Message from the Chairman and CEO

Thirty years ago, on October 19, 1987, the Dow Jones Industrial Average lost more than 20% in a single day. In the midst of what became known as Black Monday most firms in our industry closed their trading desks to avoid incurring larger losses. Raymond James did not.

Instead, we accommodated clients’ trades, even as we took accompanying losses. Doing so was a testament to our founding commitment – to ALWAYS put clients and their financial well-being first. That quarter in 1987 was the last time the firm posted a quarterly loss. In the three decades since, there have been similar challenges – from the dot-com bubble of the early 2000s to the financial crisis of 2008-2009 – as well as less widespread ones. Raymond James weathered all these, not only remaining profitable every quarter but also taking advantage of significant opportunities.

This year was no different. We managed through challenging regulatory and legal hurdles, most notably the initial implementation of the Department of Labor’s (DOL) Fiduciary Rule, which required several significant changes to comply with the rule’s complex requirements for advisors providing advice relating to covered retirement accounts. We also incurred a large legal settlement related to an alleged fraudulent EB-5 government visa investment program created in 2007 by third parties and offered directly to foreign investors. We faced multiple hurricanes, including Hurricane Irma, which required Raymond James to transition to our business continuity protocol, but more importantly provided the opportunity to reinforce our cultural focus on people through our support of associates and of recovery organizations. We integrated three firms, re-introducing the venerable Alex. Brown as a division of Raymond James, welcoming the esteemed advisors of MacDougall, MacDougall & MacTier Inc. (3Macs) in Canada, and joining forces in Europe with Germany-based M&A advisory firm Mummert & Company Corporate Finance. And we turned in outstanding results, generating record net revenues of $6.37 billion and record net income of $636.2 million, or $4.33 per diluted share.

The 18% revenue growth over fiscal 2016 was largely attributable to growth in Private Client Group (PCG) fee-based account assets, record investment banking revenues, and the benefit derived from higher short-term interest rates. The strong revenue growth resulted in our net income increasing 20% over fiscal 2016 despite $130 million of expenses associated with the above legal settlement, $46 million of losses on extinguishment of higher-cost debt, and $18 million of acquisition-related expenses during the fiscal year. Our return on equity for the year was 12.2%, which was acceptable given the aforementioned expenses and the strong capital position we maintained throughout the year. Our shareholders’ equity of $5.6 billion on September 30, 2017, increased 14% over September 2016, resulting in a book value per share of $38.74. All of our core operating segments generated record net revenues and record pre-tax income in fiscal 2017

The Private Client Group generated record net revenues of $4.42 billion, a noteworthy increase of 22% over fiscal 2016, and record pretax income of $373.0 million, a 10% increase despite the impact of the legal settlement in the same year. These records were aided by strong financial advisor retention and recruiting results, higher short-term interest rates, and market appreciation during the fiscal year.

The DOL Fiduciary Rule was a moving target in fiscal 2017, as the applicability date was delayed from April to June, and several components of the rule were ultimately deferred for another 18 months. The uncertainty and far-reaching effects of the rule meant it was a significant focus for PCG this year, as well as for other areas of the firm that support financial advisors. We continue to believe the rule, while well-intended, limits choice for investors and negatively affects the very people it is trying to help. We therefore support the SEC’s efforts to work with the DOL and the industry to establish a uniform standard for all account types, and will continue to lend our voice to this cause.

During fiscal 2017, we continued to make significant investments in technology, focusing on enhancing our industry leadership in advisor-facing systems, facilitating compliance with increasingly complex regulatory requirements, and strengthening the stability and security of our platform. For example, we rolled out and earned an industry recognition award for our mobile capabilities, which enable advisors to conduct most of their business from a mobile device. We also launched the beta pilot of our Connected Advisor digital advice platform, which is our response to “robo-advice,” but differs in that it focuses on strengthening relationships between advisors and their clients through the use of automated technology and datadriven insights. We are entering fiscal 2018 with optimism about the prospects for PCG, as we ended fiscal 2017 with 7,346 financial advisors and record assets under administration of $659.5 billion.

In the Capital Markets segment, record net revenues of $1.01 billion and record pre-tax income of $141.2 million were both up modestly over fiscal 2016. The segment’s record results were lifted by strong investment banking revenues of $398.7 million, which increased 31% over fiscal 2016. The acquisition of Mummert & Company in fiscal 2016 bolstered our cross-border M&A capabilities and contributed to part of the 54% improvement in the firm’s M&A revenues in fiscal 2017. While investment banking was strong, both institutional equity and fixed income commissions continued to be challenged during the year. Low volatility in the equity markets resulted in a modest decline in institutional equity commissions. Similarly, low rate volatility and a flattening yield curve caused institutional fixed income commissions to decline 15% in fiscal 2017, which still represented a favorable result compared to many of our direct competitors.

The Asset Management segment produced record net revenues of $487.7 million and record pre-tax income of $171.7 million, increasing 21% and 30% over fiscal 2016, respectively. Financial assets under management improved 25% to a record $96.4 billion. The increase in financial assets under management reflected market appreciation and increased utilization of fee-based accounts in PCG, partially in response to the DOL Fiduciary Rule. Carillon Tower Advisers/ Eagle Asset Management generated modest net inflows during the year, despite the industrywide headwinds for actively managed investments. We announced the acquisition of Scout Investments and Reams Asset Management in April to add scale to our asset management business with complementary fixed income products. The acquisition, which closed on November 17, 2017, added approximately $27 billion in financial assets under management.

Raymond James Bank generated record net revenues of $592.7 million, up 20% over fiscal 2016, and record pre-tax income of $409.3 million, up 21% over fiscal 2016. The bank’s loan portfolio grew 12% to a record $17.0 billion during the year. Despite a 1% decline in commercial and industrial loans, all of the other major loan categories, which focus on providing solutions to clients in our PCG and Capital Markets segments, grew substantially during the year. The bank also initiated the expansion of its available-for-sale, agency-backed securities portfolio, which ended the year at $2.1 billion. The bank’s credit metrics improved during the year, with nonperforming assets declining 49% to $44 million and criticized loans declining 12%. The bank’s net interest margin increased six basis points to 3.10% in fiscal 2017, helped by the increases in shortterm interest rates but partially offset by a lower-yielding asset mix during the year.

In addition to the impressive financial results we generated in fiscal 2017, there were many other achievements, accolades and milestones during the fiscal year:
  • Raymond James was added to the S&P 500® index, reflecting our long-term outperformance since the company’s inception.
  • Both S&P Global Ratings and Moody’s Investors Service upgraded Raymond James’ credit ratings during the year to BBB+ and Baa1, respectively.
  • Several Raymond James-affiliated advisors were recognized during the year, including nine advisors named to Forbes’ list of America’s Top Women Advisors, 32 advisors named to the Financial Times “FT 400” list of top financial advisors, 69 advisors named to Barron’s Top Advisors ranking, five advisors named to Barron’s list of the Top 100 Women Financial Advisors, 17 advisors named to Forbes’ list of America’s Top Next Generation Wealth Advisors, and 24 advisors in the Financial Institutions Division named to Bank Investment Consultant’s list of the Top 100 Bank Advisors
  • Our Investment Banking teams earned numerous awards during the year, including several awards from M&A Advisor and Investment Bank of the Year at the M&A Atlas Awards.
  • Raymond James announced the closing of a registered underwritten public offering of $500 million in aggregate principal amount of its reopened 4.95% senior notes due 2046. Additionally, the firm elected to redeem all outstanding 6.90% senior notes as well as all outstanding 8.60% senior notes during the fiscal year.
  • We launched a new national advertising campaign in March, using an integrated strategy of broadcast, print and online media to support overall brand awareness.
  • We continued to make strides for a more diverse and inclusive workforce, building on existing programs such as our Network for Women Advisors, which celebrated its 23rd year in 2017 with close to 400 advisors – including almost two dozen prospective advisors – attending our annual Women’s Symposium. Among our accomplishments this year: hiring a director of diversity and inclusion and significantly improving diversity on our candidate slates, which resulted in an increase of external diverse hires by 50%, including notable senior-level hires in PCG and Raymond James Bank, as well as our Compliance and Supervision areas.
  • We purchased three buildings adjacent to our five existing buildings on our St. Petersburg campus, significantly expanding capacity at our headquarters by 35% to accommodate future space needs.
  • Our associates continued to give back to our communities, contributing a total of $5.36 million, including the company’s match, to the United Way campaign and more than $250,000 to the American Heart Association’s Tampa Bay Heart Walk. Additionally, during Raymond James Cares Month in August, over 2,200 advisors and associates in 105 local communities across 35 states contributed more than 6,100 hours to benefit 161 nonprofit organizations. The number of organizations supported reflects an 11% increase from 2016.

Fiscal 2017 was an extremely good year for Raymond James. We made meaningful progress on several strategic initiatives, generated solid financial results, and ended the year with records for almost all of our key business metrics, including client assets under administration, financial assets under management, the number of PCG financial advisors, and net loans at Raymond James Bank. We also continued to plan for the future, developing long-term strategic objectives for each one of our businesses and establishing detailed plans to ensure seamless succession of leadership throughout the organization over the next several years.

We are starting fiscal 2018 with a favorable environment, as equity markets are at record levels and economic growth continues to improve both domestically and abroad. Additionally, the prospect of major tax reform appears likely.

Notwithstanding these positive developments, 30 years ago, Black Monday reinforced the importance of being prepared for the unexpected. To that end, we strive to always maintain ample liquidity and capital, with our capital ratios ending fiscal 2017 at more than double the regulatory requirements to be considered well-capitalized.

For our largest business unit, we expect continued retention and recruiting success in 2018 as our culture of independence and our AdvisorChoice model, which encourages advisors to affiliate with us in the way that best fits their business and client needs, continue to resonate. Even as large firms announced their intention to leave the industry’s Protocol for Broker Recruiting – an agreement among participants to not hinder the transfer of client contact information when an advisor leaves a firm – Raymond James reaffirmed our participation. We strongly believe that the advisor-client relationship is integral to putting a client’s interest first, and that our role is to support this relationship, even if it means helping an advisor leave Raymond James. In supporting advisors’ freedom, we know we have to constantly earn their business, their trust and their clients’ trust, and we do so through high-quality service.

The values that drive decisions like our commitment to the broker protocol – client-first, independence, integrity and conservative, long-term decision making – are the values that Bob James founded the firm upon, that Tom James ensured permeated the firm, and that are shared today by our Board of Directors and Executive Committee.

In February, when I was entrusted with chairman responsibilities, as Tom James became chairman emeritus and retained a seat on the board, I pledged that as chairman and CEO, my top priority would be to continue to preserve and strengthen these values. While I would not wish the fear of an impending hurricane – nor the realities of devastation that follow – on anyone, Hurricane Irma, which threatened our corporate headquarters, provided an opportunity for our entire leadership team to reinforce our focus on our values, and on the people who make our firm what it is. We flew approximately 190 associates, along with their families and even their pets, to our Memphis corporate location to allow other Florida associates to secure their homes against the storm; we opened our home office as a shelter for those without electricity or supplies; we gave associates in the path of Irma, Harvey or Maria $300 to help with the expenses of evacuation and cleanup, regardless of actual impact; and our Executive Committee led the way in giving to Friends of Raymond James, an independent 501(c)3 set up to assist associates and their families in times of need, resulting in $450,000 of total associate donations to Raymond James families affected by the hurricanes.

I am extremely proud to have been part of those efforts and am more reassured than ever that our values – and the people who live them every day – are what set Raymond James apart. They are the core of our strategic positioning, which not only enables us to be poised to deliver relative outperformance in almost any market environment, but gives me utmost confidence in the success of Raymond James in 2018 and for many, many years to come.


Paul C. Reilly Signature

Paul C. Reilly
Chairman and
Chief Executive Officer

Raymond James Financial
December 15, 2017