Raymond James Financial Inc (RJF) — Q2 2019 Earnings Call Transcript

Thank you, Tiffany. Good morning. And thank you all for joining us on the call this morning. After I read the following disclosure, I'll turn the call over to Paul Reilly, our Chairman and Chief Executive Officer; and Jeff Julien, our Chief Financial Officer. Following their prepared remarks, they will ask the operator to open the line for questions. Certain statements made during this call may constitute forward-looking statements. Forward-looking statements include, but are not limited to, information concerning future strategic objectives, business prospects, financial results, anticipated results and litigation and regulatory developments and general economic conditions. In addition to words such as believes, expect, plans, will, could and would as well as any other statements that necessarily depends on future events are intended to identify forward-looking statements. Please note there can be no assurance that actual results will not differ materially from those expressed in those statements. We urge you to consider the risks described in our most recent Form 10-K and subsequent Form 10-Q, which are available on our website. During today's call, we'll also use certain non-GAAP financial measures to provide information pertinent to our management's view of ongoing business performance. A reconciliation of these measures to the most comparable GAAP measures may be found in the schedule accompanying our press release. So, with that, I'll turn the call over to Paul Reilly, Chairman and CEO, of Raymond James Financial. Paul?

Thanks, Paul, and good morning, everyone, and welcome. Thanks for joining us. I'm going to start as usual with a brief summary of the fiscal second quarter of 2019 and then turn it over to Jeff, who'll provide some more details on the financials and some line items. And then I'll discuss the outlook before turning it over for questions. So, following a challenging market during the December quarter, I am pleased with the solid performance in a number of key areas during the fiscal second quarter. These include quarterly net revenues of $1.86 billion, an increase of 3% over the prior year's second quarter, a decline of 4% compared to the preceding quarter. As we discussed on the last call and at our recent conferences, Asset Management and related administrative fees were the primary drivers of the sequential decline in net revenues as the vast majority of these fees are billed based on the beginning-of-the-period fee-based asset levels, which were down with the market in December quarter. This quarter also had fewer billable days than the December quarter, which negatively impacts both Asset Management fees and net interest income. But despite the fewer billable days this quarter and the seasonal expenses related to year-end mailings and reset in FICA taxes, we generated quarterly net earnings per share of $1.81, lifted by record Investment Banking revenues and higher net interest income, primarily at Raymond James Bank, which experienced improvement in its net income margin during the quarter, driving record quarterly net revenues and pretax income in the segment. We ended the period importantly with records for client assets under administration of $796 billion, total Private Client Group financial advisors of 7,862 and record net loans at RJ Bank of $20.1 billion. Annualized total return on equity for the quarter was 16.7%. And I want to remind everyone, a lot of people report on tangible equity, but this is total equity, which is a terrific result, particularly given our strong capital levels, which I'll speak about a little bit later. Stepping back, if you look at the first six months, the first half of this fiscal year, we generated record net revenues of $3.79 billion, which were up 7% and net income of $510 million, which was up 41% or adjusted net income of $525 million, which was up 9% over the first half of fiscal 2018. Notably, all four of our core segments generated record net revenue during the first six months of the fiscal year. This is really a fantastic result, particularly given the challenging market environment during the December quarter. Now, turning to the segments. In the Private Client Group, we generated net revenue of $1.27 billion and pretax net income of $132 million during the quarter. The segment's results were negatively impacted by the market downturn in December, which caused fee-based assets, which are billed on balances at the beginning of the period, to start lower this quarter than the starting balance in the immediately preceding quarter. Moreover, once again, there were fewer billable days this quarter than the preceding quarter. Partially offsetting the lower Asset Management fees, fees from third-party banks increased substantially during the quarter due to higher spreads following the December rate increase and higher client cash balances at the beginning of the quarter. However, these cash balances have been declining as clients increased their allocations to other investments, primarily due to improvement in equity markets as well as tax-related seasonality. The trend has continued into April. Fortunately, PCG asset-based fee-based assets under administration, which now represent nearly 50% of the Private Client Group's total client assets, grew 16% over March of 2018 and 12% over December 2018, and achieved a new record, ending March at $378.4 billion, again driven by equity market appreciation, increased utilization of fee-based accounts and net additional financial advisers. Our financial adviser retention and recruiting remains solid, resulting in a healthy net increase of 47 financial advisers during the quarter to a record of 7,862. Our client-focused culture, multiple affiliation options and robust service and solution offerings continue to resonate well with existing and prospective advisers. In the Capital Markets segment, we generated net revenue of $277 million and pretax income of $41 million for the quarter, both representing significant increases over the prior year's fiscal second quarter and the preceding quarter. We achieved record Investment Banking revenues in this segment of $156 million for the quarter. The strong results were driven primarily by record M&A revenues of $118 million, which also included our largest fee in history. This more than offset the industry-wide weakness in equity underwriting in the first quarter due to the government shutdown. Fixed Income and brokerage revenues improved, largely due to a spike in interest volatility during the month of March. However, institutional equity brokerage revenues continue to be challenged by structural and cyclical headwinds. In the Asset Management segment, we generated net revenue of $162 million and pretax income of $55 million during the quarter. These were negatively impacted by starting the quarter with lower billable asset levels, given the decline in the equity markets in December, as well as net outflows for Carillon Tower Advisers. Financial assets under management ended the quarter at $138.5 billion, an increase of 5% over March of 2018 and 9% over December 2018. Overall, the growth in financial assets under management continues to be largely driven by equity market appreciation, positive inflows with increased utilization of management accounts in the Private Client Group, which we believe will continue going forward. Raymond James Bank generated record quarterly net revenue of $212 million and record quarterly pretax income of $136 million during the fiscal second quarter. We ended the quarter with record net loans at $20.1 billion, which were up 11% year-over-year and 1% sequentially. The growth in loans during the quarter was driven by the C&I portfolio and residential mortgages to our Private Client Group clients. Raymond James Bank net interest margin expanded to 3.35% in the second quarter, up 14 basis points over a year ago second quarter and 10 basis points over the preceding quarter. Importantly, the credit quality of the bank's loan portfolio remains strong, resulting in a decrease in our loan loss provision. So overall, it's a strong quarter. I believe it's an excellent first half of the fiscal year. So, with that, I'll turn it over to Jeff before I provide some comment on the outlook. Jeff?

Thanks, Paul. I'll go over some key points and provide additional context. On the revenue side, while total revenues were close to expectations, there were notable variations. One affected area was Asset Management-related fees, whose decline matched the decrease in associated fee-based assets. As noted in the December report, asset categories fell by 8% to 10% due to a 14% drop in the S&P that quarter. Thus, a 9% sequential decline in that revenue line was not unexpected, though it seems the market underestimated it. Looking ahead to Q3, billings, which we completed in April, increased similarly to the growth seen in fee-based assets in the March quarter for that line item. While a small part of this is based on average or end-of-period assets, most—around 90%—is based on beginning-of-quarter billing, so we anticipate this trend continuing into the June quarter. Brokerage revenues, including PCG commissions and equity institutional, both fell as we move further toward a fee-based model in the Private Client Group. However, this quarter saw an increase in the Fixed Income institutional business, particularly in principal transactions, which now includes commissions and trading profits. Looking ahead, stronger equity markets should positively affect PCG trail revenues, potentially stabilizing that segment. Fixed Income performed well in March but may revert slightly as we're starting to observe. The account service fee line, primarily from unaffiliated banks in our sweep program, was impacted as client cash balances continued to decline since December, persisting into today. Clients seem to be opting for higher-yielding cash alternatives or shifting to riskier assets. This decrease in balances was more than compensated by the increased spread from not passing on the December Fed rate hike during the March quarter, resulting in an uptick in that revenue line. Assuming no further Fed actions, we expect the spread to remain around 200 basis points, although balances may decline further as the quarter progresses—it's something we’ll monitor. Another notable fluctuation from expectations was in Investment Banking, where we concluded the quarter strongly, registering record revenues driven by $118 million in M&A fees. This marks two consecutive quarters of strong performance in M&A. Although our pipeline remains active, surpassing or matching the first half's performance may be challenging, though the year should end positively. Our net interest income slightly exceeded estimates, with the net interest margin at Raymond James Bank growing to 3.35%. The impact of the previous Fed rate hike had minimal effect on our funding costs. Moving into the next quarters, we expect the margin to remain stable, with anticipated 8% to 10% growth in the bank. Continued increases in loan balances will assist in boosting the margin, but it depends on average cash and securities held during the quarter. Thus, we’ll maintain our estimates for the upcoming quarter around this range. Other revenues fell short of projections, affected by a slow quarter for tax credit fund closings, now reflected in this line item. There were no significant impacts from private equity valuations this quarter, leading to lower figures. On the expense side, compensation expenses met expectations with a comp ratio of 65.9% for the quarter and 65.7% year-to-date, both below our 66.5% guideline, despite an $8 million to $10 million impact from the annual FICA reset affecting us in this quarter. On communication and information processing, there was a slight increase from the previous quarter, but it still falls below our annual guidance. We anticipate a slight increase in the latter half of the year based on current knowledge. Business development expenses also came in below guidance, running in the low 40s instead of the anticipated mid-40s, likely due to slower recruitment and no advertising in the first half. For the latter half, we expect higher expenses linked to major conferences and branding efforts, anticipating ranges of high 40s to $50 million per quarter. As for the loan loss provision, it returned to normal levels this quarter following prior downgrades, correlating with overall loan growth of $247 million, primarily in C&I and CRE portfolios, leading to a slight increase in our provision reserve relative to outstanding loans. Other expenses may have stabilized to a normal rate, previously elevated due to legal and regulatory costs. This quarter, due to a catch-up valuation adjustment for one tax credit fund, our P&L reflected additional expenses. The majority of this impact is attributed to noncontrolling interest, and excluding this factor indicates a relatively low expense quarter. The pretax margin for the quarter was 18.7%. I've received questions about further improvements or if we've reached a peak. This quarter saw lower fee billings and higher-margin interest earnings, particularly from investment banking M&A fees, which affected profitability more positively than PCG-related fees. Moving forward, higher fee billings from Q3 will likely come with lower margin revenue due to increased compensation payouts, potentially leading to a decline in margins next quarter despite higher revenues. Paul mentioned our ROE at 16.7% for the quarter, also reflecting the year-to-date adjusted number when excluding the impact from the sale of European equity operations earlier in the year, well above the long-term target of 15%. Our capital ratios exceed regulatory requirements and increased slightly from the previous quarter due to modest buybacks this quarter. Although we didn't achieve record pre-tax income, we set a record in EPS, largely due to share repurchases made in the December quarter. Overall, it was a satisfying quarter given the challenges of lower fees and reduced client cash balances. That's all I have, and I'll turn it back to Paul now.

Thank you, Jeff. I'll quickly go over the segments and then we can take questions. In the Private Client Group segment, we began the third quarter with a 12% increase in assets in fee-based accounts compared to the previous quarter. These fees are primarily based on beginning balances, which is a reversal from last quarter when they declined. Additionally, last quarter had two fewer days than this quarter, which is another positive factor for us. However, this is partially offset by a decline in cash balances that Jeff mentioned. Overall, we are seeing strong financial adviser recruiting and retention, so we remain optimistic about this segment. In the Capital Markets segment, while closing times can be unpredictable in M&A, the pipeline for such activities is robust. It may be challenging to match last year's closings in the first half, but equity underwriting activity is picking up. Nonetheless, it might be tough to match first half results. The Fixed Income area saw strong performance in March and a respectable April, but there are signs of a slowdown. Should rate volatility stay low, combined with a flat yield curve and low long-term rates, this division could face ongoing challenges. The Asset Management segment entered the third quarter with a 5% year-over-year increase in assets under management and a 9% increase sequentially, which should support billing. Increased use of fee-based accounts in the Private Client Group and good performance at Carillon Towers are also expected to enhance our financial assets over time. Raymond James Bank started the third quarter with record loan balances and appealing net interest margins. The bank is carefully growing its loan portfolio, and we believe its credit metrics will remain strong. Regarding our capital levels, we have excess capital with a total capital ratio around 25%. Our approach remains consistent; we actively deploy our capital after repurchasing 6.1 million shares for $458 million at an average price of $75.70 per share in December. We also bought around 603,000 shares for $47 million in the first quarter at an average price of $78. This leaves $458 million available under our $505 million share repurchase authorization, which the Board increased in March 2019. We aim to offset shareholder compensation dilution while taking advantage of repurchases. In April, we made two investments, including a high-quality M&A platform, Silver Lane Advisors, focusing on asset management and wealth industries, and we acquired the remaining 55% stake in ClariVest, which manages over $7 billion in assets and which we initially invested in back in 2012. While these capital uses are not monumental, they reflect our strategic investments that support our organic growth. We remain open to pursuing larger acquisitions that align with our criteria of cultural fit, strategic alignment, and the potential for attractive returns. Many inquire about our willingness to accelerate bank growth. We would pursue this if we identified assets with good risk-return profiles. Our current rate of loan portfolio growth aligns with our conservative strategy. Even though the bank has expanded its agency MBS portfolio over the past three years, the flat yield curve makes taking on additional risk for minimal return less appealing compared to the floating rates available from third-party banks, which offer greater flexibility and FDIC insurance. We've prioritized deploying capital for good shareholder returns, reflected in a 16.7% annualized return on total equity this quarter. We aim to keep our balance sheet defensive while also being ready to seize opportunities. Overall, as we enter the second half of 2019, we are well-positioned with many tailwinds, including a record number of Private Client Group financial advisers, a 12% increase in fee-based assets from the previous quarter, record-high cash spreads, record net loans at Raymond James Bank, and a healthy investment banking pipeline. However, we face some headwinds, such as declining cash balances and certain expenses in areas like communications and business development, especially with our largest conference coming up next week with over 4,500 attendees, which will impact business development costs. With that, I believe we are in a solid position, and Tiffany, I'll hand it over to you to start the Q&A session.

So, I wanted to start off with a question on the operating margin outlook. You cited a number of sources of record revenue balances and just given the strong revenue tailwinds in the second half and the growth in higher margin NII, how should we think about the outlook for operating margin? Should we think that some expansion in '19 versus '18 is achievable, even with the absorption of some of the higher non-comps as part of your investment plans?

There are multiple factors at play, but the mix of our revenue does affect the margin and the compensation ratio. It's encouraging that our fee billings will begin 12% higher, yet we compensate advisers based on net revenue. If interest rates remain where they are, we don't incur payment obligations, allowing almost the entire net interest to contribute to profit. Although revenue will increase, this situation will lead to a higher compensation ratio and a lower margin, given the consistency of other activities. The revenue mix has been a key driver of margin this quarter. If we anticipate the expected outcomes, our compensation ratio should rise while the margin may decrease slightly. However, Jeff, I’m not sure if there’s anything...

I believe that's accurate. If we can maintain the pretax margin around 18%, we consider that an acceptable long-term margin. Our preferred approach for growth is to increase revenues while managing expenses at a similar level. This way, we can sustain the 18% margin on a growing revenue base and manage the share count through repurchases, which we are currently doing. This is how we envision our long-term strategy—not by focusing solely on optimizing the pretax margin. It's important to remember that PCG is our core business, and while its segment margin is the lowest among our businesses, it supports all other areas. Therefore, it plays a crucial role in achieving that 18% margin. However, I wouldn't expect significant margin expansion. Our strategy for growing earnings per share relies more on increasing revenues and keeping the share count stable.

Got it. Considering where we are, I think the expectations indicate some margin contraction, so it seems the standard is not particularly high. However, comments about maintaining stability at 18% are certainly encouraging. I have one question regarding the non-comparable items. While I appreciate that you continue to invest in the business, it was also nice to see that the other expense line came in somewhat better. Jeff, you mentioned that the core figure for that was below $60 million this quarter. At the same time, you also noted that $67 million might actually represent a more normalized level. I'm trying to understand how we should consider that line item going forward.

It's difficult to specify an exact number for that. There are many costs, especially on the legal side, that can vary from quarter to quarter. However, if we can maintain it in the range of $60 million to $65 million for that category, now that we've separated out professional fees, I believe that keeping the other expenses in that same range indicates ongoing legal costs. In this industry, some level of litigation from clients or other sources is unavoidable. Overall, considering all items in this category, that would represent an acceptable long-term average at our current operational level.

And just one final one for me on Private Client Asset Management fee yield. Clearly well-positioned to benefit from higher AUM levels in Private Client as we approach the back half. But the calculated fee yield continues to contract, albeit at a fairly modest pace. I was hoping you could speak to what's driving that fee dynamic and how we should think about the trajectory for the fee yield going forward?

The only shift that you could really see is there's more of a movement to fee-based accounts. So we're not seeing big pressure at all on advisers, what advisers are charging clients. So those have held in pretty well. So I know there's been a lot of commentary about compression there, we don't see the compression on the fees advisers are charging. There's normal compression on any Asset Management fee or in our industry, but in terms of the adviser fees, they have held up very, very well. So I think it's more of a mix than any fee compression.

It's mix and average size of account, as over time in our client base, average account size has grown and larger accounts typically can come in at a slightly better fee.

This is Kendall Marthaler, actually, on for Bill Katz. So I know you guys talked a little bit about the client cash since April, but I was wondering if you could give more of an update on pace of that relative to the last few months and how we should think about the economic trade-off between the elevated retail engagement and the lower cash balances.

We've been spending a lot of time on this over the last four to five months with our sales force. It's gotten to where the rate that people earn on what we call sweep balances compared to what they can earn in what we'll call positional cash, such as an investment in the money market fund. The differential is large enough now that advisers and clients are actually bifurcating their cash into what we'll call operating cash and what we'll call investment cash. And so what we're seeing is, it used to be all just amorphously one into the sweep balance, so now what we're seeing is additional runoff, if you want to use that word, of cash balances into what we'll call positional type of investments. The pace of that, at some point in time, it will hit what we'll call stasis, where the investment cash is in its investment vehicle, and what's left in the sweep program will be the operational cash. I don't know at what point we hit that inflection point. We continue to recruit new advisers and our client assets continue to grow. So there's an incoming flow from that process. But at this point in time, at least through today, we continue to see a net runoff of some of that cash. And again, what percent of assets it ends up being is a little hard to predict now at this point in time. So we'll just have to wait and see.

Okay, great. And just a quick follow-up, kind of going back to the previous question. So as PCG client AUA shifts more towards the fee-based, how do you see that impacting just the overall margin for Ray Jay?

Historically, on average, fee-based revenues as a percentage of assets have been a little bit higher for us than commission-based revenues as a percent of the related assets. But there's a lot of assumptions and all that go into making a statement as broad as that. I don't think it will have a material negative impact, and if anything, it could have a slightly positive impact. The good news about it is it creates a very predictable stream of revenues and it makes us a little bit more model-able company, if that's a word, going forward. And I know that people in your seat appreciate that. And our advisers have been kind of encouraged over the years to use professional management and other sources of fee-based revenues to eliminate some of the old conflicts that arose with commission-based accounts, and that was obviously accelerated with DOL and some of these other potential regulatory changes, and maybe will again, depending on what regulatory changes come out and other things that may be on the docket. But at this point in time, I think we still see a continuous shift, plus we recruit advisers that have a practice that is largely focused on fee-based, because it fits with our model better. So I think profitability-wise, it will be our best long-term economic history shows it's a slight positive.

On the two acquisitions you just closed, how should we be thinking about the financial impact of those deals? And if you happen to have a revenue number for us, that will be helpful.

Silver Lane is an M&A firm, so it is challenging to determine how their revenues will impact us, similar to assessing our own M&A performance. However, it will help boost our M&A revenue stream moving forward. As Paul noted, neither of these acquisitions is significantly transformative. Regarding ClariVest, their figures have been integrated into our results all along, and the portion we didn’t own was accounted for through minority interest. Given the size of the minority interest over the past several years, since 2012 when we acquired our initial 45% stake, the amount no longer reflected will not be a major transformational figure.

Got it, okay. That's helpful. I guess a follow-up question I had was on PCG recruiting. You know, you guys continue to have great success there. Just wondering if there's been any kind of change with respect to where you guys are seeing interest among advisers. And then maybe if you can elaborate a little bit more on how the pipeline looks, whether it's better or worse or about the same as to how things were maybe 12 or 24 months ago.

So I'd say the interest still remains high. Pipeline is strong. We started off with a slower quarter at the first quarter. Part of that was due just to also a reported net number, we had a lot of retirements. We have some retirements this quarter, but we're lower than last year, our pace of recruiting so far on average, but the pipeline is very good, very strong. And I would say similar to 12 months ago, maybe a little bit less but not a lot. So given that we're behind on the first six months, I would expect us to be under last year's all-time record, but still a very strong recruiting pace.

Could you provide some insight into recruiting expenses? Considering our growth in headcount for financial advisors following three consecutive record years, it seems like the momentum might be slowing this year. Should we anticipate a decrease in the growth of recruiting expenses as well, or is that not a significant factor because the larger costs take longer to reflect? Please help clarify the dynamics of recruiting expenses for this year and next, given that we are at these levels.

Last year's performance surpassed 2009's record, marking our highest achievement. While recruiting remains strong, it does not match last year's peak. If recruiting activity decreases, costs associated with asset transfers and any necessary outside recruiting fees will also decline. These transfer costs impact our profit and loss when clients switch over. We aim to maintain our current recruiting pace, but if it slows, expenses will be reduced.

And the amortization of all the transition assistance related to that does have an impact on the comp ratio.

Great. Well, I'm just trying to get a sense, does this help the margin if these expenses flatten out and the revenues continue to come on? It seems like it will naturally help the margin.

It helps the margin over time. It doesn't in the year or maybe the two years following the year you recruit the person. But once they have their business substantially over and have started using our other platforms, the bank, the Asset Management platforms, etc., and it radiates throughout the rest of the firm, they become incrementally profitable within a couple of years.

Okay, thanks for that. And then maybe just a question on just on the progress on the West Coast. I know that's been an area of focus. It seems like you've had very good success on the East Coast, just any help in thinking about the progress in the West Coast would be great.

Yes, the progress is we continue to recruit. The pace is higher, but we've got a long way to go because we're just starting, really, in that market being aggressively recruiting. So we're having more and more success, but we've got a lot of territory and opportunity there. So we continue to be very focused on it. We've increased our support out West. And so we still view it as a big opportunity for us.

Do you think it needs sort of kind of like an Alex. Brown type deal to help jumpstart it, or do you feel you can still penetrate pretty well without that?

We have many independent employee offices out there now, and almost all of our affiliation options are represented in the West. If there was something out there that made sense, I'm not sure what it would be. However, we are focused on the long term, and I believe our pace is picking up. The growth in the number of advisers on a percentage basis is good, but since it's still a small base, we are continuing to work at it.

Jeff, back to your point around the margin, I guess when you talk about 18% being an acceptable margin I guess over time and well, clearly interest rate dynamics and markets will fluctuate and I get the fact that it's obviously going to impact margin in the quarter, but bigger picture, why is there a structural reason that your model can't have margin expansion over time?

Our business mix leads me to believe that interest spreads at current levels may not be sustainable, especially if the Fed has concluded its rate hikes. This could create ongoing pressure on client deposit rates, which we need to manage client cash balances effectively. If we experience any spread contraction, it may affect us despite overall revenue growth, particularly with the PCG business. Achieving an 18% margin is impressive, and I would be happy to maintain that for our careers. However, considering our business mix and the potential impacts of interest rates in the future, I might be correct about limited margin expansion in the near term, though I haven't been right about this for the past few years.

That's a challenge when a significant portion of your revenues, around 65% or two-thirds, is tied up in compensation expense. Adding an 18% margin leaves less than 15% for operating the rest of the business, including expenses, real estate, personnel, and support. While there might be minor adjustments possible, there's limited flexibility. In our Private Client Group, our second highest corporate expense is real estate, and incorporating personnel costs makes it even more difficult to make short-term changes. You can adjust payouts, but that comes with its own consequences. We aim to offer competitive pay—not the highest, but fair enough to retain our staff due to the support we provide, which complicates any major changes to those figures.

I hopped on a minute late here, but I don't think you touched on this. Just on M&A opportunities, I know you guys have an interest in doing deals that can augment organic growth. But the question is, is there really anything out there in wealth management today? Are there any targets, meaning specific companies that you're in touch with that might be a good fit, but really, I guess the timing will need to be right for them and the price needs to be right for you. But I'm just curious, really, if there is anything out there. And then would you actually look at something in the independent adviser side, or is there strong preference in employee adviser models?

So there are certainly a handful of companies we think are strategically and culturally good fits. They're just not for sale, so we stay in touch with them. And if the point comes that they're interested, both whether they're independent or employed or both, we are ready, willing and able. There are also a lot of things we're looking at outside the Private Client Group. There's probably more opportunities in M&A and Asset Management in terms of certainly a number of companies than there are in the Private Client Group side, as that group has just gotten much smaller. It's much more consolidated. So it's not the numbers, same number of firms, certainly, that there has been historically. So I think of the 60 companies that took us public, I think eight names are still alive, including Alex. Brown, which we kept alive. So there's just fewer opportunities. So we're in touch, we're in dialogue and we have a corporate development department that's active. And again, it just has to line up.

That's helpful. And just one on the ClariVest, the kind of the full acquisition. I know it's a relatively small transaction, but can you just remind us how moving the ownership to 100% from 45% is going to impact the P&L? And then just whether that's contemplated in the expense commentary you laid out?

It will affect our pretax income by a few million dollars each quarter, which is the full extent of the impact. This amount was related to the non-controlling interest associated with the portion we did not own. The revenues and expenses were already included in our figures because of our consolidated control. Although we do not have a majority ownership, our control over the board and certain operations has led to consolidation. Therefore, there will be no changes to the revenue and expense figures; you will only notice a reduction in non-controlling interest.

On the Private Client Group fees that you really aren't seeing any fee pressure, can you share with us your internal estimate for the PCG advisory fee rate in the quarter and how this compares to historicals? Because we're back into a large decline sequentially and on a year-over-year basis, and the driver really is just mix shift. Can you help us better understand what you mean by mix shift there?

We didn't hear the first part of your question. You came in late, can you just...

I can repeat it, if that's okay.

Yes, please do.

All right. So earlier in the call, you responded to a question on Private Client Group fees. And I just wanted to understand what your fee rate is in the quarter for PCG advisory fees and how that compares to historicals, just because we're back into a decline there. And then I think you said to a response to another question that the driver really was mix shift. I just wanted to better understand what you guys meant by mix shift.

It's difficult to determine precisely. You can select a single average rate and divide the revenue from the Private Client Group by the assets, which likely explains the decline you're observing. However, it relates to the types of programs involved. We offer a variety of fee-based programs, and the mix largely depends on whether there's a shift towards Fixed Income or equity, which affects some of the managed programs. Additionally, as I previously noted, the average account size significantly influences this situation. We've seen the average account size in our managed programs grow over time, which typically results in lower fees as account sizes increase. We're not experiencing significant fee pressure or declines in any specific program or objectives within our managed programs. While there's been a gradual decrease over several years, it hasn't been as intense as in previous years.