Raymond James Financial, Inc. Q1 FY2026 earnings call

Management Statement and Operational Highlights

• Client-Focused Culture and Growth: Strong client-first culture, robust technology and products platform, and strong balance sheet contribute to recruiting momentum and 8% net asset annualized growth.
• Recruiting and Acquisitions: Recruited financial advisers with significant trailing 12-month production and client assets. Announced acquisitions like Clark Capital Management, which aligns with cultural and strategic fits.
• Technology and AI: Launched proprietary digital AI operations agent RA, with AI-based tools to empower financial advisers.
• Financial Results: Record net revenues of $3.7 billion, net income available to common shareholders of $562 million. Adjusted pretax margin reached 20% despite headwinds.

Segment Performance

• Private Client Group (PCG): Record net revenues of $2.77 billion, pretax income of $439 million. Fee-based assets at quarter end were $1.04 trillion, up 19% year-over-year. Recruiting and retention-related compensation expenses increased due to strong recruiting.
• Capital Markets: Net revenues of $380 million, pretax income of $9 million. Declined due to lower M&A and advisory revenues, and lower debt underwriting and affordable housing investment revenues.
• Asset Management: Record net revenues of $326 million, pretax income of $143 million. Driven by higher financial assets under management and strong net inflows in PCG fee-based accounts.
• Bank: Net revenues of $487 million, record pretax income of $173 million. Loans ended at a record $53.4 billion, with 28% annual growth in securities-based lending balances.

Guidance

• Asset Management Fees: Anticipate fiscal second quarter 2026 asset management and related administrative fees to be higher by ~1% over first quarter, driven by PCG assets and fee-based accounts.
• Capital Deployment: Continue deploying capital through organic growth, investments in technology, acquisitions, dividends, and share repurchases. Projected noncompensation expenses to grow ~8% for fiscal year, driven by technology investments and growth-related expenses.
• Share Repurchases: Repurchased $400 million of common stock this quarter, with target of ~$400 million for fiscal second quarter.

Risks

• Interest Rate Fluctuations: Impact on net interest income and margin, with potential effects from future rate cuts and balance sheet changes.
• Competitive Landscape: Increased competition from private equity-backed roll-ups, affecting adviser retention and recruiting.
• Market and Timing Uncertainty: Uncertainty in timing and success of M&A transactions, impacting Capital Markets segment revenues.

Question and Answer

• Q: I just want to start on net new assets. It's been seen a pretty nice acceleration over the last several quarters at 8% this quarter. I mean, are there areas that saw any particular strength this quarter. And if you look back maybe over the last 4 quarters, what segment or tweaks in Raymond James' approach? Do you think it's been supporting that acceleration and how would you frame that pipeline today relative to the past couple of quarters?

A: Thanks, Michael. Yes, $31 billion of net new assets in the quarter would be our second best quarter ever, just to put that in perspective. So as I've been messaging last few quarters here, the recruiting activity is robust. It's broad-based across our affiliation options, maybe more heavily tilted in the last 6 months on the independent contractor side of the business. But really what's resonating now is what's really always resonated. We've kind of consistently been a leading destination for financial advisers in the industry. And more importantly, the retention of our existing advisers remains very strong. Yes, there are more competitive pressures now with private equity backed roll-ups and that sort of thing. But really retention of our existing advisers, the adviser satisfaction is the highest it's been since I think 2014 and really having a platform where advisers feel like there's a culture that really respects the independents and their book ownership, the book ownership they have of their clients. And coupling that with the platform, the technology, we've been investing close to $1.1 billion this year. the AI to support that, to help them save time, to help them make better decisions, to help them be more efficient in their operations with their clients and then the products. And so having the culture and the products as a platform and the technology is really differentiating us more than ever. And the power personal, the value proposition that we released with our annual report of several weeks ago, is increasingly differentiating as well. Other firms are talking about IRRs and exit periods in 3 to 5 years or funnels and all sorts of impersonal things. And what we're doing in that world -- of what I'd call noisy competition is really doubling and tripling down on what we've always done, which is really focusing on the personal relationships with financial advisers and giving them tools and resources to strengthen the personal relationships that they have with their clients. And that's really resonating with advisers, both our existing advisers and prospective advisers, which is driving our consistently leading recruiting activity.

• Q: Maybe just following up on Michael's first question there on NNAs -- really solid quarter, but it does seem like from what we're hearing from competitors from a lot of the kind of media, the media coverage that the competitive intensity is picking up quite a bit, whether it's manifesting in more incentives, more aggressive retaining of existing advisers. Just curious, is that something you're seeing? How are you thinking about responding? Is it the sort of environment where this quarter -- was there anything unusual? Or do you think that kind of growth is sustainable over the next at least coming quarters?

A: Thanks, Ben, and welcome to being 1 of our covering analysts [indiscernible] just starting this morning. So yes, I mean the environment though is competitive, I think in the last 5 years, the biggest change has been -- the entry of these private equity roll-ups. And we've talked a lot, as you know, in the past around that dynamic. I think this is going to be a really important year for those type of firms. A lot of them have thought liquidity events and haven't been able to achieve them at the multiples that I think they were targeting. And so -- and a lot more will come out, I think, in the next year or 2. And that will dictate whether or not they can still afford to pay what they have been paying, which has actually been increasing over the last couple of years. But I call that short-term noise, short-term impact. We obviously had to deal with that from a competitive perspective. But the advisers we're recruiting are not looking for a 3- to 5-year destination. They're looking for a much longer -- 3- to 5-year destination with another liquidity event that's going to cause other sorts of disruption for them and their clients. We are kind of a long-term stable play for advisers and their clients. We're looking for advisers who are really looking for a platform in a home for them, their teams and their clients where they're not going to have to have another disruption in 3 to 5 years. They want -- they're looking at our balance sheet to see how much tangible equity we have, how much leverage we have, how much cash flow we have in capital because they want a platform in a home that can remain independent. And we're absolutely committed to remaining independent because, again, they don't want to have to make a change again in 3 to 5 years. So while the competition has increased in the industry -- for us, our differentiation, we feel like we have, in some ways, less competition than ever because we're focused on the long term. We're focused on the power of personal, the personal relationships, and we're able to invest $1 billion in technology. A lot of our competitors who also are focused on personal relationships and that have similar cultures, their technology investment, for example, is a fraction of ours. And that's hard to remain competitive when you can't invest in AI and the tools that you need to help advisers develop more efficiency in their businesses with their clients.

• Q: Just coming back to the M&A, I hear you on organic growth, and it seems like the pipeline there is quite good. Just wondering if you could unpack maybe the Clark transaction a little bit, how to think about the accretion to that -- and then how should we be thinking about where you might be interested in terms of incremental inorganic opportunities given such a strong balance sheet and maybe trying to understand the path back to a 10% Tier 1 leverage ratio.

A: Thanks, Bill. Yes, Clark Capital is really a perfect representation of our M&A priorities. And that's first and foremost firm that has a good cultural fit. The Card family, who started the firm and the team, the entire team there -- our client-focused long-term focus and exactly approach the business in a very similar way that we approach it with our values and our culture. And then as a strategic fit in terms of their focus on treating advisers like clients. We're going to maintain the independence that Clark has both in terms of brand and the way they interface with their clients, not our clients, but clients. And so the cultural fit, the strategic fit and then the financials have to make sense for both us and for the sellers. And so that was the case here as well. And so we are very excited, their high organic growth, differentiated product, but really, really deep personal relationships with their clients, which is what was so appealing about hard capital. And those are the type of deals we're going to look at across all of our businesses. It's firms that have good cultural fit, strategic fit and makes financial sense for us and for the sellers. And so -- we're very active. We have an active corporate development apparatus. We have a lot of capital, and we're confident with our ability to integrate. And so we're going to continue to look for deals that make sense. So we're not going to force deals just to do deals. They have to make sense for our shareholders over the long term.