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Raymond James Financial Inc  (NYSE:RJF)
Q4 2018 Earnings Conference Call
Oct. 25, 2018, 8:15 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning, and welcome to the earnings call for Raymond James Financial's Fiscal Fourth Quarter of 2018. My name is Felis, and I will be your conference facilitator today. This call is being recorded, and will be available on the company's website.

Now, I will turn it over to Paul Shoukry, Treasurer and Head of Investor Relations at Raymond James Financial.

Paul Shoukry -- Treasurer and Head of Investor Relations

Thank you, Felis. Good morning, and thank all of you for joining us on this the call. We appreciate your time and interest in Raymond James Financial. 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 the 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, acquisitions, our ability to successfully recruit and integrate financial advisors, anticipated results of litigation and regulatory developments or general economic conditions. In addition, words such as believes, expects, plans and future conditional verbs such as will, could and would, as well as any other statement necessarily depends on future events are intended to identify forward-looking statements. Please note that forward-looking statements are subject to risks and there can be no assurance that actual results will not differ materially from those expressed in the forward-looking statements. We urge you to consider the risks described in our most recent Form 10-Q -- K and subsequent Forms 10-Q which are available on our website.

During today's call, we will 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?

Paul Reilly -- Chairman and Chief Executive Officer

Thanks, Paul. Good morning, everyone. So we certainly have had an interesting week in the markets, especially for financials. And I know, a lot of you will have questions kind of on our quarter. So I'd like to start first with kind of just a perspective on the quarter and the year.

At the bottom line we had a good quarter, we had record revenue and record profits. And on the back of a very good year, again, with record revenue and record profits. But most importantly, we ended with record level of client assets under administration, record financial assets under administration, record level of bank loans, record number of FAs. And these are the metrics that really drive our business going forward.

I believe we're in good shape heading into the 2019 fiscal year. However, the equity market volatility and direction certainly raises some questions and certainly we'll talk about cash balances and deposit betas throughout the industry. I have some question.

First, let me reflect on the quarter and the year, and then I'm going to turn it over to Jeff Julien. He's going to go over some detail on line items and will discuss maybe some run rates on some of those line items. First, for the quarter we had record net revenues of 1.9 billion, up 12% year-over-year and 3% over the preceding quarter. We had record net income of 262.7 million or $1.76 per fully diluted share and adjusted net income of 250.8 million or $1.68 per diluted share, up 14% year-over-year and 8% over the preceding quarter.

The variance to the consensus models was almost entirely driven by two lines, our evaluation writedowns which I'll let Jeff talk about. And really our other expenses, really the biggest line variance was legal and regulatory. And that is always one that's hard for us to estimate throughout the year, we always have various cases and we have to evaluate them as we get more information. And we try to reserve what we believe is the right levels. As we get more information we often adjust those reserves. So we believe the run rate was lower than what we've experienced in last two quarters, but it's an inherently unpredictable and episodic type of line. So it's makes it very hard for us to predict or give you guidance on a quarterly basis.

Turning to the fiscal year, our revenue -- our net revenue of 720 -- sorry, 7.27 billion, up 14% over last year and our net income of 856.7 million, up 35% over last year. And if you look at our adjusted net $964.8 million, its up 26%. Now, lower tax rate certainly helped almost everyone over the last year in all industries. But if you take a look even at our pre-tax income of 1.3 billion, was up 42% over last year and our adjusted pre-tax was up 17% over last year. So good solid, even non-adjusted tax earnings for the firm.

And if you look at our ROE of 14.4% and our adjusted ROE of 16% for the year, we had a very good, I think ROEs considering our strong capital position. And again, we measure our ROEs on total capital, not on tangible. Most importantly, as I said before, we ended the fiscal year with record quarterly client assets under administration of 790.4 billion, up 14% year-over-year and 5% sequentially. Record quarterly financial assets under management of 140.9 billion, up 46% year-over-year, which was aided by the Scout and Reams acquisition, but up 4% sequentially.

Record quarterly financial advisors of 7,813, up over 6% year-over-year and over 4.5% really just from organic recruiting, a fantastic record recruiting year, which I'll talk a little bit more later. And net loans of 19.5 billion, with strong credit metrics. And so, overall, all of our future growth drivers were in good shape.

I'm going to spend a second on the four segments before I turn it over to Jeff. Private Client Group, record revenue for the year and the quarter, up 15% over 2017. Record pre-tax year, but down quarterly due to other expenses that we will get into a little bit with Jeff. We had record recruiting and by our count, over 300 million in trailing 12. And just to put that in perspective, that's a little bigger than the Alex Brown acquisition and that was just through recruiting. And on top of that with the regrettable attrition still staying under our 1% target. So really a fantastic kind of organic growth in private client group.

Fee-based accounts, up 24% year-over-year and 7% sequentially. In the capital markets business, we had record investment banking revenue of 155 million for the quarter and 441 for the year. That was really driven by record M&A for the quarter and the year. And great performances, particularly by our tech services, healthcare and real estate where we had our largest fee, plus really our Mummert acquisition has really increased our cross-border activity.

Tax credit funds really surged, they had 60% of their production really in this quarter for the year. And that's because we had really a delay. If you remember, when the tax act changes people were slow to kind of tax adjust the value of credits and that worked its way through. We've really caught back up and we think we'll see kind of a similar run rate, not for the quarter, but over the year, next year, but it was a little bit of a catch-up quarter for them.

Equity underwriting remains challenged, given our historical strength in real estate and energy which has had headwinds, that's -- it was a challenging year for us there. Public finance was almost flat, which is a big plus given the advance refundings, almost 30% of the public finance business kind of went away with the tax Act. Fixed income still remains very, very challenging, both with low rates and the flat yield curve, but I'm very proud of our team, they've done a great job of managing costs and inventories given a very, very difficult environment.

Asset Management, record quarterly and yearly net revenues and pre-tax. We had record quarterly financial assets under management, it was up 46% aided again by the Scout and Reams $27 billion during the year. But even sequentially another 4% gain. Raymond James bank, record net revenue and pre-tax for the quarter and the year. Record net loans, as I talked about earlier, up 15% year-over-year and 3% even sequentially.

So, NIM improved during the year, a little slightly in last quarter. I'll let Jeff get into that, there's a lot of moving parts, but very good credit quality, as criticized loans were down 12% for the year. So overall, great metric, strong year and quarter despite two items that Jeff will now go into some more details before I talk about -- little more about outlook. So, Jeff?

Jeffrey Paul Julien -- Chief Financial Officer

Thank you, Paul. Let me jump right in. I have a fairly a long list today, starting with our largest revenue item. There's some detail breakdown between PCG and capital markets on pages nine and ten of the release of securities commissions and fees. You can see, for private client group we had nice gains for the quarter, year-over-year and sequentially. The shift to fee based accounts, which really peaked about a year ago in light of -- at that time pending DOL rule has continued for the first part of this past year and it's at a slower rate now, but there is still a bias toward fee-based assets. And so basically within that PCG line item, fee growth overcame what we've seen for the last several quarters in the way of a transaction decline or decline in transactional based revenues.

So, the fee growth has continued. By way of kind of looking forward, you can see the fee-based assets in private client group accounts were up 7% sequentially June to September, which gives us kind of a good start billing wise for the December quarter as those are all built quarterly in advance.

And on the same pages, within capital markets, you can see the continued weakness. The year-to-date comparison on page 10 really shows that best as both equity and fixed income declined year-over-year on the commission side.

Paul mentioned the investment banking line, which came in ahead of expectations, driven by record M&A fees, both for the quarter and year-to-date, certainly the fourth quarter surge in tax credit fund fees was a contributor as well. But again, if you look at the year-over-year detail on page 10, you can see underwriting revenue is down 27% for the year, which certainly presents an opportunity for us going forward.

Investment advisory fees, although a very large number. It's pretty highly predictable and very correlated, obviously, to assets under management. And that was pretty much right in line with expectations of everyone. So not a lot to say about that line item itself.

I do have quite a few things to say about interest, however, and there are several inter-related factors. Let me first start with sweep balances, which are shown on page 12 of the release. You can see, they're down about $2 billion for the year, as our clients have been seeking higher yielding alternatives and this is not unique to us, this is industry wide, but that certainly has implications for our net interest earnings, as well as account and service fees, that I'll talk about in a second. As well as longer-term considerations, we use that generally as the financing vehicle for our bank's growth.

With respect to geography, 47% of the sweep balances are now going to Raymond James Bank, which is on balance sheet. We're actually comfortable going somewhat higher in terms of a percentage to the bank. If it's for purposes of growing the liquid securities portfolio. And by comparison, many of our peers are substantially higher in terms of the percentage of their cash balances being swept to their proprietary banks. That obviously at the bank level generates interest income. Those balance is swept outside banks, which are off balance sheet actually generates fee income for the company and that's included in the account and service fee line.

On page 12, you can see the shift. As we continue to grow Raymond James Bank throughout the year, the decline in cash balances that I mentioned earlier, really was fully absorbed by the third party banks, which actually lowered -- over the course of the year lowered our fee income, the net account and service fee line.

The third aspect of interest earnings has to do with rate spreads in our spend to deposit beta. With respect to third party banks, we had an interesting dynamic this most recent quarter, which actually was picked up in a couple of year reports. In that, the -- we have about 30% of our earnings side within the outside bank sweeps tied to LIBOR, the rest tied to the fed funds effective rate.

Interestingly, those two have not moved directly in sync, the spread between LIBOR and fed funds effective rate actually narrowed in July following the June rate increase, and stayed more narrow during the September quarter than it had been previously. Conversely, we benefited from an extraordinarily wide spread between the two in the December and March quarters.

So as a result, that fee from outside banks not only was impacted by lower balances, but it was also impacted by those that are tied to LIBOR relative to our deposit rate we're being paid. The narrowing of that caused another compression to some extent in that. When that cause, what I would -- I would say those are the primary reasons that there was -- we missed your expectations on the account and service fee line between the balances and the compression of that spread between LIBOR and fed funds effective.

With respect to the NIM at the bank, this also impacted by that same LIBOR, fed funds dynamic. Again, their deposits are -- and our bank sweep program are based. Generally we set those rates pretty statically throughout the quarter across all of our deposit products, CIP and the bank sweep internally and those that are going externally, but they -- a lot of their assets, particularly the C&I loan portfolio is pegged to LIBOR. And when that tightens relative to fed funds, you're going to see the same dynamic and that really was the reason that the bank net interest margin compressed a few basis points during the quarter. And you can really see that very clearly on page 13, where we have the interest rate analysis for the bank. You can see that the C&I loan portfolio, the yield on those assets went up only 4 basis points, whereas the cost of funds went up significantly more than that versus the preceding quarter. That's just a result of that dynamic that I just mentioned.

Let me talk about the deposit beta. Now for the last two fed rate hikes we've averaged about 50% deposit beta. Going forward, we actually continue to believe that at some point there will be some compression in spreads likely when the fed is through with this cycle of raises. So, at some point we believe the deposit beta will be greater than 100, I don't know when that will occur. I think, I mentioned in Analyst Investor Day and I think I'm still of the opinion that as long as the fed is continuing their quarterly rate hikes, then we have at least an opportunity to maintain something close to our existing spreads, but when -- again, when that music stops, my guess is, there were still be competition for those deposits, at that point, I think we might start seeing compression. So it's just a matter, in my opinion, of when that happens, whether it's in fiscal '19, '20 or possibly never.

Other revenues, as Paul pointed out, that was one of the two line items that caused really the entire miss for the quarter. It was obviously negatively impacted by this private equity valuation write down, really related to three separate investments, there wasn't one investment only involved, it was partially offset by non-controlling interests and several smaller items which were all negative for the quarter, but it wasn't just the $11.9 million net write down. I mean, we become accustomed, unfortunately, maybe even complacent that we've been realizing numbers between typically a few million and up to $10 million or $12 million per quarter profits from all these private equity investments. So it's really the swing from -- going from about a $5 million or $10 million gain in the quarter to a $12 million loss, which really was the difference in that line item versus expectations. So it's $15 million to $20 million swing.

On the expense side, compensation -- comp ratio came in very nicely for the quarter at 65.2 and came in at 65.9 for the year. We're actually going to stay with our target of 66.5 or less. For now we have some aggressive hiring plans in certain support areas as we continue to grow the sales force. PCG comp has moved up slightly due to grid creep, as people have become more productive and we are hiring FAs at higher and higher levels of production. And certainly with the successful hiring we have more amortization of front money deals. And, so to me those are good expenses, because they relate to growth. So -- but they will cause some pressure on the comp ratio, so we're going to stick with our previous target for now.

The communication info processing line, we ended the year slightly above our guidance, we came in at $91.5 million for the quarter, we thought it will be 90-ish, but it was -- in total dollars it was up 18% over 2017 and we do not see a similar rate of increase for next year. We think it'll probably be more in the 10% range. For next year we have a number of things under way, of course, involving FA desktop, on boarding systems, enterprise financial reporting systems, data security regulatory tools, etc, etc. Lot of which are in progress and not going to stop. So when we sorted it all out and looked at what's going to come on line and became amortizing and things like that for next year.

Right now, our best estimate is, that line will be up about 10% as I mentioned, which takes us from this 91 level to about $100 million a quarter for next year. But, again, that's subject to what the market is doing and our overall results are doing, some of that's controllable, a lot of it is not. In the business development line, I'm happy it say, it came in right in line with our previous quarters revised guidance, where I said it will be between 45 million and 50 million a quarter trending toward the higher end in the June and September quarters when we've got the majority of our conferences and trips, and lower in the other quarters. It came in at 48 million-ish, I think $47 million for the quarter, right in the middle of that range, which was a good result. I think that we're going to stick with that guidance for next year. December will probably be the lowest of the year and June and September will still be the two that are the highest. And March is somewhere in the middle, because it got some -- March and December should be on the low end and June and September should be on the high end, it's kind of similar to this year.

The bank loan loss provision was somewhat consistent with expectations, looked a little high when you look at net loan growth with our 1% allowance, particularly in light of the improved credit metrics which are shown on page 12 of the release. But the fact is, during the quarter, we had a couple of what I'll call special reserves, particularly I'll mention one related to the hurricane affected areas in the Carolina's from Florence. And this coming quarter we'll evaluate whether we need to do something similar for Michael for whatever loans we have outstanding in the Panhandle. But beyond that, there were not a lot of surprises in the loan loss provision. And then in other expenses, Paul touched on this line to some extent. We thought the preceding quarters legal, and regulatory reserves were elevated well. We managed to surpass that a little bit this quarter.

There are other things in there, obviously, besides legal and regulatory reserves, but that's the dominant factor, but there are consulting fees and some of the recurring expenses that just continue to go up as we grow. But for next year, when we look at what our expectations might be, excluding any out sized legal reserves, which are of course an unknown. We would expect this line to average in the high $70 million to $80 million, up from what was our previous run rate of 72 million a quarter for last year, ended up being a lot higher than that with these last two quarters. So another one that's up about 10% or so from a year ago in terms of a run rate.

I'd like to touch on the tax rate for a moment. The adjusted tax rate for Q4 was a little bit high at 28.8, but for the year because of some adjustments we made still trying to perfect or refine our estimates relative to the tax act, but the adjusted rate of 26.7 for the year was actually slightly below our 27% to 28% guidance number. For 2019, bear in mind, given our September fiscal year end, we had a blended tax rate for federal purposes of 24.5 last year, that drops to 21% for fiscal '19. So we'll get the full benefit of that lower federal statutory rate, plus we're -- so we are basically projecting a combined state and federal rate of somewhere between 24% to 25% for next year. That's without taking into account whatever might happen with COLI.

And I'll just remind everybody, while the federal rate was lowered to 21% it's not really the effective rate, because several items have now become non-deductible, including a lot of entertainment expenses, a good portion of our FDIC premiums, some executive comp etc, etc. things that are deductible that are no longer. So the 21% really is 21%, but it certainly going to be lower than it was this year.

So versus our targets that we set forth last year. I'm kind of pleased to say they were all met, except for the Private Client Group margin. And we've talked about some of the things that impacted that, that's obviously where the legal and regulatory accruals are hitting. Interestingly, the shift of client cash sweep to Raymond James Bank actually is a cost, if you want to call it that the Private Client Group because they earned the -- that entire account and service free from outside banks, but when we shift it to the bank they get reimbursed just for the administrative cost of maintaining the sweep accounts, etc. So it actually end up with lower revenue, so that shift from outside bank's to Raymond James Bank actually that was a negative to the Private Client Group segment, not to the company as a whole.

For 2019, I want to just mentioned, we have kind of recomputed the appropriate charge from the banks to Private Client Group for generating and maintaining all these sweep balances and accounts. And the recomputation is going to result in about a $60 million additional payment from the bank to the Private Client Group next year, which will -- no consolidated impact on the company at all, but that will impact the segments for those of you who model on a segment basis.

And lastly, as I mentioned before, their has been some comp increase in PCG from the grid creep and the rate amortization of note. So, bottom line we are going to maintain our targets this time, but that's based on current deposit beta and our current spread kind of being maintained throughout fiscal '19. And probably more at risk, a flattish equity market, because obviously the quarterly billings and all are a big part of the Private Client Group revenue stream.

A couple of other points, one share repurchases, we've mentioned that we began repurchasing shares during the September quarter. We end up purchasing just over 400,000 shares as we begin to offset dilution, we've talked about this in the past. And we hope to continue that throughout the year and to get closer to offsetting dilution for the entire year.

Lastly, the revenue recognition standard, we're about the last adopter, I guess, given our fiscal year. This standard will actually not have a real big impact on revenues and expenses, we will have no impact at all to segments at the bottom line. But what will change is the look and line items within our P&L. So with some sometime in late November we'll be providing an 8-K, we are filing an 8-K, which will provide eight quarters of our results, trailing eight quarters in the new format. And obviously they will make ourselves available to discuss, what's -- what the composition of each of those new line items, etcetera, with any of you have questions on that. So there will be a little bit of a new look and feel, but shouldn't be a lot of change to the overall results.

Back to Paul.

Paul Reilly -- Chairman and Chief Executive Officer

Thanks, Jeff. We know we have a lot going on and I'm sure there are questions. So I'll try to sum up fairly quickly. As we look for the quarter at the segments, the Private Client Group. First, we're starting up with fee-based assets, up 7%. And that business we do bill quarterly in advance, so we should have some tailwinds in that segment from that. But, of course, we'll see what happens with client cash in this market, which will have some effect on interest. And Jeff talked about the change to the bank, but maybe more importantly is, the recruiting pipeline still remains robust. We're coming off a record year, it took us from '09 maybe in the down year to our best year to beat our recruiting record, but certainly the backlog looks very, very good and expect recruiting to still continue to robust pace.

In capital markets, we're optimistic about the M&A backlog. Again, that little bit of -- that's market-dependent. So hopefully, the sweep anomaly. And underwriting, coming off maybe a low base, looks like it's improving. So we're hopeful that we get a little bit liftoff that bottom. Fixed income is still really tough. I mean, with the flat yield curve and these rates, even with the volatility we've experienced lately, it's still just a tough market where people are watching and waiting. So we expect that to still be a tough part of that segment and weakness in institutional commissions and trading profits with this curve, we expect to continue in the segment.

Asset management, we're coming off a great year. We believe we'll still have continued inflows, especially as we recruit financial advisors and they continue to join. Now one of the tailwinds maybe there is, that business is billed on average balances or quarter-end balances, so the market could have a -- take a toll on that, depending what it does here going forward.

The Raymond James Bank, we had record loans and an attractive NIM. Short term increases in September should help, but again the LIBOR movement Jeff talked about is really going to be the biggest impact on spreads there. But we're looking at still remaining very disciplined in our underwriting and keeping the position. So we'll just see what happens in that market as we go forward, but again feel good about that. So net-net, I believe we are well positioned coming off the year and into the quarter. The businesses is in good shape.

But we're cognizant to a 10-year bull market markets could correct for a period of time, certainly affects our business and cash dynamics are certainly interesting. A lot of times when you have these corrections cash comes up, we'll see what happens, but it's been, we are seeing pressure on interest rates. Throughout the financial system. So again the cash invade interest beta will certainly impact results.

We are in a conservative capital position. So we always ask ourselves what happens, are we ready for bad markets and I believe we're in good shape to be opportunistic. If it's a tough market and in good financial position. So with that I'll thank you for joining the call. And I'll turn it over to Phil. Listen, we'll get to your questions, Phil.

Questions and Answers:

Operator

(Operator Instructions) Steven Chubak, Wolfe Research.

Steven Chubak -- Wolfe Research. -- Analyst

So, Jeff, I just want to start off with a question on the account and service fee line. I saw you guys provided some really helpful detail there. It looks like the revenues are down about 8% sequentially, the balances on third-party sweep down a commensurate amount. I know you had talked about LIBOR driving some more muted expansion in that third-party sweep yield. I'm just wondering as we look ahead, if fed funds and LIBOR move in tandem and beta stable below 100%. Would it be reasonable to expect some additional expansion in that yield (inaudible) the near to intermediate term.

Jeffrey Paul Julien -- Chief Financial Officer

Yeah. Certainly it's possible. Bear in mind that account and service fee that we show there is net, that's net of what's paid to client. It's net of the servicing fee we paid to the company that's promontory, that does the actions. So it's also certainly impacted by the deposit beta, but is it reasonable to expect that? Yeah, it's certainly is possible. I don't know how to kind of handicap it.

Paul Reilly -- Chairman and Chief Executive Officer

Long-term they kind of move in tandem, with short-term the spreads come in and out.

Jeffrey Paul Julien -- Chief Financial Officer

(inaudible) that's only 30% of those balances as 70% are tied to fed funds effective, which is more correlated with how we set deposit rates.

Steven Chubak -- Wolfe Research. -- Analyst

Understood. And I'm sorry guys, I can't help myself, but I had to ask the question on share buyback and capital deployment. If we look at, the last time you had done some meaningful share repurchase. It was fiscal 2Q '16, shares are trading a little bit above 12 times. Now you are trading at a meaningful discount to those levels. Nice to see some share buyback in the quarter. Although realistically your capital ratios continue to drift higher and didn't make much of a dent in the share count. Just given all the positive that you highlighted in terms of what you're seeing in your business recruitment, organic growth, how you're thinking about the stock at these levels, maybe what's the rationale for not pursuing more aggressive buyback here.

Paul Reilly -- Chairman and Chief Executive Officer

But we think our stock yesterday was lower than it was a couple of weeks ago. But the --

Steven Chubak -- Wolfe Research. -- Analyst

(inaudible)

Paul Reilly -- Chairman and Chief Executive Officer

Yeah. Our capital plan hasn't changed. We kind of told you we were onto a share dilution repurchase program which we're committed to. We haven't changed that strategy and let the board decides differently. But I assume we're going to continue on that. And we're looking for still opportunistic deployments of capital. We've been active in looking for those opportunities, but we're pretty disciplined on that. The one good side of a down market, it may create more of those opportunities, the market recovers, that's fine. We're going to stay disciplined. And so I think you're going to see us target to repurchase -- do enough repurchases to take dilution and be opportunistic if we think the stock drops at really attractive prices. So that we haven't changed that plan that we announced last year.

Jeffrey Paul Julien -- Chief Financial Officer

Buying back dilution equates to something around, I'll say just under 2 million shares a year, so 1.8 million to 2 million shares a year. So that's in fact gives you some kind of guidance, I don't know if it will be ratable for quarter obviously as as the stock gets less expensive, probably (inaudible) accelerate and vice versa.

Steven Chubak -- Wolfe Research. -- Analyst

Got it. And maybe just as we think about capital management. Paul, you made some remarks about how the market is coming, you might see some potential properties or assets trading at more attractive valuations. What's your appetite for M&A at the moment where do you see the most attractive opportunities for deployment here.

Paul Reilly -- Chairman and Chief Executive Officer

Our appetite for M&A hasn't changed, but it's -- we're still looking for opportunities and the Private Client Group asset management, mergers and acquisitions. And when we find the right opportunities or cultural fits are strategic and a good price we will execute. So just -- pricing sometimes gets more competitive in down markets and it gives us opportunities.

So we're not rooting for a terrible market, so we have opportunities, but if that happens, I think we're well positioned. So we've been active this year, we just have to find the right opportunities. And so, we're talking to firms that we think could add to our capacity and strategically and execution ability all the time. So that hasn't changed. So we just have to find the right trigger.

Jeffrey Paul Julien -- Chief Financial Officer

Not that we're rooting for a bad market, but two of the silver linings are that, that create some good opportunities typically in the acquisition space. But a second it does, as Paul mentioned earlier, typically raise clients allocations to cash, which would certainly be a welcome reprieve from the trend we've experienced.

Steven Chubak -- Wolfe Research. -- Analyst

Understood. I mean, just one quick follow-up for me. Jeff, since you made that last remark on client cash dynamics, since we've seen the correction here in October and it's been at lease sustained for a number of weeks. Have you seen any changes in terms of client cash allocations.

Jeffrey Paul Julien -- Chief Financial Officer

Not yet, but it's pretty early to see that. Actually for the last several months, we've kind of seen a bouncing along at the same level. So maybe we've kind of found a bottom anyway. That's -- really what's happening is, as we continue to have success recruiting results, new clients and cash balances coming in is somewhat been offsetting those that are moving to higher yielding alternatives, But if we're going to see a reallocation we haven't seen it in a meaningful way yet, but it's still pretty early in this volatility cycle here. (inaudible) So we will known a lot more in a few weeks.

Operator

Jim Mitchell, Buckingham Research.

Jim Mitchell -- Buckingham Research. -- Analyst

Hey. Maybe just talk a little bit -- I think you noted, Jeff, that you think you would be willing to kind of go drift above your sort of self-imposed cap of 50% of client deposits on the balance sheet. Is there a new limit? How do we think about what that capacity is? I mean certainly you have enough capital to do it, so how do we think about what your internal kind of thought process is around how big you could do that?

Jeffrey Paul Julien -- Chief Financial Officer

We kind of view the 50% limitation really as a constraint on what the bank deploys in the loans, which are less liquid. If they're going to just turn around and invest in liquid short-term securities, high quality, and not really any credit risk to them, yeah, that they still are a source of liquidity if the bank needs it. So we're sort of excluding those from the computation altogether.

But you did trigger another thought in my mind, Jim, is that one of the guidance numbers we've typically talked about has to do with the bank's NIM. It should drift down a few basis points this quarter. And back to the previous question regarding the LIBOR, Fed funds spread is a little hard to predict. But my guess is, particularly if we continue to grow the securities portfolio ratably over time, that the bank's NIM is going to be kind of in this 3.20% to 3.25%-ish range (40:29) maybe it's a bigger range than that maybe is 3.15% to 3.30% type of range given our loan mix and depending how fast the securities portfolio grows over time. So that's kind of where we think that would be. Sorry to deviate from your question.

Jim Mitchell -- Buckingham Research. -- Analyst

Got it. No, that's fine. All good.

Paul Reilly -- Chairman and Chief Executive Officer

And just remember that we talked about the NIM coming in at the bank if we put it into securities. But overall, we'll have higher earnings. That's why --

Jeffrey Paul Julien -- Chief Financial Officer

Higher earnings and higher ROE, just a lower NIM.

Jim Mitchell -- Buckingham Research. -- Analyst

Right. So you're not seeing much of an impact in this quarter from sort of the increase in LIBOR that we saw? It flattened out in 3Q, but it has sort of increased off late. But it's sort of a mix issue is what you're saying --

Paul Reilly -- Chairman and Chief Executive Officer

Yeah. We haven't seen yet, but bear in mind, all the loan repricings are typically either at 30-day anniversaries or 90-day anniversaries, depending whether they pick the one- or three-month LIBOR as their base. So a lot of those even didn't hit from last quarter's rate hike, and we haven't hit, until they repriced more recently, so and a lot of them -- they also continue to hit throughout the quarter, which is -- you'd say you lag a little on the way up but you also lag a little on the way down, which actually would help you. So those are on anniversaries as those don't reprice overnight.

Jim Mitchell -- Buckingham Research. -- Analyst

Right. Okay. Maybe just one other question on the FA recruiting. You talked about, I guess, for the full year the level of recruiting was trailing 12 months about $300 million in -- I guess in production. How much of that has been onboarded already? Is there still quite a bit of pipeline to go around the new FAs?

Paul Reilly -- Chairman and Chief Executive Officer

There's always kind of a year. It's interesting, some people can bring it over right away, I mean in the first 90 days and some -- but typically take a year-ish. So we're -- as you hire and they're lagging in, so there's still some tailwinds behind that --

Jeffrey Paul Julien -- Chief Financial Officer

And in this year we had a lot that were in last year's numbers that still came on during the course of this year.

So it might be almost close to that if the recruiting stays at the same pace, just spread out a little bit.

Operator

Bill Katz, Citi.

Bill Katz -- Citi -- Analyst

On the potential yields coming off of the client assets, if you could maybe talk to some of the trends you're seeing between the managed fees portfolio versus the brokerage? Look like retail revenues overall were a little soft of where we were thinking about. I'm just trying to understand if there's any sort of pricing pressure activity issues going within the assets themselves?

Paul Reilly -- Chairman and Chief Executive Officer

I'm not quite -- total sure, Bill, of the question. I think where we're seeing -- we're seeing cash movements in the money markets and other instruments, we don't have -- a lot of the big banks have tiered programs where they'll go into their -- the demand deposits to their -- money market to their super money market to their CDs, to the -- and you can see the big banks certainly pricing going up, in our deposit program so are you can see where we've been averaging about half of that deposit beta. The cash we're losing looks -- I mean out of the sweep really looks like it's going into money markets within our system. So we earn less off of those but that pressure continues. But I'm not sure exactly what you're --

Paul Shoukry -- Treasurer and Head of Investor Relations

Yeah, I think -- maybe you're talking about the revenue. This is Paul Shoukry. The revenue yield on fee-based accounts versus commission-based accounts in the Private Client Group.

Bill Katz -- Citi -- Analyst

Exactly.

Paul Shoukry -- Treasurer and Head of Investor Relations

I'd say for the fee-based accounts, that revenue yield has been pretty consistent over time. As those accounts grow in size, both with market appreciation and just larger clients, you would see that yield come down just based on the larger account sizes.

In the commission based accounts, as Jeff mentioned in his opening remarks, they have been pretty subdued in terms of transactional commissions, but then you get the market appreciation. So when you look at the revenue yield with subdued transactional commissions over higher asset levels, then the yield does go down on those to your point.

Jeffrey Paul Julien -- Chief Financial Officer

Yeah. The only caveat I would add to that is that when you get market volatility like we've had, typically that does increase transactional activity to some extent. Again it's too early for us to know that, but if that stays -- remains the case throughout the quarter, we may see a slight pickup, even in transactional activity we'll have to wait and see .

Paul Reilly -- Chairman and Chief Executive Officer

But our fee-based continues to grow so -- as a percentage, so it's less impacted than it used to be.

Bill Katz -- Citi -- Analyst

Great. Sorry my question wasn't clear. Second question is you'd given I think some sort of view of how you sort of see the quarters playing out in terms of the business development, but I didn't hear -- maybe I missed this, if I did, I apologize. Did you give a growth rate that you expect to see relative to the seasonal pattern?

Jeffrey Paul Julien -- Chief Financial Officer

Well, that $45 million to $50 million a quarter range is up from where it used to average in the low-40s. So it's yet another expense that's up probably a 10% plus. Just again, it's -- that one has a lot of controllable expenses in it. However, I will point out if our fortunes reverse here to some extent, there are a lot of conferences, trips, things like that that are in there, advertising, branding, things like that that we can control, and so that one's a more controllable line item. But based on our current level of operations, we still think that rather than averaging in that $40 million or $42 million range that it did last year, it's probably going to be between $45 million and $50 million for the year, and that is an increase form where it has been running.

Paul Reilly -- Chairman and Chief Executive Officer

I think that one of the dynamics that -- and people talked about our expense growth -- when you recruit FAs, you don't get all the revenue day 1, but you have them in a branch, you hire their assistance, you hire the support, you need compliance, oversight. We have a lot of expenses that we have to onboard them, I mean, we have a lot of expenses that really almost are a little ahead of the revenue flow. So as long as we're continuing to recruit, you're going to see those kind of expense growths continue too. So that's what I call the cost of doing the business. And until those -- the assets are over and the branches are filled and all of that, you really don't get any leverage off of that, so.

Operator

Devin Ryan, JMP Securities.

Devin Ryan -- JMP Securities -- Analyst

I guess another expense question here. I heard the comments on all the ranges that you gave, and it sounds like all of that's based on the expectation of another strong recruiting pipeline as well. And so want to pose a hypothetical here. To the extent you had a quarter where you didn't recruit any financial advisors, which hopefully isn't near, can you maybe just give us any sense of how much lower expenses would be?

Or maybe say it differently, when you have these big recruiting quarters like last several, and again, I know there's a lot of kind of lumpy expenses and it's not always a mechanical, but can you remind us of kind of the big buckets that are impacted? Just really trying to think about kind of the incremental expense in the system here as a function of what is a really good situation on recruiting.

Paul Reilly -- Chairman and Chief Executive Officer

Devin, on a quarter it's pretty hard to react because we're building infrastructure and costs up as part of the business plan, anticipating the recruiting. So if the music stopped, you would -- some of the transition expenses and stuff would stop, but we'd still have support, we'd still have all the things; recruiting, all the kind of the -- what I'll call semi-fixed costs in place. Over time we would adjust. We'd adjust in terms of head count. We could adjust in terms of bonuses, payouts. But over a quarter if the music stopped, the expenses wouldn't really be any lower.

Jeffrey Paul Julien -- Chief Financial Officer

And if you're asking on the first year. So, if you're talking about if recruiting really slowed down dramatically, you'd see probably lower -- less in the business development with fewer headhunter fees and ACAT fees and things like that. And you'd see -- eventually, you'd see less in comp as we have less amortization of some of the signing deals. But as Paul said, it'd take a while for that thing to work through the snake to really have a meaningful impact on a lot of other line items.

Devin Ryan -- JMP Securities -- Analyst

Yeah. Understood. No, I appreciate that. And then just a follow-up here. Just maybe a little historical perspective around financial advisor recruiting, when we hit patches of volatility that the last, for -- call it several months, when we have a little period of sustained volatility, does recruiting get impacted, or what's kind of in the psyche of advisors? And then maybe a step further, in an economic downturn does recruiting shift? Or would you expect it would shift as people take a pause?

Paul Reilly -- Chairman and Chief Executive Officer

I guess, two pieces. Our best year until this year was 2009. So, it certainly tells your advisors are willing to move, and in fact, we actually had to put a limit on recruiting back and then this is what we could handle.

So certainly, I think advisors, during times of volatility, they're going to question -- they're spending a lot of time with clients, so explain what's going on, so there may be an episodic slowdown for a period of time, but I don't think it really changes much our recruiting sprint. And over the last decade, it's continued to grow since the recovery.

So you could have episodic periods of where people are going to slow down just because they're distracted or busy. And we also, though, have a lot of people that are attracted to our value proposition versus where they are today, and I don't think that changes, but certainly it can be interrupted for a short period of time.

Jeffrey Paul Julien -- Chief Financial Officer

Yeah, Devin, it seems like it used to be more sensitive to economic environment than it is today. Now I think it seems to have more to do with what's going on at the competition or where they currently are than it used to, because typically they didn't move that much in good times, they didn't want to upset their revenue stream and risk their clients not coming over, et cetera, et cetera. But we've had good times for a lot of years and it hasn't slowed down the recruiting at all because it's had more to do with what's happening at the firm that they're at, yeah, so it seems to have more to do with them feeling like they're in the right place to do their business than it does with the particular environment at this point.

Paul Reilly -- Chairman and Chief Executive Officer

But it could, it could have an impact. It's just too early to tell how sustained and what the expectations are, but I don't think it has. It would be more of a pause during the changes -- so I think a change in the trend at this time.

Devin Ryan -- JMP Securities -- Analyst

And then, I apologize if I missed this, but just quick on the tax credits business. I know you kind of get back to the full year level just on the back of this last quarter. And so I know that's a lumpy business. But just for modeling purposes, how should we think about maybe a starting point? Is this kind of $50 million-ish kind of level you guys have been doing still kind of a reasonable level? Or just any other help you can give us there would be appreciated.

Jeffrey Paul Julien -- Chief Financial Officer

Yeah, I think that it probably won't be very different than the annual run rate this year. I mean, it's really driven by bank's need for CRA credits, and that hasn't gone away. So we would think it wouldn't deviate significantly from their current annual run rate. This last quarter was a catch-up from a lot of things that they had in progress, so I would annualize the last quarter.

Operator

And at this time there are no further questions.

Paul Reilly -- Chairman and Chief Executive Officer

Well, great. Well, l thanks, Phyllis. We appreciate everyone joining the call and we're anxiously watching the market -- I don't know -- we're not really anxious, but we're watching the markets like everyone else, so looking forward to an interesting quarter, but believe we're in a strong position to execute no matter where the market goes. So thanks for your time this morning.

Operator

Thank you. That does conclude today's conference. You may now disconnect.

Duration: 55 minutes

Call participants:

Paul Shoukry -- Treasurer and Head of Investor Relations

Paul Reilly -- Chairman and Chief Executive Officer

Jeffrey Paul Julien -- Chief Financial Officer

Steven Chubak -- Wolfe Research. -- Analyst

Jim Mitchell -- Buckingham Research. -- Analyst

Bill Katz -- Citi -- Analyst

Devin Ryan -- JMP Securities -- Analyst

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