Raymond James Financial

Raymond James posted solid fiscal third-quarter earnings results, generating revenue of $3.93 billion (up 16% annually) and adjusted EPS of $3.14 (up 44%). Shares were roughly flat in July 22 aftermarket trading.

Why it matters: Overall, this was a mixed quarter for Raymond James. Wealth management results were strongest, with 5.5% annualized organic net asset growth, while investment banking results disappointed relative to expectations despite 25% annual growth. In wealth management, it was great to see organic growth clock in comfortably in the mid-single-digit range after a tough recruiting year in 2025. Raymond James remains in the upper echelon of asset gatherers industrywide, with strong advisor retention and a collegial, advisor-first culture representing intangibles that allow the firm to punch above its weight in a competitive recruiting environment. With $1.86 trillion in private client group assets, we believe the firm has the scale to offset the technological investments required to remain competitive in a rapidly evolving industry and should remain a long-term winner in the attractive US wealth management space. Considering investment banking, results were disappointing given the blowout earnings posted by bulge-bracket banks, though approximately in line with Stifel Financial's results reported earlier on July 22. Middle-market investment banking volumes remain sluggish, and we expect ongoing underperformance in the near term, as recent activity has skewed toward mega-cap merger and acquisition deals and IPOs—a dynamic that looks set to persist at least through 2026.

The bottom line: Due to strong market appreciation during the quarter and a commensurately stronger outlook, we've raised our fair value estimate for narrow-moat Raymond James Financial to $187 from $178. We expect the firm to generate reasonably attractive compound annual growth rates of 6.0%, 6.9%, and 10.7% in revenue, operating profit, and diluted EPS over the coming decade.

We maintain a $187 fair value estimate for Raymond James, which corresponds with a fiscal 2026 price/earnings ratio of 16.1 times and a price/book ratio of 2.7 times.

Taking a step back, we are optimistic regarding Raymond James’ midterm outlook, calling for post-provision net revenue to grow at a 6.0% annualized compound annual growth rate over the next decade. The majority of revenue growth can be linked to our assumption of client assets under administration compounding at an annualized rate of 8.2% over that period, underpinned by a combination of a 4.9% forecast growth rate from market appreciation and 3.8% annual growth from net new asset flows.

The firm's advisor-friendly culture and willingness to continue to reinvest in tools and products that better serve those advisors have allowed it to consistently punch above its weight, with Raymond James boasting one of the premier asset-gathering platforms in the US wealth management space despite its relatively small scale. We see little in the competitive environment or the firm's investment priorities that would undermine this positioning, at this stage.

Our forecast midcycle operating margin for the company is 21.6%, resulting from a 65.2% compensation ratio and a 13.2% noncompensation ratio, inclusive of provisions for loan losses.

We believe that Raymond James Financial warrants a narrow economic moat rating, derived from switching costs, implying that we believe that the firm will generate excess returns for at least the next decade. More specifically, affiliated financial advisors risk losing a significant chunk of client assets and incurring substantial retraining costs when leaving the Raymond James platform, resulting in strong asset and advisor retention for the Florida-based advisory firm. Quantitatively, our view is corroborated by average annual returns on equity of 15% over the past half-decade, comfortably exceeding our estimated 9.4% cost of equity for the firm.

Raymond James operates through four key segments: the Private Client Group (wealth management), asset management, banking, and capital markets. While the consolidated results are reported separately, they’re closely intertwined, with the asset management, banking, and capital markets segments primarily providing a broader range of investment products, lending products, and brokerage services for the firm’s wealth management clients. We see growth in the asset management, banking, and capital markets segments as largely tied to the Private Client Group segment; thus, we believe the wealth management business should be the focal point in evaluating the consolidated entity's moat.

The wealth management business, responsible for 72% of reported net revenue in fiscal 2025, offers a comprehensive suite of financial planning and investment advisory solutions to Raymond James clients. Broadly speaking, wealth management is a very attractive business, as the relationship forged between advisors and clients creates substantial inertia that is difficult for both parties to disrupt, particularly for more affluent customers with more complex financial circumstances.

At the advisor level, switching costs are best illustrated by unplanned client attrition and by retraining costs when advisors transition firms, both of which incentivize advisors to simply stay put. Cerulli Associates estimates that advisors lose about 30% of client assets when changing firms (about a third of this, or 10% of total assets, on purpose), directly impacting advisors’ revenue-generating capability. Furthermore, changing firms may require learning new trading and bookkeeping systems, as well as a new suite of investment products, which requires extensive retraining and diverts time advisors could otherwise spend focusing on clients’ financial needs and building their book of business. Industrywide, financial advisors stay with a firm for an average of 10.8 years, equivalent to a 90.7% annual retention rate. Between its strong culture, competitive training program, and diverse affiliation options, we believe Raymond James comfortably exceeds this benchmark, supported by 97% advisor satisfaction and strong organic asset growth (recruited assets net of churned assets), even though the churn metric is not directly disclosed.

From the client’s perspective, advisors build deep trust over time by navigating them through market volatility and significant life events. In our view, the relationship between an advisor and their clients is the fundamental “moat” in this business, with asset retention rates comfortably north of 95% for client relationships north of $250,000 (McKinsey). While explicit switching costs can manifest to some extent, as clients may be forced to sell down some holdings when changing financial advisors, we view switching costs as a factor only for the highest-net-worth clients with incredibly complex financial lives. Morgan Stanley, for example, cites asset retention rates of 99% for clients with more than $1 million in investable wealth.

For the three other segments at Raymond James, we view them largely as extensions of the Private Client Group. The capital markets business provides advisors with the necessary brokerage services to conduct trade execution and research, and offers access to some more exotic holdings, including private equity, municipal bonds, and corporate debt. The bank segment provides advisors with lending products to offer clients. The asset management segment, for its part, provides the Private Client group with a catalog of fund products managed in-house across equity and fixed income categories, with nearly 70% of AUM in the asset management segment comprised of client assets from the wealth management segment of the business.

To summarize, we believe Raymond James has carved out a durable competitive advantage built around switching costs in its wealth management business, which has consistently gained market share in the attractive US wealth management landscape. The firm’s auxiliary businesses primarily support this wealth management segment and should be considered joined at the hip for analysis, despite their strong, independently reported return profiles.

The firm could continue to collect net new assets at rates that outpace the broader industry, significantly improving its earnings potential as predominantly a fee-based business.

Continued success in luring employees and independent advisors to its platform at rates that exceed industry competitors would further bolster its client asset base.

There's a possibility that advancements in AI drive significant improvements in the wealth management firm's cost structures and advisor productivity. If these exceed any demand cannibalization or cash sorting pressure, margins could swell.

Wirehouse firms have ample firepower for advisor recruiting, and could ramp up transition packages, pressuring margins, growth, or both for independent broker/dealers.

Advisors could increasingly opt to pursue the independent RIA channel, leading to increased competition with custody service providers in this space, like Fidelity and Charles Schwab, which boast significant cost advantages.

Low-cost wealth management alternatives, such as robo-advisors, could lead to extensive fee compression in serving lower-net-worth clients.