)
Yeah, so in the guidance that we provided of the aggregate BDP NII guidance of up 1% in the upcoming quarter, we layered into that the full impact of the September 20 basis point rate hike. So that assumes that those assets have repriced as of the 9/30 balance level and that the deposits repriced immediately. And as you point out, the asset side takes more time to reprice. So that 1% guide takes that into account. The actual amount in terms of future rate hikes from here and the impact of that are really going to be dependent upon the deposit betas that are going to apply to those future cuts, and we’re going to evaluate those under market conditions at the time. So it’s really hard to project exactly what impact future rate hikes would have on the NIM. But generally speaking, we would expect it to be a tailwind.
Paul Shukri (Chief Executive Officer)
But just for the folks that have started covering us since 2023, we’ve always strived to maintain a pretty floating-rate balance sheet. The majority of our bank balance sheet assets are floating-rate assets because we want those to match the associated liabilities or the funding, the vast majority of which are floating rate as well.
Ben Butich (Analyst at Barclays)
Okay, great. Thank you both.
OPERATOR
Your next question comes from Brennan Hawken with BMO Capital Markets. Please go ahead.
Brennan Hawken (Analyst at BMO Capital Markets)
Hey, good afternoon. Thanks for taking my question. I’d like to follow up on the question on banking activity. The pipelines have been building for a while. We saw that start to come through here this quarter. Is the better-than-expected revenue trend that we saw here in this quarter sustainable? Are you beginning to see these sponsors reengage in a more durable way? Is this the beginning of the recovery we’ve all been waiting for for so long, in other words?
Paul Shukri (Chief Executive Officer)
Well, Brennan, we hope so. There’s always uncertainty quarter to quarter. We had the tariffs a year plus ago, and then we had the AI concerns that impacted fintech earlier this year. And there’s always something — and then there’s geopolitical risk — so who knows. But right now I would say yes, the reengagement’s been strong. This quarter seasonally and typically has been a very strong quarter for us in investment banking. If you look at it historically, this is our September fourth quarter. It’s historically amongst, if not our best, the best quarters of the year for us. But as we look at the full fiscal year going forward, we are optimistic about our pipelines and the activity levels we’re seeing with our clients. And so we, until something happens, remain optimistic about the ability to hopefully convert that pipeline to realized activity.
Brennan Hawken (Analyst at BMO Capital Markets)
Great, great. Thanks for that color. And then just a couple questions on the deposit side. One, noticed that this week the public advertising of your CD rates came down — was curious about whether or not there was any reason behind that or if it was just an oversight. And then maybe, Butch, if we could get an update on October cash trends that you’ve seen here quarter to date. Thanks.
Paul Shukri (Chief Executive Officer)
Yeah, I would say monitoring the CD rates week to week or month to month, it just depends on the demand we have for the buckets of different tenures. I wouldn’t read into that at all. But Butch can speak to the cash trends so far in October.
Butch Oorlog (Chief Financial Officer)
Yeah, so the fee billings this quarter were $2.1 billion. They have come out of the accounts earlier in the month and, as we sit here today, those balances are about $1.7 billion lower than the month-end. So we’re about $400 million better than that $2.1 billion outflow.
Brennan Hawken (Analyst at BMO Capital Markets)
Thanks for taking my questions.
Paul Shukri (Chief Executive Officer)
Thank you, sir.
OPERATOR
Your next question comes from Devin Ryan with Citizens Bank. Please go ahead.
Devin Ryan (Analyst at Citizens Bank)
Hey Paul. Hey Butch. How are you?
Paul Shukri (Chief Executive Officer)
Great. How you doing, Devin?
Devin Ryan (Analyst at Citizens Bank)
Good. Coming back to PCG, obviously good discussion on recruiting and I know these metrics don’t line up perfectly, but the recruited assets really seem to be supporting the net new assets or driving a lot of it. So can you help separate that from the same store growth across the existing advisor base and how that’s been evolving and also just discuss kind of what could accelerate same store growth from here. Maybe AI could help with that in identifying held away assets, but just trying to understand what you’re seeing there and then if there’s an opportunity to do more.
Paul Shukri (Chief Executive Officer)
Yeah, absolutely. We saw a pretty nice uptick in same store sales of what we call it in the past fiscal, in this fiscal year. And so to your point, the technology and the products and the solutions that we’re offering, which will be augmented by AI and has been augmented by AI, is really the opportunity for us to help advisors get more capacity, spend less time on administrative tasks and more time really understanding their client situation and gaining share of wallet from their clients to increase the net new asset picture.
So on the same store sales basis. So that is something, I mean if you look at our technology investments that are focused on the front office and the AI focus, for example, we just have a rollout of what we call the meeting manager workflow, which is saving advisors hours and hours a week through AI to not only prepare for the meeting, but to summarize the meeting that they just had, to come up with the action items and the follow-up, and automatically integrate that into their CRM, into supervisory systems.
And that’s all being enabled by AI and technology and automation. And those type of investments help advisors again save time on those type of tasks and their teams so they can focus more on developing those deeply personal relationships and gaining share of wallet from their clients and having more visibility on what’s in their wallet on a consolidated basis.
Devin Ryan (Analyst at Citizens Bank)
Yeah, appreciate that, Paul. And maybe if I could just squeeze one for Butch just on the model. Again some questions just on the fixed income brokerage. I heard the comments on the muni side. I’m assuming the differential from last quarter, kind of the run rate of closer to 100 million, is primarily just marks with higher interest rates. Is that fair? And just want to clarify that and then kind of how to think about that business going forward, just more broadly fixed income in a little bit higher interest rate backdrop.
Butch Oorlog (Chief Financial Officer)
Yeah, yeah, so I mean that’s a fair, fair assumption to say that that decrease is really being driven by marks, especially on the muni portfolio and the muni trading inventory positions. And, you know, yeah, we would expect, and history basically shows, that when that dislocation, that volatility clears, that typically that market recovers and so that can come back. So I think we would think, subject to what happens in the future in terms of the market, but we would think about that as a temporary dislocation and that there’s more certainty in those markets even in October than there was in September.
Yeah, higher rates of income business. Sorry about that, Devin. Yep.
Devin Ryan (Analyst at Citizens Bank)
Yeah, that’s great to hear. I just wanted to clarify, but thanks, guys. Thanks so much.
OPERATOR
Your next question comes from Dan Weldon with Wells Fargo. Please go ahead.
Dan Weldon (Analyst at Wells Fargo)
Hi, good evening. What if you could touch on how you’re sort of approaching the opportunity to distribute evergreen or semi-liquid kind of retail alt products through PCG and how the sort of the economic share with U.S. products works. Thanks.
Paul Shukri (Chief Executive Officer)
Yeah, I mean it’s a relatively small part of our overall asset mix at the firm. So we offer, we’re competitive and we have a broad offering that’s competitive with the industry. But it’s not something, you know, Raymond James Finl — we’ve never pushed products or mandated sales or influenced sales of products. So we want to have the offering for the advisors and clients who demand those type of products. But again it’s a more organic process at Raymond James Finl.
And then in terms of the fees and the structure of the fees, I can’t really get specific into that and, frankly, it varies across the different sponsors and product types. So I don’t know how much more color we can add on the call around that.
Dan Weldon (Analyst at Wells Fargo)
Got it. Thank you.
Paul Shukri (Chief Executive Officer)
Thank you.
OPERATOR
Your final question comes from Bill Katz with TD Cowen. Please go ahead.
Bill Katz (Analyst at TD Cowen)
Oh great. Thanks for the follow-up opportunity. So two-part question. Thank you for the October cash numbers. Wondering if you could break that down between the sweep portfolio and ESP. And then, Paul, a bigger question for you. Just sort of thinking through the comments today, I’m just trying to [understand] what the algorithm is here to drive better operating leverage. If I look at the Private Client business, I think if I did the math right, your segment margin is down about 50–60 basis points year on year.
You guided to relatively sluggish NII growth sequentially and year on year. So is it really just a swing factor for the i-bank? But I also heard you’re reinvesting back into the business there as well. So how do we think about maybe the margin opportunity from here? Thank you.
Paul Shukri (Chief Executive Officer)
Great. Listen, big picture, Bill: The adjusted pre-tax margin finished the year at 20.3%, above our 20% target. And that is with significant growth investments, record growth investments in the Private Client Group business. And so, again, we are focused on expanding profitability over a long period of time. That requires growth, that requires scale, that requires long-term investments. And so when you think about the margin improvement opportunity and the return opportunity, again the adjusted return on tangible common equity for the year was 23%, and that’s with strong capital levels and the investment I mentioned earlier. So we’re really pleased with the profitability and with the returns. We’re, of course, going to flatten the curve, as Butch mentioned. We are flattening the curve on non-comp expenses, and technology and AI is helping us with that.
We are looking at AI utilization across every function, and we are seeing efficiency improvements — early innings there — but we are seeing the efficiency improvements even as we think about the budgets for next year, and that’s incorporated in that non-comp growth. As Butch mentioned, the non-comp growth a year ago was 9%. Even with acquisitions we’re looking at 8% guidance for this year, and if you exclude the acquisitions it would be 7%. And again that’s with very high growth of the growth-related drivers in non-comp, including sub-advisory fees and fee-based accounts, for example. So we are very focused on managing the controllable expenses. But what we’re not going to do is try to optimize margin at the expense of long-term growth and long-term investments.
You know, and that’s the pressure we constantly have to fight as we gotta continue to focus on investing over the next five or ten years even if that does hurt margins over the next quarter or the next year. And so our values are to be long-term oriented and have integrity in that regard. And that’s exactly what we’re going to continue to do because it shows that it delivers superior earnings growth and shareholder growth over time.
Butch Oorlog (Chief Financial Officer)
And I’ll just add, in terms of your initial question, that most of that comes out of the sweep program as opposed to ESP balances.
Paul Shukri (Chief Executive Officer)
Thank you for taking the extra questions. Thanks, Bill. All right, well, it looks like there’s no more questions. I want to thank everybody for your time and interest in Raymond James Finl. We certainly don’t take it for granted. And again, just want to reiterate my thanks to the advisors, bankers, associates, and clients for entrusting Raymond James Finl and helping us deliver our 155th quarter of consecutive profitability, which is very, very unique, if not totally unique, in the financial services industry.
And we deliver that by focusing on the power of personal, the deeply personal relationships that will ultimately continue to win the day. So thank you so much. Have a great evening and go Rays.
OPERATOR
This concludes today’s call. Thank you for attending. You may now disconnect.
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