Paul Reilly: I think our focus internally is first to our existing advisors. Both technology and capabilities to make sure they’re spending as much time as they can with their clients and acquiring new clients. It makes the advisors happy. It means their clients are happy and it’s the cheapest growth for us. And it develops the platform for other advisors to want to come to. The tools we put out, the technology we put out, the back office modernization, all of that is to help advisor productivity and that does drive a lot of our growth and what we do and keeps advisors here. This is a market and, frankly, the markets been this way for a while or almost any advisor could leave and now get a lot of money for their book. And start somewhere else, but they stay here because of that.
So that’s a big focus of ours. That’s where we pay a lot of attention. Number one is on retention. And I think part of our growth rates have been driven by our retention rates too and are recruiting. I’m not sure if there’s more to the question, but it’s kind of focused. Number one is to make the existing advisors happy and productive.
Michael Cyprys: Just on the loan book, just curious where you think you’re under-penetrated as you look at the portfolio today. And if you look out of the next couple years, how would you sort of like the composition and size of the book to evolve and any additional capabilities you feel you may need to build out.
Paul Reilly: There’s two pieces to that. We’re under-penetrated compared to wirehouses in terms of loans. The clients, you would say yes. But our other thing is we take a position with advisors – your job is to do the right thing for your clients. And if our loans are – if you like our mortgage loans, use them. If you don’t, something’s better else for your clients, use it. So our job is to provide competitive products. And your advisor’s job is to figure out what’s appropriate for their client to use. So we do not put quotas. We do not put incentives. Some people have product incentives for their top trips or their managers have quotas to try to hit. We have none of that. We just want advisors to do what’s best for the business.
And then we try to develop compelling products and services that that they – and educate that they can use on, use to help their clients. So our numbers industry-wise are lower. But we understand why because we’re not pushing it. We do it through education, not through trying to use incentives to get them to do it. So now you can talk about from a capital allocation standpoint, that might be different from our side, what loans we’d like to grow. The good news is for us is we’d like the Private Client Group loans, the SBLs, mortgages, the other things that they have – not only SBLs have our best risk adjusted return, they’re secured. And they’re good for clients and they’re flexible for clients. So we’re matched up that way. So our challenges are more, where do we want to go on, whether it’s the commercial banking side section, or how much do we want to invest in securities and other that are more of a financial decision and long term investment.
Penetration is a good question. We are lower, but we don’t try to force it. We want our advisors to do it if it’s the right thing for their clients.
Operator: Next up is Bill Katz, TD Cowen.
Bill Katz: Question for you just on the NIM, the net interest margin. Just sort of wondering if you could talk a little bit about maybe where the exit level might be for the new quarter. And just – if given sort of the reinvestment rates of what might be rolling on, rolling off and in a world of a tepid type of loan backdrop for now, how do you sort of see that playing out if the sorting starts to ease a little bit as well?
Paul Shoukry: I would say a lot of the shift in cash balances from on balance sheet to third party banks really occurred in the last couple of quarters. So the NIM going forward is going to be more driven by. one, the absolute level of rates and what happens with short term rates going forward, and also to the asset mix. To the extent where we’re a little heavy right now on the bank balance sheet and cash balances, going back to the comments I made earlier about wanting to be in a position of strength when loan demand recovers. And so, that brings down the NIM, all else being equal, but it’s at least a push, if not a modest positive to NII, net interest income and earnings, but in the meantime it does drag down the NIM a bit as we hold more cash balances than we think we would need on a run rate basis.
So, as far as the jumping off point, I think it is a relatively stable number from where we were this quarter. We’re not proactively shifting cash balances off balance sheets at third party banks, like we were doing over the last year. I think that’s all fairly well reflected this quarter.
Bill Katz: Just try and triangulate combination of the senior executive leadership changes, your comments, Paul Shoukry, about sort of the platform being in a very good spot with scale, where are you investing right now, as you think through maybe the comp or non-comp side? And how might the strategic vision be evolving as you sort of migrate to the next generation of leaders?
Paul Shoukry: We have been consistently investing in all of our businesses. First and foremost, the largest business by far is our Private Client Group business, and we don’t anticipate that changing. So that’s where the vast majority of our investment dollars go. But we also invest heavily in growth in the Capital Markets, Asset Management and the Bank businesses, and they’re all great businesses. If you look at the last three years, and even the first half of this fiscal year, being able to generate record revenues and earnings in very different market environments is a testament and a reflection of having a diversified business model. So we’re going to continue to invest in very high service levels, continue to invest in technology to enhance the service levels and create more efficiencies for advisors, so they could spend more time with clients, as Paul was touching on earlier.
So kind of maybe a long-winded way of saying there’s not going to be a dramatic change because everything is really working very well and has been since our founding in 1962, being focused on essentially the same businesses that we’re focused on today. And so, that’s sort of the kind of plan going forward.
Operator: And our final question today will come from Devin Ryan, Citizens JMP.
Devin Ryan: Obviously, want to echo the congratulations as well to Paul Shoukry and the others on the leadership team not on the call. And to Paul Reilly as well. The stock I think was trading at about $10 when you joined in 2009. I remember those days pretty well and so unquestionably a successful run and a well-earned transition. So congratulations. I want to real quick a couple here on just fixed income brokerage. You had a very significant step up in the first quarter off of the back half of 2023. Then that took a step back again in the second quarter. And just curious, was that just a shift in activity and depositories just with the changes and rate expectations or something else going on there? And just how to think about that business relative to maybe the second quarter or jumping off point.
Paul Shoukry: When a couple of quarters ago, the rates came down quite, the yields came down quite a bit and gave depositories a repositioning opportunity. And on the call last quarter, I think we talked about that repositioning opportunity being somewhat episodic in nature. And throughout the course of this quarter, rates actually went up again. And so, the underlying factors that Paul discussed on the call in his prepared remarks was that depositories are still struggling to grow deposit balances or keep deposit balances flat. And so, they’re going to be prudent and slow to reinvest in securities in this environment. So that’s the largest part of our fixed income business. We continue to expect some headwinds there until deposit balances start growing again and banks feel more confident investing in their securities portfolio.
Meanwhile, SumRidge has been nice, in that it has diversified the fixed income revenue streams with its corporate trading technology enabled capability. But that business thrives on volatility. In this past quarter, spread and rate volatility wasn’t as significant. So they didn’t have sort of the uplift that they had in the preceding quarters.
Operator: At this time, I would like to hand the conference back over to Paul Reilly for any additional or closing remarks.
Paul Reilly: Great. We appreciate you all coming on. And good quarter. Already on to the next quarter. And I think we’ve got some good tailwinds. So we look forward to it. And I’m not sure I look forward to hearing all these generational comments, how old I am, how ready Paul is. But he is ready. So I think you’re going to see a lot of good things from Raymond James. So thanks for joining us today.
Operator: And once again, ladies and gentlemen, that does conclude today’s conference. Thank you all for your participation. You may now disconnect.
