Raymond James Financial - Earnings Call - Q3 2025

Executive Summary

• Q3 2025 net revenues were $3.40B (flat q/q; +5% y/y) and diluted EPS was $2.12, with adjusted EPS of $2.18; EPS was impacted by a $58M legal reserve tied to a legacy underwriting matter and $19M acquisition-related expenses.
• Segment performance was resilient: Private Client Group $2.49B (+3% y/y), Asset Management $291M (+10% y/y), Bank $458M (+10% y/y); Capital Markets posted $381M net revenues (+15% y/y) but a pre-tax loss due to the legal reserve.
• Key KPIs strengthened: record client AUA $1.64T (+11% y/y), fee-based PCG assets $943.9B (+15% y/y), bank NIM 2.74% (+7bps q/q), and net loans $49.8B (+10% y/y).
• Guidance: management expects Q4 asset management and related administrative fees up ~9% q/q, aggregate NII+RJBDP fees down ~2% q/q, FY25 effective tax rate ~24%, and share repurchases similar to Q3; adjusted pre-tax margin target of 20% remains intact.
• Stock reaction catalyst: an EPS miss despite in-line revenues, driven by the $58M legal reserve in Capital Markets, partially offset by strong AUM-driven fees and improving bank NIM; recruiting momentum provides medium-term support.

What Went Well and What Went Wrong

What Went Well

• Record-scale fee-based assets and client AUA supported asset management and related administrative fees of $1.73B; PCG fee-based assets ended at $943.9B (+15% y/y), contributing to resilient revenue mix.
• Bank NIM expanded to 2.74% (+7bps q/q), with net loans reaching $49.8B (+3% q/q), led by securities-based lending (+5% q/q; +20% y/y) and stable credit quality.
• Management highlighted “150th consecutive quarter of profitability” and accelerating advisor recruiting, calling recent activity “the largest acceleration since the financial crisis,” underscoring medium-term growth confidence.

What Went Wrong

• EPS missed consensus due to a $58M legal reserve increase and higher seasonal non-comp expenses; pre-tax margin fell to 16.6% (adjusted 17.1%) vs 19.7% in Q2.
• Clients’ domestic cash sweep and ESP balances declined sequentially to $55.2B (-4% q/q), reflecting tax season and fee billings; management noted July balances also declined given record fee billings.
• Capital Markets posted a pre-tax loss of $54M as the reserve flowed through “Other” expense, and sequential investment banking revenues fell 2% with lower M&A activity.

Transcript

Kristie Waugh (Senior VP of Investor Relations)

Good evening and Welcome to Raymond James Financial's Fiscal 2025 Third-Quarter Earnings Call. This call is being recorded and will be available for replay on the company's Investor Relations website. I'm Kristie Waugh, Senior Vice President of Investor Relations. Thank you for joining us. With me on the call today are Chief Executive Officer, Paul Shoukry and Chief Financial Officer, Butch Oorlog. The presentation being reviewed today is available on Raymond James Investor Relations website. Following the prepared remarks, the operator will open the line for questions. Calling your attention to slide two. 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 Forms 10-K and subsequent Forms 10-Q and Forms 8-K, which are available on our website.

Now, I'm happy to turn the call over to CEO, Paul Shoukry. Paul?

Paul Shoukry (CEO)

Thank you, Kristie. Good evening. Thank you for joining us. We are holding this call from the firm's annual summer development conference in Orlando, Florida, where financial advisors and our employee channel, along with their families, come for education, networking, and activities, one of the great traditions of Raymond James, and unique to our culture. I really enjoy being able to spend time and hear directly from such dedicated professionals. Our results this quarter mark the firm's 150th consecutive quarter of profitability. Since our inception, the firm has endured, thriving in good times, but also persevering through challenges including recessions, financial crises, and events such as the pandemic and other global threats. This long-term record of resilient profitability reflects the strength of our diverse and complementary businesses and our ongoing commitment to always putting clients first.

As current market and macroeconomic conditions remain uncertain, we continue to adhere to strategies that have supported consistent success over the past 150 quarters, guided by our vision to be the absolute best firm for financial professionals and their clients. I'm also excited to share that Raymond James, has topped the J.D. Power rankings, in its annual U.S. Investor Satisfaction study, as the number one wealth management firm for advised investor satisfaction. The firm also ranked as the most trusted and highest in the study's individual metrics on people and products and services, as well as strong rankings in the J.D. Power Financial Advisor Satisfaction rankings, in each of the employee and independent advisor surveys. This recognition is purely a reflection of what all advisors, branch staff, and corporate associates do every day to serve clients so well. So thank you. These are well-deserved honors.

Turning to our financial results for the quarter, the firm's values-based, client-focused approach continues to generate steady performance. Quarterly net revenues, of $3.4 billion grew 5%, over the prior year quarter. Pre-tax income, of $563 million declined 13%, compared to the year-ago quarter. Results this quarter included a $58 million reserve increase associated with the settlement of a legal matter related to bond underwritings, for a specific issuer, sold to institutional investors between 2013 to 2015. Although the firm maintains it had strong defenses and denied any liability, given the complexity of the case and the unpredictability of litigation outcomes, we determined to resolve the long-running dispute without admission of wrongdoing. For the first nine months of fiscal 2025, we generated record net revenues, of $10.3 billion and record pre-tax income, of $1.98 billion, up 10% and 5%, over the first nine months of fiscal 2024.

These solid results were attributable to our diverse and complementary businesses, anchored by the private client group and augmented with the capital markets, asset management, and bank segments. Across our businesses, we have achieved consistent success retaining and recruiting financial professionals who provide high-quality advice to their clients. In the private client group, we ended the quarter with a record $1.57 trillion of client assets under administration, representing year-over-year growth of 11%. Over the past 12 months, we recruited into our domestic independent contractor and employee channels financial advisors, with $336 million of toil and trail production and $52 billion of client assets, at their previous firms. Including assets recruited into our RIA and custody services division, we recruited total client assets, over the past 12 months of over $60 billion across all of our platforms. Quarterly domestic net new assets, equaled $11.7 billion, representing a 3.4%, annualized growth rate.

We saw net new assets improve throughout the quarter, with June activity producing annualized growth in the high single-digit level. Based on our robust recruiting pipeline and strong level of commitments, we're even more optimistic about our momentum and growth over the coming quarters. Our best of both worlds value proposition, where we offer a unique combination of an advisor and client-focused culture, coupled with leading technology and solutions, continues to resonate with advisors across all of our affiliation options. Additionally, our strong balance sheet and commitment to independence is increasingly becoming a differentiator as well. To continue retaining and attracting the best advisors, we are continuing to make investments in our platforms and offerings. For example, in the private wealth space, we remain focused on providing education, training, accreditation, and enhanced capabilities and product solutions to allow advisors to meet the needs of their most sophisticated clients.

About 370 advisors, have completed or are enrolled in our Private Wealth Advisor Program, which continues to attract strong interest from advisors, due to its client benefits and contribution to business growth. We also continue to invest in technology, including AI, to drive continued operational efficiencies and improve advisors' productive capacity. We are making investments to automate and streamline processes, which in turn frees up associates and advisors to do what they do best, which is to engage human-to-human and deepen relationships, add more value, and importantly, have more capacity to grow their businesses by attracting new clients. In the Capital Markets segment, the investment banking pipeline is strong, and we are becoming more optimistic about macroeconomic conditions, relative to the near term, although the environment remains uncertain.

However, we are confident that we are well-positioned with motivated buyers and sellers along with deep expertise across the industries we cover whenever the market does become more conducive. We remain committed to enhancing the platform by broadening and deepening its capabilities, whether through strategic hiring or acquisitions. In the asset management segment, net inflows into managed fee-based programs in the Private Client Group, were strong during the quarter, annualizing at nearly 5%, and reflecting the complementary impact of our successful recruiting efforts. In the bank segment, loans ended the quarter at a record $49.8 billion, primarily reflecting strong growth in securities-based lending balances, yet another synergistic impact from our growing Private Client Group business, as we are able to deploy our strong balance sheet in support of our clients. Importantly, the credit quality of the loan portfolio remains strong.

Turning to capital deployment, our long-standing priorities have remained unchanged, and that starts with investing in growth, first organically and complemented with strategic acquisitions. We continue to pursue acquisition opportunities that meet our criteria of being a strong cultural fit, a good strategic fit, and evaluations that would generate attractive returns for our shareholders. During the quarter, we repurchased $451 million of common stock, at an average share price of $137. Year to date, we have returned capital of over $1 billion through common dividends and share repurchases. As previously discussed in recent quarters, the capital deployment plan, is to repurchase shares on a consistent basis throughout the quarter, with total amounts expected to be similar to the fiscal third quarter. This approach is expected to maintain capital liquidity levels, which provide ample capacity to fund organic growth initiatives and execute future acquisitions.

Now, I'll turn the call over to our CFO, Butch Oorlog, to review our financial results in detail. Butch.

Butch Oorlog (CFO)

Thank you, Paul. I'll begin on slide six. The firm reported net revenues of $3.4 billion, for the fiscal third quarter. Net income available to common shareholders was $435 million, with earnings per diluted share of $2.12. Excluding expenses related to acquisitions, adjusted net income available to common shareholders equaled $449 million, resulting in adjusted earnings per diluted share of $2.18, and our adjusted pre-tax margin, was 17.1%. We generated annualized return on common equity of 14.3%, and annualized adjusted return on tangible common equity of 17.2%. Solid results for the quarter, particularly given our conservative capital base. Turning to slide seven, Private Client Group generated pre-tax income, of $411 million, on quarterly net revenues of $2.49 billion. Results were driven by higher PCG assets, under administration compared to the previous year, the result of market appreciation and the consistent addition of net new assets.

Pre-tax income declined year over year, primarily due to the impact of lower interest rates. Fiscal year to date, PCG generated record revenues. Our capital markets segment generated quarterly net revenues of $381 million and a pre-tax loss of $54 million. Net revenues grew 15%, year over year, driven primarily by higher investment banking, fixed income, and equity brokerage revenues. However, sequential results declined 4%, largely due to lower M&A and fixed income brokerage revenues, which were partially offset by higher underwriting and affordable housing investments revenues. Pre-tax income, was negatively impacted by the $58 million, legal reserve increase previously described. The asset management segment generated record pre-tax income of $125 million, on net revenues of $291 million. Results were largely attributable to higher financial assets, under management compared to the prior year quarter due to market appreciation over the 12-month period and strong net inflows into PCG fee-based accounts.

We had strong net inflows of approximately $2.1 billion, into managed programs on our platform. The asset management segment generated record revenues and pre-tax income fiscal year to date. The bank segment generated net revenues of $458 million and pre-tax income of $123 million. On a sequential basis, bank segment net interest income grew 5%, driven by continued loan growth and a seven basis point expansion of net interest margin to 2.74%, resulting from a favorable shift in asset mix, along with a higher portion of lower-cost deposits. Turning to consolidated revenues on slide eight, third quarter net revenues grew 5%, over the prior year and were flat sequentially. Asset management and related administrative fees, of $1.73 billion grew 8%, over the prior year and were slightly higher than the preceding quarter.

Record PCG fee-based assets equaled $944 billion at quarter end, up 15%, year over year and 8%, over the preceding quarter. As we look ahead, we expect fourth quarter asset management and related administrative fees to be higher by approximately 9%, over the third quarter, primarily due to higher PCG assets and fee-based accounts, at quarter end and one more business day during the quarter. Brokerage revenues of $559 million. Grew 5%, year over year due to higher revenues in capital markets and PCG. Investment banking revenues of $212 million. Increased 16%, year over year and declined 2%, sequentially. The sequential decline reflected lower M&A and advisory revenues, while underwriting and affordable housing investments results were higher in the quarter. Moving to slide nine. Client domestic cash sweep and enhanced savings program balances ended the quarter at $55.2 billion.

Down 4%, compared to the preceding quarter and representing 3.8%, of domestic PCG client assets. Program balances increased by nearly $1 billion in the month of June, after seasonal declines for client tax payments and fee billings resulted in decreases early in the quarter. In July, domestic cash sweep and enhanced savings program balances have declined to date, in line with July's record, quarterly fee billings of approximately $1.7 billion. Turning to slide 10. Combined net interest income and RJBDP fees, from third-party banks increased 1%, to $656 million. As the decline in RJBDP third-party fees, was more than offset by higher net interest income. Net interest margin in the bank segment grew seven basis points to 2.74%, for the quarter, the result of the factors I described earlier. The average yield on RJBDP balances, with third-party banks decreased four basis points to 2.96%.

Primarily due to deployment of incremental cash sweep program balances from third-party banks onto the bank segment balance sheet. Based on current interest rates and quarter-end balances net of fourth quarter fee billings, we would expect the aggregate of NII and RJBDP third-party fees, to decline approximately 2%, in the fourth quarter, largely the result of the lower beginning of the quarter sweep balances held by third-party banks. Keep in mind, there are many variables which will influence actual results, including any interest rate actions during the upcoming quarter and factors affecting our balance sheet, including changes in our loan and deposit balances. Turning to consolidated expenses on slide 11, compensation expense was $2.2 billion. And the total compensation ratio for the quarter was 64.8%. Excluding acquisition-related compensation expenses, the adjusted compensation ratio was 64.5%, better than our 65% target, recently shared at our investor day.

A good result, especially in a challenging capital markets environment. Non-compensation expenses of $633 million. Increased 20%, sequentially. Adjusting for the previously mentioned legal matter reserve in the quarter, non-compensation expenses of $633 million. Increased 20% sequentially. Adjusting for the previously mentioned legal matter reserve in the quarter, non-compensation expenses were $575 million. Up 9%, sequentially. While the third quarter typically experiences higher seasonal costs related to conferences and events, a large portion of this quarterly increase also supports firm-wide growth initiatives, including advisor recruiting, professional fees associated with increased underwriting activity, and higher investment sub-advisory fee expense. Through the first nine months of the fiscal year, we are on track with our guidance for full-year non-compensation expenses of approximately $2.1 billion. Excluding the bank loan provision for credit losses, unexpected legal and regulatory items, and non-GAAP adjustments presented in our non-GAAP financial measures.

On slide 12, we provide key credit metrics for our bank segment. We grew loans during the quarter by 3%, primarily in support of our clients, with this loan growth continuing to be led by securities-based lending and residential mortgage loan growth. These two loan categories represent well over half of our total loan book, reflecting 36% and 20%, of the total. The credit quality of the loan portfolio remains strong. Criticized loans, as a percentage of total loans held for investment, were stable at 1.14%, at quarter end, and non-performing assets remained low at 34 basis points, of bank segment assets. The bank loan allowance for credit losses, as a percentage of total loans held for investment, ended the quarter at 93 basis points, consistent with the prior quarter level.

The bank loan allowance for credit losses on corporate loans, as a percent of corporate loans held for investment, was 1.96%. We believe the total allowance represents an appropriate reserve, but we continue to closely monitor economic factors that may affect our loan portfolios. Slide 13 shows the pre-tax margin trend over the past five quarters, which demonstrates the resilience of our diverse business mix and its ability to consistently deliver strong margins. Adjusting for the legal matter reserve impacting the quarter, as well as acquisition-related expenses, our pre-tax margin, would be approximately 19%. Slightly below our target of 20% adjusted pre-tax margin, largely due to the challenging capital markets environment. We remain committed to investing to support growth across the business while maintaining discipline over controllable expenses. On slide 14, at quarter end, our total assets were $84.8 billion, a 2%, sequential increase, resulting primarily from loan growth.

Liquidity and capital each remain very strong. RJF Corporate Cash, at the parent ended the quarter at approximately $2.3 billion, well above our $1.2 billion target. With a tier 1 leverage ratio of 13.1% and a total capital ratio of 24.3%, we remain well above regulatory requirements. Our capital levels provide significant flexibility to continue being opportunistic in our pursuit of strategic acquisitions and to invest in organic growth. The effective tax rate for the quarter was 22.6%, reflecting the favorable impact of non-taxable corporate-owned life insurance gains that arose during the quarter. For the fiscal year 2025, we estimate our effective tax rate for the year to be approximately 24%. Slide 15 provides a summary of our capital actions over the past five quarters.

We returned over $550 million of capital to shareholders, during the quarter and nearly $1.8 billion over the past five quarters,1 through either common dividends paid or share repurchases. We remain committed over the long term to operate our businesses at capital levels in line with our stated targets. I'll now turn the call back to Paul for some final remarks.

Paul Shoukry (CEO)

As we enter the fourth quarter, we are encouraged by the strong tailwinds arising from fee-based assets up 8%. Net loans higher by 3%, and strong pipelines for growth across our businesses. Our advisor recruiting pipeline is growing significantly across all of our affiliation options, a testament to our unique culture and robust platform that is resonating with advisors. We are laser-focused on providing a seamless transition as advisors affiliate with our platform, while importantly maintaining excellent service levels to existing advisors and their clients.

While the investment banking environment's uncertain, based on the current pipeline and activity levels, we believe the next two quarters should be better than the prior two. Lastly, we have plenty of capital to support organic growth and acquisitions, as well as continued share repurchases at a level similar to this quarter. As illustrated by our recent J.D. Power Number One rankings, putting clients first has been the cornerstone of Raymond James's values, since our inception, and that commitment remains at the center of everything we do. This prestigious honor demonstrates the strength of our client-centric culture and our steadfast dedication to supporting advisors and empowering them with sophisticated resources, support, and technology. Our results reflect the many contributions of our associates and advisors and financial professionals across the firm. Thank you for contributing to 150 quarters of consecutive profitability by providing outstanding advice and service to your clients.

That concludes our prepared remarks. Operator, will you please open the line for questions? Thank you.

Operator (participant)

If you would like to ask a question, please press Star 1 on your telephone keypad. If you would like to withdraw your question, simply press Star 1 again. We ask that you please limit yourself to one question and one follow-up. Please ensure that your phone is not on mute when called upon. Thank you. Your first question comes from Michael Cho with JPMorgan. Your line is open.

Michael Cho (Analyst)

Hi. Good afternoon, team. Thanks for taking my question. I just wanted to start on recruiting, Paul. You touched on the solid pipeline out there. You called out the June exit rate, at a high single-digit % level.

I was hoping you could unpack a little bit more about that pipeline you see and maybe across different channels where you might be seeing better engagement. I mean, I recall you called out during investor day about changing some of the recruiting functions, maybe centralizing some things. And so maybe is this the result of some of the actions you've been taking in previous months and quarters? And is high single digits kind of the right pace for now, given what you see in the pipeline?

Paul Shoukry (CEO)

Thanks, Michael. Yeah, what I would say on the recruiting pipeline is, in terms of the acceleration of activity, the number of events that we're hosting, the number of advisors that we're meeting with. The entire team, really across all of our affiliation options.

When we speak to the teams who have been with Raymond James, for a long time, we really have not seen this type of acceleration in activity since the financial crisis. Of course, the advisors that we are talking to now are much larger than the advisors that were talking to us after the financial crisis as a safe haven, given all the disruption that was going on in the industry.

We are really excited about this opportunity. It is all hands on deck, both recruiters and also want to give a lot of credit to our transition teams because we have invested in the transition teams as well, given them more capabilities and capacities to really help with the uptake to ensure that we have seamless transitions of the new advisors, that are affiliating with the platform, but also ensure that we provide—and this is really important—exceptional service to our existing advisors and their clients as well. We do not want that service level to fall off. Their satisfaction is very high right now, as evidenced by the number one ranking in the J.D. Power Award, for service and trust. We want to make sure we do not dilute that as we bring on the new advisors who are affiliating with us.

Michael Cho (Analyst)

Great. Thanks for the call, Paul.

If I could just switch to the balance sheet real quick. You saw some nice growth this quarter. You called out securities-based lending and also some growth across CRA and CNI. I just wanted to know if you could just—how you are framing the trajectory of balance sheet growth, across some of the key segments for the remainder of the year. On the other side, if we think about the third-party bank mix, how can we think about the normalized level over time as you continue to experience maybe better balance sheet engagement? Thanks.

Paul Shoukry (CEO)

I think it was around this time last year that we were saying that clients are getting used to sort of the new level of interest rates and that we were expecting higher utilization of securities-based loans after really kind of two years of a lot of paydowns and payoffs. That is exactly what we experienced.

Year-over-year, securities-based loans to Private Client Group clients, are up 20% ,across the firm. Really exceptional growth. Even mortgages are up 8%, year-over-year across the firm. Really using the balance sheet to support clients and client demand, and particularly clients of the Private Client Group business. We do not know what the trajectory is going to look like going forward. The momentum and the pipeline for securities-based lending continues to be strong. We fortunately have a strong deposit base and a diversified deposit base to continue supporting that growth going forward.

Operator (participant)

The next question comes from Dan Fannon, with Jefferies. Your line is open.

Dan Fannon (Managing Director and Research Analyst)

Great. Thank you. One more on just organic growth. Paul, your comments this quarter seem a little bit more bullish, but generally consistent with what we've heard for the last few quarters.

Yet the NNA, both on a dollar basis and on a percentage growth basis, is still below where you were last year and other periods. What is the disconnect, or could you talk to what maybe the negatives are that are maybe drawing down the overall growth levels?

Paul Shoukry (CEO)

Hopefully you're hearing us sound more confident about our recruiting pipeline because that's the intent. The activity levels are accelerating and picking up. We are increasingly—well, we have been very consistently and successfully recruiting advisors, across our affiliation options. We have been consistent in our success there. We are growing even more optimistic just looking at the pipeline. Again, these are pipelines. We do not count our eggs until they hatch. We have to convert the pipeline, and we will look at that.

As a reminder, once the new advisor affiliates with the firm, there is a lag in terms of when that shows up into NNA, because then they have to bring over their clients and they have to bring over their assets. It is not a just-in-time impact to NNA, from the time we feel good about a pipeline to the time we see it in NNA. It could be three, six, nine months, just depending on how quickly that pipeline is converting. We are still seeing pressure on the existing advisor base, private equity. We always say with the roll-ups, in the absence of a value proposition, they compete with big checks.

While we are seeing that moderate a bit, as I think some of the valuations have just gotten so lofty that I think across the industry, a lot of the participants are questioning the valuations and the prices that these private equity-backed roll-ups are paying for certain advisors. I think some firms are taking breathers, but there is still a handful of aggressive firms out there. From time to time, that is disruptive, particularly in the independent channel. Aside from that, retention, morale, service levels, satisfaction levels have been very good, and our pipeline continues to accelerate.

Dan Fannon (Managing Director and Research Analyst)

Great. That's helpful. As my follow-up, just within brokerage, can you talk about the fixed income outlook and what type of environment is best for that business to really accelerate?

Paul Shoukry (CEO)

Yeah.Our biggest business in fixed income brokerage—and this is an important distinction from the bigger bulge bracket banks and wirehouses who've had really strong quarters on the much higher volatility that you get with commodities and currencies and interest rates, especially in the environment we saw last quarter—we're really not heavily engaged in those higher volatility segments within fixed income. We are really serving our biggest client base in the fixed income business, our depositories, banks, and credit unions, helping them manage their securities portfolio. An environment where they're deposit-rich and there's a lack of loan demand and an opportunity to earn more by investing in securities out on the curb is an environment that's most conducive for us in fixed income. When there's spread volatility, that helps our summer-rich business. That technology-enabled business, is really driven more on spread volatility. And spreads have been actually fairly tight and resilient.

We haven't seen the volatility that you may expect given sort of the macro uncertainty surrounding it. That business hasn't really seen the type of tailwinds that you would have otherwise expected with higher spread volatility.

Dan Fannon (Managing Director and Research Analyst)

Great. Thank you.

Operator (participant)

The next question comes from Devin Ryan, with Citizens JMP. Your line is open.

Devin Ryan (Director)

Great. How's it going, Paul? First question just here on customer cash balances. The decline was maybe a bit more than we had expected. I know there's a lot that goes into that with tax season and advisory fees and investors leaning into the market. It's a bit difficult from the outside to parse through kind of what's cash shorting versus other trends. It would be good to get an update on what you're seeing around your client behavior there, maybe what you've seen through July, if you can share that.

Also just what you're expecting in the back half of the year, just given what you talked about with kind of accelerating organic growth. How much that could help for kind of rebuilding some of that transactional cash. Thanks.

Paul Shoukry (CEO)

I'll let Butch, speak to the cash movements, particularly in the quarter. What I would say is you're right. The pipeline, as it converts, as new advisors bring on new clients with new assets, that should be, all else being equal, a tailwind to our cash balances. Before turning it over to Butch, to talk about the quarterly change in cash balances, what I would do is kind of step back first and look at the year-over-year change in suite balances, which have been pretty resilient. It's been almost flat year-over-year, right around $42 billion for the suite balances.

As we said maybe a year, year and a half ago, we feel like cash balances are relatively stable. We're not ready to declare victory on that until we actually start seeing growth in those balances. To your point, as Butch will talk about, that wasn't the case this quarter, Butch.

Butch Oorlog (CFO)

Yeah. Thanks, Devin. As we talked about on last quarter's call, there's a seasonal element to cash balances in this quarter. Client tax payments, especially in the month of April, typically have an adverse effect on client balances in the short run. We certainly experienced that, as well as the industry at large. What we've seen in the month of June, and we're encouraged by the month of June, is what we've seen is we've seen $1 billion of growth, in the balances that. Occurred in the month of June, kind of as those seasonal factors kind of reverse.

We're hopeful that that portends a positive trend for the balances upcoming in the fourth quarter. As Paul, mentioned, when you look at those balance levels on a year-over-year basis, I mean, there continues to be relative stability in those balances year-over-year.

Devin Ryan (Director)

All right. Thank you. Great color there. As my follow-up, I caught the press release on in the Canadian business, you recently announced what you framed as a significant investment, in FNZ, to accelerate the digital transformation of wealth management infrastructure and then elevate the advisor client experience nationwide. I appreciate Canada as a smaller piece of Raymond James, today, and maybe the word significant was relative to the Canadian platform, but did get my attention. Just love to kind of get a sense of, if you can, kind of the sizing and strategy of that investment.

A bit more broadly, in this world where outright acquisitions in the space have been really competitive and maybe pricey, could we see more of these strategic investments as maybe an outlet for excess capital? ,Thanks.

Paul Shoukry (CEO)

Yeah. We've been in the Canadian market, for a very long time, and it's certainly an important market for us, particularly in wealth management, but also in capital markets. We have a profitable business in wealth management that generates good profitability. We have a best of both worlds value proposition in Canada, that's very similar to the value proposition that we have in the U.S., where we're competing against the big six banks, up there. We offer a more advisor-centric culture and all the capabilities that the advisors, that most of them come from those banks have become accustomed to having. That value proposition resonates up in Canada.

It's a very attractive market for us. It's one that we're committed to, and we're going to continue just like we do in the U.S. and in the U.K. to continue to invest in their resources. The press release mentioned a new technology system for them that we're really excited about, and the advisors there are excited about as well. It'll just continue to be, and we look for acquisitions in the Canadian market, as well. There's not as many. It's not as fragmented as the U.S., although the U.S. is becoming a lot less fragmented too. We would be, if we find a firm up in Canada on the wealth side that's a good cultural fit, strategic fit, and at a price that makes sense, we would welcome inviting them to the Raymond James family.

Devin Ryan (Director)

Okay. That's great. Thank you.

Operator (participant)

The next question comes from Kyle Voigt, of KBW. line is open.

Kyle Voigt (Managing Director)

Hi. Good evening. It sounds like some positive momentum on the recruiting side. Paul, you mentioned some easing dynamics very recently of maybe some firms in the industry taking breathers on transition assistance rates or recruiting packages. Just curious how you would describe the current environment, competitive environment, even after that easing versus where we've been over the past year or two. Also wondering if you could comment on whether Raymond James, has changed anything in terms of how it's approaching recruiting packages in recent periods.

Paul Shoukry (CEO)

Yeah. I mean, I would just say the environment remains competitive. I've been with the firm for 15 years, and it's been competitive since I joined the firm. Those who've been here much longer have described an environment that was competitive before that. The dynamic that's relatively novel in the last five years is these PE-backed roll-ups cropping up everywhere.

Over the last three years in particular, they've been extremely aggressive in trading and paying at higher and higher multiples. I think they're getting to the point now, somewhat of an inflection point, in that business where they're trying to figure out what's next. How much higher can those multiples go, especially when you compare them to public company multiples? It's significantly higher in many cases than public company multiples. I think they're looking at what's next. Is there a public market for that type of multiple? Are there strategic buyers for that type of multiple? Is there another private equity buyer or continuation fund? That's just, I think, surfacing those type of questions.

I don't want to overstate the impact that's having on the competitive environment because, again, it only takes two or three firms that are earlier in their stage of deploying their capital that they've already raised to keep that competitive environment sort of frothy. There's still a competitive environment out there. I do think that the tone that I'm hearing is a little bit different from some of those roll-up firms than maybe it was a year or two ago.

Kyle Voigt (Managing Director)

That's very helpful. Maybe just staying on the recruiting topic and just regarding your earlier comments about the largest acceleration in activity since the financial crisis, do you think this is an industry-wide dynamic, where you'd expect to see overall industry-wide churn levels increase, over the next 12 months?

Or do you think it's more idiosyncratic or something about Raymond James's, positioning in the market currently that's made the platform more attractive and has caused you to see this acceleration recently?

Paul Shoukry (CEO)

No, I think, I mean, there's certainly been M&A-driven catalysts, particularly on the independent side of the business that you all are well aware of. I think that, again, the success that we're having, though, is not concentrated only from that particular catalyst. We're seeing success from a lot of different firms across our affiliation options. That catalyst certainly has. Led to or contributed to the acceleration in our recruiting pipeline and our recruiting activity.

Kyle Voigt (Managing Director)

Great. Thank you.

Operator (participant)

The next question comes from Bill Katz, of TD Cowen. Your line is open.

Bill Katz (Senior Analyst)

Great. Good evening, everybody. And thank you for taking the questions.

Maybe just taking on just sort of the dynamic of accelerating financial advisor, and net new asset growth, I was wondering, could you talk a little bit about, does that have any structural impact on your comp ratio? And also, I was wondering, with the assets that are coming in, given that the teams are larger, does that have any kind of adverse impact on the client cash as percentag,e of those assets that are coming in the door?

Paul Shoukry (CEO)

I would say, again, we have over $1.6 trillion of client assets. So for anything to really make a meaningful change to any of these firm-wide ratios, it would have to be really substantial.

I would say it would be more of a glide path than a sudden change in any of the ratios across the board with what we're talking about, just given the size of the base and the magnitude of what you'd have to bring on to move the needle given the size of the base.

Bill Katz (Senior Analyst)

Okay. And just as my follow-up, thank you for that. Just from a big picture down at your investor day, you were pretty rigid in terms of looking at the market and saying it seemed a little heavy from an M&A perspective and pricing. You seemingly passed on a few things. Wondering if you could update us on your thoughts about how the strategic backdrop is looking from an M&A perspective, and where you might be most focused. Thank you.

Paul Shoukry (CEO)

Yeah. We continue to stay very, very busy in our corporate development function.

We are developing relationships across the spectrum in terms of early-inning relationships to more advanced discussions around potential opportunities. We would just continue to look for opportunities. Our biggest business is private clients. We envision that 5, 10, 15 years from now, that will still be our biggest business. That is, in terms of targets, where we would look for acquisitions first, but also capital markets and asset management. I think the bank, we already have two charters. We have one branch and two ATMs, across those two charters. We have really a utility bank to serve clients and not a brick-and-mortar type, business structure there. We would continue to remain active across all of our businesses and develop relationships, again, across the spectrum from early discussions, preliminary discussions, to more advanced discussions. Most importantly, we're not going to do a deal to just do a deal.

It has to meet our three criteria, first being a good cultural fit. No matter how good the revenues and profits are, if it's not a good cultural fit, it's not going to work in our business. If it's a good cultural fit, then it has to be a good strategic fit where one plus one gives us a chance of being more than two, where we make them better and they make us better. In our history of acquisitions, we've always tried to retain the management team, and we have a great track record of doing that. Our public finance and fixed-income business is still run by the leaders that came over from Morgan Keegan, back in 2012, for example. We want to be better after the acquisition, not just add assets or revenues.

Finally, if those first two boxes are checked, then the valuation has to make sense for us, and it has to make sense to the selling party. We're going to remain disciplined in that regard.

Bill Katz (Senior Analyst)

Thank you.

Operator (participant)

The next question comes from Alex Blostein, with Goldman Sachs. Your line is open.

Alex Blostein (Managing Director)

Hey. Good afternoon. Thank you. I wanted to ask you guys a question around just the margins in the quarter, but also the targets and sort of relay that back to your capital markets commentary from earlier in the call. So 19%, for the quarter, as you mentioned, it's running a little bit below the 20% target, that you guys are shooting for. Is the pipeline in banking what you see right now and stuff that's sort of tangible enough to get you guys into that 20-plus % pre-tax margin goal, that you outlined at the investor day?

Butch Oorlog (CFO)

Yeah. With respect to the current quarter, we were pleased with the 19%, pre-tax margin, for the quarter given the softness in the capital markets segment, for the quarter that we experienced. Although we continue to see the capital markets business long-term as a mid-teen margin type of business, we do continue to expect to be able to achieve that. Just with improvement in the capital markets environment, it would foretell well for us to be able to deliver on that pre-tax margin target, of 20%, that we shared at investor day. As we previously mentioned, we also feel good about the tremendous tailwinds that we have in the private client business with the upcoming quarter with the 8%, increase in fee-billable assets. We continue to feel good about the opportunities to improve on the margin from this quarter.

Alex Blostein (Managing Director)

Got it. Thank you.

Second question for you guys, just around opportunities to better leverage the Wealth Platform, as you think about incremental revenues, related to the alternative platforms, alternative businesses that are out there. Some of your peers, especially on the larger cap side, did quite a good job monetizing that opportunity with effectively shelf space payments. How are you thinking about that for AJ? It feels like the opportunity to increase penetration of alternative products, private market strategies continues to expand. So maybe some guideposts in terms of what percentage of the asset base is in private strategies today, where you guys think that could go, and again, the revenue opportunity attached to that over time.

Paul Shoukry (CEO)

Yeah. Our penetration in the private markets, is lower than some of the bigger firms that we compete against. I think there's a lot of headroom there.

We, unlike some of our firms that we compete against, we're not going to push the products to create more monetization opportunities, or create more "stickiness." That's really not our culture. It will be driven by demand of clients and their advisors. There is more demand for those types of products that are just naturally, organically happening. We're providing a lot of education and resources and a broader and deeper set of product alternatives in that space. We will continue to invest in it. We have a new leadership team in that space that we put in place four months ago or so. They're really investing in the education and increasing the awareness of the solutions to the advisors and the increasingly high-net-worth clients that these products make more sense for. In summary, I would say we have a lot of headroom.

We've got a lot of investments in these areas. We have a great set of products across the spectrum. We are not going to have quotas, or push products or create sort of variable incentives, to try to drive growth in those products. It's just not the type of culture that we have at Raymond James.

Alex Blostein (Managing Director)

Yep. All makes sense. Thank you very much.

Operator (participant)

The next question is from Jim Mitchell, with Seaport Global Securities. Your line is open.

Jim Mitchell (Senior Equity Analyst)

Okay. Thanks. Good afternoon, guys. Maybe you mentioned a couple of times strong inflows into fee-based assets in PCG. I know you don't disclose that data, but can you kind of give us a sense of at least the ballpark of the level of growth, you're seeing in fee-based flows? Is that materially better than NNA? Maybe just talk about the dynamic between the two.

Paul Shoukry (CEO)

Yeah. I mean, the fee-based flows have been stronger than the overall flows. You see that with just the level of client assets. I mean, overall, if you look year-over-year, client assets under administration overall for the firm have grown at 11%. Fee-based assets have grown 15%. That's the best way, I think, to just dimension the relative growth of fee-based assets versus overall assets at Raymond James. We're now at 65%, or so of our overall assets in the Private Client Group, are fee-based. We've always really led the industry in fee-based penetration. When it makes sense for clients, we also want to continue offering a competitive and robust brokerage solution as well.

Jim Mitchell (Senior Equity Analyst)

You do not think it is like a difference in client mix that that sort of gap between the two is really organic growth and fee-based being a couple hundred basis points higher than NNA growth?

Paul Shoukry (CEO)

I mean, advisors over a long period of time have been shifting their business to more fee-based business and advisory-based relationships. A lot of clients have both a fee-based account and a commission-based account, because they have assets that have different objectives and priorities around them. Some of those assets may be better invested in a brokerage account, and some of those assets may be better invested in an advisory relationship in a fee-based account. It is not that any advisor, any client just does one or the other. It is a mix, and it is really driven by what is best for clients.

Jim Mitchell (Senior Equity Analyst)

Yep. All fair. Just maybe a follow-up on the recruiting pipeline. Is it pretty broad-based across all affiliation options, or is it more concentrated in one specific segment?

Paul Shoukry (CEO)

I would say we are seeing good success across all of our affiliation options.

Certainly, the acceleration rate within the independent channel is probably higher, but we are still seeing very good success in the employee affiliation option and the independent RIA, option as well.

Jim Mitchell (Senior Equity Analyst)

Okay. Great. Thanks.

Operator (participant)

Your final question comes from Michael Cyprys, of Morgan Stanley. Your line is open.

Michael Cyprys (Managing Director)

Great. Thanks for taking the question. Just on the investment banking side, I think you mentioned that you expect the next two quarters to be better than the prior two quarters. Just curious if you could elaborate a bit on what you are seeing, how the magnitude of pipelines has evolved, and what you are seeing from an environmental standpoint supporting your confidence, versus, say, a month and a half ago at your investor day.

Paul Shoukry (CEO)

I think there was just an immediate—and this was an industry-wide statement, not just specific to Raymond James—but I think across the industry.

In early April, there was a lot of shock with just the tariff discussions and the magnitude and the breadth of the tariffs, and people not really understanding exactly how that will pan out. As time has passed, as deals have been struck by the administration, as the administration has pivoted on deadlines and shown a willingness to negotiate with the countries and come to a good overall, hopefully positive solution, I think the shock that we had in early April, has not fully worn off. Again, we could be shocked again tomorrow. Who knows? Certainly, the market sentiment now is more positive than it was in early April. There is a lot of pent-up demand, and there has been for several months now because of two years of really lackluster investment banking business, across the industry.

We have a lot of motivated buyers and sellers, particularly private equity sponsors, which represent 60%, of our M&A activity, in any given quarter or year, roughly 60%. They have companies that are sort of beyond their original timelines in terms of being sold out of the portfolio so they could distribute capital back to their LPs. They also have, on the buyer's side, capital that needs to be deployed. There is a lot of pent-up demand. I think as there is more certainty and less shock in the system, and more certainty around tax reform, which was successfully implemented in the tariff reform, and now maybe around the interest rates to some extent, as long as there is certainty around those things, no matter what the outcome is, I think there will be a better environment for that pipeline to convert to realizations. Great.

Michael Cyprys (Managing Director)

Just as a follow-up question, more bigger picture, I was just curious if you could give us a little bit of an update, thoughts around digital assets, stablecoin strategy, how you are seeing the opportunities for Raymond James. What steps might we see you take over the next 12 months as it continues to garner more attention across the marketplace?

Paul Shoukry (CEO)

I think we are encouraged. What we have been asking for for the last couple of years really is for the regulation and the regulatory framework to catch up to the demand and to the actual penetration and utilization of these types of products. We are encouraged. I think there is a lot more, even as recently as last week.

Our trade associations, which we have senior leadership representation on, were very engaged on the Hill trying to help regulations catch up to the demand and interest for these types of products. In the meantime, we have been, as you can imagine, very deliberate. We want to protect clients first and foremost. Until the regulations catch up, the clients, are at some level of risk that is disproportionate to the other securities where the regulations have been in place for a very long period of time. We are not bleeding edge, on these types of products, but we are monitoring them very closely. We have teams that are focused on understanding what other competitors are doing and what is available and what is not yet available, what may be available.

We are studying it very closely and trying to be as responsive as we possibly can to our advisors and their clients.

Michael Cyprys (Managing Director)

Great. Thank you.

Paul Shoukry (CEO)

Great. That was the last question. I just want to thank all of you for your time and interest in Raymond James. We certainly do not take it for granted. I also want to thank all of our financial advisors, bankers, associates, and clients for trusting Raymond James and for doing such great work across the country. We really appreciate it. We wish all of you well.

Operator (participant)

Closed today's conference call. Thank you for joining. You may now disconnect.