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Raymond James CEO: We’re 'cautious on the economy'

Raymond James CEO Paul Reilly joins Yahoo Finance Live to discuss earnings, the need for financial advisors, the uncertain economic environment, asset management fees, and where clients' concerns are.

Video transcript

- Also, everyone, strength in the banking sector here, it's continuing with Raymond James, reporting a beat in revenue and estimates. Banks and finance have recently seen a boost from higher interest rates. But Raymond James is also taking careful note of what it calls a challenging and volatile market environment.

Joining us now to talk about earnings and the sector, we've got Paul Reilly, Raymond James CEO in a First on Yahoo interview. Great to have you here with us this morning. First, as we were breaking down some of the earnings that have just come across and largely the season that we've been navigating through, if there's kind of a common denominator or a set of them that you've been taking away from this, what are they, from your perspective?

PAUL REILLY: Well, first, great to be here. And it's always good to be on the show. There's just a lot of uncertainty. And I think this is the great thing in our business, is people need their financial advisor more than ever. You have uncertain equity markets. All you have to do is listen to four or five speakers with different views. So it's not certain where we're going.

The Fed clearly has said they're going to continue to raise interest rates. And inflation numbers high. The GDP number was actually good today. But again, that shows the economy is going.

You have to pick stocks. You have to pick your choices because it's a very uncertain market. And, frankly, in the last almost decade, as long as you were in did pretty well. And that's not the case today.

And investors are, they're individuals. They're in different situations. Some are still longer term and they can take the downs with the ups. Some can't afford the risk.

And now fixed income is giving them a chance to invest in. And most people are in between. How do I balance the long-term bets in equities against inflation versus making sure I have income? And so it's a complicated environment. But it's a chance to really show your value also.

- Paul, it's good to see you. Thanks for being here. If people are coming to you because they're concerned about the environment and they want advice, as they seem to be, what is happening in terms of their willingness to pay for it? I did see asset management fees were down 6% collectively.

But I wonder what's happening on an individualized basis. Have you been-- I mean, we've been talking to everybody about raising prices. Are you all raising your fees?

PAUL REILLY: Well, you look with us, the advisor, really has the primary client relationship. And the fee pricing is really set with them with our oversight but to what they're doing for their client. And what we've seen is most advisors aggressively managing fees in terms of what funds they go in and how they're managing what the cost is to the investor, to the end client.

But surprisingly, I mean, those fees with the advisor have held up extremely well. And it just shows the value. The value isn't just investing. It's psychology.

So many people wanted to get out of the market pre-COVID. They would have lost a huge opportunity. Or they can look at the down in the last few months and say, well, look at my down. And they could remind, look, this is your-- you're on plan. This is your plan for your life.

You are up more than you thought. You're down a little bit now, but you're still on plan. Stay invested so you don't get hurt. And that value in almost a family psychologist in many cases has shown that people are still willing to pay the fees. And the fee to the advisor themselves has been under surprisingly a lot less pressure than the overall cost for us to produce more effectively.

- Paul, a lot of your peers in the industry are now looking at a lot of belt tightening as the industry has slowed. What are you doing inside of Raymond James?

PAUL REILLY: Well, we're trying to be very thoughtful. So first we have comp pressure, as the whole industry has seen. We started talking about it a year ago before people did. And we're going to treat our people well, both with our record results this year and quarter, but also because that's the market today. And we have to make sure we keep people.

We can only belt tighten so much. We're still growing. We're growing across all of our businesses. And so we're still recruiting and hiring people. So the focus is where do you spend smartly? And where do you stay focused?

For example, our tech spend is going up. Our technology, for which we believe is leading edge, industry leading for our advisors in terms of wealth planning, we can't let that slip because that's what's driven our continued top-of-the-industry recruiting and retention. And now the apps to the individual clients, again, we've got to invest there because that's part of the market.

So in other areas in the back office, we pride ourselves in top-level service. And we have to push to be more cost efficient. And what technologies and processes can we use to keep those costs in check?

So we're still in a growth mode. We're cautious on the economy. The great thing about the company well before I got here, it's always been long term focused. We've been criticized maybe over the last two years of having too much capital and liquidity. We aren't right now.

And so in bull markets maybe we look like we're being too conservative. But we plan for these kind of markets. And it's showing up in our growth. And we still have plenty of balance sheet flexibility to operate, even if we do have a hard landing.

- When you think about the absence of easy money policies and what that means for some of the more speculative assets that even the wealthiest clients that you may deal with would be prone to perhaps nibble at it in the past, where have you seen that strategy start to wane and perhaps shift into some of the other spaces? And what types of recommendations are you providing them?

PAUL REILLY: Well, you still see that as cyclical. So certainly when rates move quickly, like they have-- so if you go to the bond markets, certainly the nonrated bonds and things get hit first and get hit hardest. But at some point at that price adjustment, that's when the very wealthy or hedge funds or investment funds see the opportunity and invest. So it's really calling when that happens.

So you have to look through the whole cycle and look at the opportunities for those clients. Now, a lot of clients don't have that extra net worth. So you've got to keep them down the middle. But others that do have that ability, it's kind of a wait and see and strike when they see the opportunity.

Now, if you believe there's going to be a hard landing, that means there's going to be a lot more opportunity and you keep powder dry. If you think this is going to be a softer one and you're going to get a pickup, then you can be a little more aggressive now. And we see clients on all sides of that right now.

So it's, again, not an easy call to say, where are we going to be six months from now. But from a company standpoint, with our flexible balance sheet-- we didn't lock in rates, which a lot of our competitors did-- and we're seeing the benefit of that now. And we just don't try to focus on maximizing short-term earnings. We're saying over a cycle, what's the right thing to do? And so even if it gets into tough times, I like where we're positioned right now.

- We always appreciate your soothing tone, Paul, especially in these crazy times. Always good to get some time with you. Raymond James CEO Paul Reilly, we'll talk to you soon.