Good morning, and welcome to the earnings call for Raymond James Financial's Fiscal First Quarter of 2019. My name is John, and I’ll 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-Investor Relations at Raymond James Financial.

Thank you John. Good morning and thank you all for joining us on this 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 that necessarily depends on future events are intended to identify forward-looking statements. Please note these forward-looking statements are subject to risks and 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. During the 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 non-GAAP measures to the most comparable GAAP measures that 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?

Great. Thanks, Paul, and good morning, everyone. I know you're having a lot of weather up there in the Midwest and Northeast, and I want you to know we're empathetic here. Our temperature has plunged from 80 yesterday to 70 today. So anyway, hopefully, it will rebound as the market did a little bit in January. I'm going to go over the first quarter fiscal results and then I'm going to turn it over to Jeff who's going to give you some more detail, kind of color on the numbers and then I'll be back for a quick outlook. So overall, as we look at last quarter, we certainly had elevated volatility, market declines in December, market uncertainty. Given all that, I think we had a very strong quarter. Now there are lots of moving parts, so I hope we can provide some clarity to you on the call. Overall, we had a record quarter net revenue of $1.93 billion up 12% over prior year’s quarter and 2% over the preceding record quarter last quarter. We had broad-based growth in revenues. We had record quarterly revenues for the Private Client Group, the Asset Management Group and RJ Bank. The quarterly net income of $249 million or $1.69 per diluted share was up 15% over last year’s quarter, but down 5% over the preceding quarter. But if you recall, both the prior quarter and the proceeding quarter were impacted by adjustments including the Tax Act. So if you look at a more apples-to-apples, the adjusted net income of $264 million or $1.79 per diluted share for the quarter. This excludes the $15 million loss from the disposition of our European equity research business. Given MiFID II and our scale, we just felt it was not a good investment for us. However,…

Thank you, Paul, I thank. First and foremost, this quarter was obviously this is being the first quarter, we presented in this new revenue format. So, for those of you who didn't have the benefit of the tutorial that we put on in December about this as well as the 8-K that we filed that sort of mapped the old line items to the new. Let me just state real quickly, the asset management and related administrative fees line, about 80% of that line represents the Private Client Group portion of fees from fee-based accounts, which are billed quarterly in advance, used to be in the line item called securities commissions and fees and the other 20% of that line item is what used to be investment advisory fees, which relate to the assets under discretionary management about, of those about 55% are billed in advanced, 25% on average balances and about 20% on ending balances. The line item brokerage revenues now, which consists of securities commissions and principal transactions includes the Private Client Group commission based activity, other than underwritings, which fall now into investment banking. Also includes the institutional commissions other than those related to our underwritings, which fall into investment banking. And also, includes a line item that was formerly there known as trading profits. All those are now caught up in what are called brokerage revenues. And then the investment banking line item are what the investment banking fee revenues that were always in that line is now includes the commissions, both to Private Client Group and institutional on underwriting activity and change, we're now grossing up the expenses related to transactions as we used to net them and give you a net revenue number, now those are grossed up in this line item. They are…

Thanks Jeff. I'm sure everybody found that exciting. So don't apologize. A little bit outlook, given the market, it's kind of hard to give little bit – to give outlooks. But we can tell you what we know and what we think we see. So in the Private Client Group, certainly our fee-based assets are down 8% at the end of the quarter. So that's going to lower our starting fee billing. So that's certainly going to be a headwind in the Private Client Group. However, the increase in cash balances and although $2 billion were redeployed, roughly half of that's in our fees that are paid out of cash usually to clients. There's also probably a lot of tax harvesting where people go out of the market and come back in at the end of the quarter and other deployments in the cash. We don't know what's going to happen with that net increase, but if you take that net increase and add it to the higher short-term interest rates, that could supplement – could replace that revenue, depends what the balances are going to be, we'll have to see during the year. And a reminder, those cash balances aren't compensatory. So they do have a positive impact on the net. It's a better net revenue and it also will have a positive effect on lowering the comp ratio. So we'll just have to see where that balance comes out. Financial recruiting pipeline is robust across all channels. And our retention, if people leave, they tend to leave at the end of the quarter and the fiscal year, just it's a cleaner time and there is no indication of anything, but retention continuing as we really focused on making this a great place for our advisors. Capital Markets, the…

Let me add, if I can Paul, just two more quick comments for those doing modeling going forward. In the communication and info processing line, if you remember, there is a seasonal factor that I forgot to mention that in the March quarter, we always have our 1099 mailings and our year-end summary statements to clients and et cetera, et cetera. That generally adds about $2 million to that communication line in the March quarter. Just as a reminder, and Paul mentioned the meetings in the business development line, we've kind of given guidance that it's going to be between 45 and 50 lower at the beginning of the year, higher at the end of the year. I think we came in right on that, it should build as the year goes as to later quarters of our fiscal year are more replete with trips and conferences than the early quarters. In fact, this quarter we had almost none of that. So we do expect that expense line item to build as we've given guidance before throughout the year.

Great. Okay. John, we're going to open it up for questions.

[Operator Instructions] And your first question is from the line of Devin Ryan from JMP Securities.

Hey, good morning, guys. How are you?

Good.

Okay, good. So first question just on capital. Obviously, we all saw the aggressive repurchases in the quarter and so trying to think about after that pace in that level, how you guys would frame the excess capital position of the company today, like how do you feel like your capitalized and then how much is excess? And then with the stock price where it is here, understanding it can move, how are you thinking about kind of toggling between repurchases or kind of building capital for M&A? And just the last piece of that question is, we all saw the [indiscernible] in the markets, I'm curious if that sparks more activity on the M&A side in wealth management?

So I would define our capital is less than it was a quarter ago as we've repurchased. Certainly, we have excess capital, we prefer to deploy it in acquisitions, and we are working hard on them. But I'll tell you that the pricing is important, we just don't, whether it's recruiting, a lot of firms have upped their front money and we just have not followed suit. So – and it's same in acquisitions. If we believe people are overpaying – I'm not referring to any particular acquisition, but we're going to hold back. So we're going to stay disciplined. We felt the stock was at very attractive price and have we not run out of 10b-5, part of that during the blackout period, we might have had more, but we're just going to stay disciplined. I don't think you're going to see a big change. We're going to opportunistically buy when it's a good price and be aggressive than when it's not, we're not going to do it, just to do it. So our preference has always been acquisitions. We do look at a lot and then when we find them we pull the trigger. So I don't see a big change in our approach. We just hope we've demonstrated we are willing to do it when we have the opportunity.

Absolutely. Okay, a quick follow-up here just on the legal reserves that have been affecting results the last few quarters. Can you just – I know there's a methodology there in terms of the kind of the accrual, but can you just give us any sense of the magnitude. Has it been similar in recent quarters? Was it similar this quarter to last quarter? And I know there's this kind of list of things that you're accruing for. Do you think we're in kind of a new normal of higher legal reserves and we're just kind of working through an existing list and ultimately what I'm getting is just trying to think about modeling kind of the other expense? I know that's lumpy, but kind of how we should be thinking about that taking into consideration the regulatory and the legal reserves.

Yes, we kind of – we have a methodology, when we have claims come in, depending on the size, we put an initial reserve, and like – just almost like a bank loan. And then as we get in more information, we evaluate it and say okay, given legal advice and everything else, what do we think has been appropriate reserve. And we don't – we'd rather – we'd rather have it adequately reserved than non-reserved, so we try to stay ahead of it and that's hard to do. So, hopefully this is elevated, but I can't tell you it’s not, but we try to stay ahead of the cases that we know about and you don't know what's around the corner. But hopefully, these last couple of quarters have been elevated and we think it will go down some, but –

Okay. I don't know if it's possible to give any orders of magnitude or just given some guidance on the other expense just whether excluding legal or anything you can do to help us with that?

Now it's – we've said it's been elevated about $10 million and ish, so I don't know if that's a run rate means we'll get all $10 million or it's going to be $5 million or $6 million in the environment and our downturns in the industry tend to bring up more cases, so it's hard to model. But I think it's been running about $10 million higher than we thought, but I don't know if that – if I would credit the whole $10 million long-term, it's just too hard to tell.

Yes, I appreciate the color. Thanks, Paul.

Thanks, Devin.

Your next question is coming from the line of Christian Bolu from Bernstein. Your line is open.

Good morning, guys. Just firstly, question on the 65 – 65 advisors that retired or I think died, you mentioned. Can you give us more detail on just the process and economics tied to those assets? Is Raymond James buying the book and allocate it back to advisors? How do the economics work? And if you've given the books back to the advisors, do they have a slightly different payout ratio given they're not the ones that built the book? Just trying to understand the whole process, economics et cetera.

So, on our firm clients own their books. So we don't – we don't. So typically on a planned retirement versus a death, which generally isn't planned, the advisor would sell their books or give their books to their team or to another advisor if they're selling their practice. So with those planned retirements, there's generally a succession and they're either – the succession has already started and the books are moving when the advisor officially retires or there is a sale and they get out of business. So most advisors will transition over time, but when they drop their registration and out, they come off our list, so there's no real change in economics to us, the buying advisor or the recipient advisor may have different economics or maybe paying the successor advisor, but there is no difference to Raymond James and that's usually the same. Hopefully, not all advisors have a catastrophic plan if it's unexpected or a retirement plan filed with us and those again would go to the successor advisors, and the economics would be the same to the firm. So we're not – we're not buying them and then reselling them, they're really – the advisors are essentially doing that.

Got it. Very helpful. And then just to follow up on the earlier question around capital return. I guess parent capital and parent cash, I think used to be restriction here, so how much parent cash is left? And then Tier 1 leverage at the Bank, is 7% still the best way to think about the minimum – management minimum?

Cash has been more limiting than capital but we're – I think we have pretty good cash and if you look forward give outside of given a severe downturn, cash will continue to build and capital will continue to build, so we're cognizant of that, of both in our looks to deploy capital. So I don't – I can't really give you a number on excess capital –

Let's not forget it's very material and we disclose that in the Qs. I mean, it's still in the neighborhood of $1 billion and which is kind of our target cash on hand at the parent level.

Got it. Okay. And then just a couple of clean-up questions here from me. On the European research business, any chance you can give us like the revenues and cost for that business to sort of figure out the financial impact, go forward? And then on Silver Lane, similar, any color on revenues, expenses or maybe historic growth rates of that business?

Yes. That business wasn't a large business and operated at a loss, but it wasn't a huge number. So I think you're – I couldn't tell you what they are off hand, but I don't really think they're big enough to impact your model.

I don't think you'll notice it.

Okay. Both of them, European research and Silver Lane?

On European, we don't think you'll notice European loan loss of that.

Okay, all right.

Silver Lane, we haven't disclosed anything yet so in terms of revenue or financials or…

Just so I'm clear, which one was – what's one at a loss, European Research or Silver Lane?

European Research, European Equity Research was not a profitable business for us and we didn't have scale, especially in MiFID. The U.S. Research business in Europe is profitable, it's been there for decades. Again, not a huge number relative to the whole firm, but it's been a very good business and the European M&A businesses has been – is growing and hopefully we'll continue to grow that. So – but the European equities business, the part that we disposed of, was not a large number, and it wasn't profitable, but again not it numbers.

And we certainly hope you'll notice Silver Lane in the M&A line.

Well, yes.

We have high expectations that is a very good business and good deal.

Okay, any chance we get any sort of revenue expense numbers ahead of time just to give us a ballpark here?

Yes, we'll see what we'll disclose here. So we're still in closing phase with Silver Lane here.

All right. Thank you very much, guys.

Okay. Thanks.

Your next question is coming from the line of Steven Chubak from Wolfe Research. Your line is open.

Hi, good morning.

Hey, Steve.

I wanted to start off with a question on the comp ratio. Jeff, I appreciate the fact that you're hesitant to adjust your comp target of 66.5 just given the time of year. Having said that, the reported comp continues to surprise positively, not just this quarter but four consecutive quarters of comp below 66 even when absorbing higher advisor recruitment which you cited as well as the FICA expense in the year-ago March quarter. And I was hoping you could just provide some color on some of the drivers that you're seeing of those sustained comp surprises, whether we should expect to see a decline in the comp ratio versus 2018, which came in closer to 69 – 65.9 I believe. Just given some of the positive momentum, it feels like you should be in a position given some of the tailwinds you cited to deliver some positive comp leverage.

Chris, I think this is simple thing is just interest. Steve, I'm sorry, it's just interest. Interest doesn't have a really a comp cost to us, so the surprises have been as that's become a bigger part of the revenue, it's positively impacted that ratio.

It could well come in at or below what last year fiscal year was. I mean, the biggest – a big swing factor in that is how much independent contractor production there is, we have that dynamic where there are more than 80% type payout level, which is distorting our comp ratio relative to peers, but if recruiting, which has been very good there, production is accelerating in the contractor side relative to the employee side, that distorts it to some extent as well as the mix of other revenues that come in. Right now the mix is such that it's going to be trending downward, we'll have this FICA impact as I mentioned this next quarter, but when we revise our targets, which we typically only really do annually rather than every quarter, we're giving you an outlook, but we typically only formally at the Investor Analyst Day kind of revise our outlook for the coming 12 months. I mean, it may go – well go down at that time.

Got it. Maybe just a question on loan growth, continued on a healthy pace this quarter overall. But we did see a pretty decent decline in C&I, it was just a bit of a surprise given industry C&I lending in the Fed H8 data actually suggested broad-based strength, and I was hoping just given some of the light late cycle fears surrounding commercial loan risk, you have pretty heavy gearing to the asset class. I was hoping you could speak to your appetite to grow the loan book from here, especially in light of the higher provision build than some of the credit downgrades we saw in the quarter.

Hey, Steve. This is Steve Raney. Good morning.

Good morning, Steve.

Yes. So the C&I book, as you know, it's our biggest asset class. We do expect to grow it. Over time, I would expect it to grow at a slower rate than our private client banking assets, residential mortgages and SBL. We're just continuing to be very selective. I would say that the C&I market has probably been and has continued to be more volatile than the rest of the sectors that we focus on, and just, we're going to be real disciplined relative to returns that we can generate in that business and really focused a lot on how we could be accretive to the rest of the firm, particularly investment banking clients, that we'll continue, we've got a big infrastructure, a lot of expertise around C&I lending and that will be continued to be a big focus for ours, growing at a probably a slower rate than the rest of the asset class.

It's not that we're not seeing C&I deal flow. It's just that, as Steve mentioned, we're just being really selective on which credits means spreads tightened during the quarter. They've since loosened again, but they tightened during the quarter, we’re not – they don't meet our hurdle rates or they're too levered or they're in industries we're not fond of et cetera. We passed and we still declined a significant percentage of loans that are introduced to us.

Got it. And I'm sure speaking for other investors and some what we've been hearing, I think I'll appreciate that discipline, given where we are in the cycle. Just one more follow-up from me on the deposit outlook. Positive repricing trends have surprised positively, 50% beta is certainly better than what we had expected. And I was hoping you could provide some color just on how you're thinking about deposit pricing from here given the favorable beta trends and more specifically in an environment where the Fed actually pauses in 2019. Do you expect deposit pricing to continue to grind higher in that type of environment?

Again, we can give you every prediction. We've been wrong since we started predicting. We do know, we've raised, we're near the top of about most categories. So we haven't been aggressive on this last increase because, so we think we're treating clients fairly. Having said that, spreads are records and positional money market funds are paying higher rates and that's going to be a competitive pressure. So we are going to react to the market, what we have to do to compete effectively and we've been surprised that the rate increases in the industry have been slower overall, but as you know for short-term cash if that's where clients want to put their money and we are not just going to raise rates to raise them, but I think we've been pretty disciplined. You see that we're – I think we've – we always get in trouble when we say what we think versus how we react. I mean, we are trying to be competitive and fair, but we're not trying to be leaders to support everybody along, which I think everybody thought we were going there. So we'll continue to be as disciplined as we have been and my suspect is that in time there's wide spreads, over time they get narrowed. So – but we'll see. I mean, it's slower than we thought.

Since we have such a poor batting average, I'll give you my outlook. I would say if the Fed is really finished for now and short-term rates are where they are for the rest of this fiscal year, my guess is there will still be selective increases to client rates over the course of the year, which will bring spreads in a little bit from where they are today. Maybe not materially, but in a little bit.

Thanks for taking questions.

Hope Jeff is wrong again, but we'll see.

Yes, and I'd actually like to see one more increase, then we'll be where we need to be.

Thanks very much.

Thank you.

Next question is coming from the line of Alex Blostein from Goldman Sachs.

Hey, guys, good morning. A question – first question just on that new asset trends. I know Paul, you mentioned what you're seeing in terms of the headcount growth in FAs for this quarter being slightly flattish. But I was wondering if you could talk a little bit more about net new asset trends backing into it feels a little bit more subdued versus what we've seen in prior quarters. Is it essentially just market volatility? Or is there something else going on, and more importantly, if you guys could highlight what you've seen so far in January in terms of new assets and FA recruiting?

Yes, so FA recruiting, again, I think the pipelines are robust. I think we're coming off a record year. So I'm not going to say after we set an all-time record that we can match it. We hope we beat it. But we're a little behind last year, but we see no reason why we still don't have robust recruiting. So I don't think flows certainly times where we have less recruiting in a quarter. The asset built maybe a little slower, although it takes advisors a while to bring over all their assets. So I don't think you see anything outside of a month that was down for the reasons we said and market volatility where people are more cautious. I think it's more of a short-term trend, we expect recruiting to have a very good year, may not beat the record of last year, but we still think it would be a very good year

Got you. And then I guess on expense outlook. So, I heard you obviously about the commentary around the comp rate. But if we are in a bit of a choppier market backdrop and obviously the first quarter fees is starting off at a lower run rate, can you guys talk a little bit about the flexibility on the non-comp side and what are some of the things you could do to protect the margins for the business, if the markets are a little choppier from here?

Yes, so we've already – we can manage expenses just in a volatile market. We've kind of slowed down hiring of some positions. Although, we are still in a net add position which we have been already in this market, thus lowering the open positions and saying, what are we really need to drive the business long-term versus what's nice to have and we're going through that exercise. A big expense is IT and our position right now is where we are in the markets as those investments are going to be very positive to the future. So we want to do those. If the markets got much worse, we could delayed projects, certainly slow that down. Certainly, our bonuses and most of the people in the firm, including advisors who are tied to their production are certainly variable. So if results come off because of the market, certainly both headcount replacement and bonuses will be different than they are in good year. So there is some build in expense adjustments and we are modifying kind of some of the builds, but we're not doing anything at this point that I'd call really getting and cutting things that we think are strategic or long term.

On the other line, where we've got some significant degree of flexibility is in the business development and we can in really bad times, obviously we took steps to delay trip served conferences and things like that, but there's also some branding expenses and image advertising and things like that that we could make decisions on in that line item, every year as well. So there is some discretionary spend there and in IT and certainly in the administrative comp lines.

I think also – we've also historically have performed very well in the downturn, so both and – I think our comp model is pretty variable and we're also fine because of our capitalization, have always found opportunities good prices. So we – it's more fun in the up times. But we're not afraid of managing through the down times. It's just not as much fun.

Yes, that makes sense. Just a clean-up question on the Bank side. Jeff, heard your comments around the deposit betas and I guess you're implying you're thinking there might be a little bit of pressure in the near term as kind of December hike catches up. On the assets side of the balance sheet, if we are going to start talking about lower interest rates, what's the appetite to maybe extend duration a little bit to lock in slightly better rates today versus I guess waiting to just kind of see what happens with the curve?

I know you mentioned that. We had that conversation yesterday in the Bank's ALCO meeting. I think that while there may be, first of all, we got to believe we're getting paid to do it. And right now, you go out an extra year or two, you're really not picking up much in the way of yield. But secondarily, we're low to go out for anything that has a lot of extension risk. So, while the securities portfolio weighted average life may tick up a little bit, we don't want the extension risk to tick up much because we could be wrong about rates just as we have been so far. So we're not really out to take much more duration risk than we already are in the company. It's not just our way to bet on rates one way or the other. So we will probably continue in my guess our fairly short-term ladder, we're certainly not going out long.

But we are continuing to grow the securities portfolio, as we've been doing. We're going to continue on that path, but probably not doing it via going out a little bit longer on the curve as Jeff just mentioned.

We just don't get paid to do it, I mean, there is a risk that rates keep going. I mean – someday I think may go – now rates may long – short rates may go to 5% or 6%, we don't know.

If we find the spread and opportunity, I would think it's a reasonable risk, we will, but we see no reason to do it. I think that our view right now being really aggressive is just borrowing against long-term earnings than moving them up short term, because you're taking the risk certainly as rates move up. So they will someday have idea but – and we're just – we just try to manage the business as neutral as we can.

Yes, it all makes sense, great, thanks guys.

Yes.

Your next question is coming from the line of Jim Mitchell from Buckingham Research. Your line is open.

Hey, good morning. And Paul, thanks for rubbing the 70-degree weather in our face – just maybe going to the Bank, I appreciate the commentary on cash balances coming down a couple of billion, how do we think about the Bank as you try to grow deposits and securities portfolio, if I look at the period end balance sheet, it was up $2 billion, average balances were up $1 billion. So should we, given your desire to keep growing that, should we assume that some pretty good momentum from an average balance perspective into 1Q or if you've seen deposit runoff there, I guess is the first question? And secondly on the deposits and the growth in the securities portfolio, how much do you have left in that sort of targeted $6 billion growth number or has that changed?

Well, I'll answer the last one first. We're about halfway to the $6 billion and again that we can accelerate or decelerate that as opportunities arise. But there's not, and no real magic to the timeframe or even the $6 billion amount if the opportunities present themselves to do something different. In terms of balance sheet growth, I think the cash balance swings around as client cash balances come into the firm and on balance sheet or go off balance sheet or out of the firm. It really has to do – the main driver of our total balance sheet growth has been net loan growth, which is projected to be maybe in the 8% to 9% per year in the – on the Bank's balance sheet, so $1.5 billion to $2 billion a year. And that's really where the growth is going to be, like I said, cash is in and out, it happens to be high at the end of December, but that's really going to be the driver right now of the overall firm's balance sheet growth.

So – but have you seen any of that cash come back down after the spike in December in the Bank as well?

Yes. I mentioned that earlier. We have the $5.75 billion that came in the December quarter, we had about $2 billion up through today flow back out, hardly…

Split between the sweep accounts and the Bank?

Jim, we control that – the amount that comes to Raymond James Bank with the third-party banks receiving the difference. So we to certain extent control as Jeff was just alluding to the growth rate of the loans portfolio as well as securities we want to be able to fund those assets as well as keep an ample amount of liquidity and we can control that level that comes to our institution.

We anticipate we're going to fund the Bank's growth unless there's a major downturn in cash.

But typically, the swings have been kind of both at the same time, but until we do a rebalancing.

Great. Got it. And then maybe follow-up on expenses, if recruiting after record year it's sort of flat even maybe even down a little from a record year, how much of it positive or lack of a negative is that for expenses or do you still have sort of follow-on growth in recruiting expenses or should we expect recruiting expenses to turn flat this year versus last year?

I think you saw a little bit of that in the December quarter when you saw the business development expense line down below where we had guided at the 45 to 50 range. But because there's less movement in ACAT fees and headhunter fees and all the fees associated with that, it's – but it's only a only a minor setback, and there still was pretty good recruiting on the top line, it was just the retirements etcetera on the back side going out. So, but if it did truly slow down, you'd see a modest impact on that business development line, but that's not as big a factor in that line item as trips and conferences and some of the other bigger expenditures.

And I guess you don't see much change in the amortization right away?

Not up to the run.

Right, okay.

John, hello?

Your next question is coming from the line of Chris Harris from Wells Fargo. Your line is open.

Thanks. Hi guys.

Chris?

With respect to that PCG brokerage revenues, we know customer cash balances went up a lot in the quarter. And presumably that was customers moving out of the market. Why wouldn't that have a bigger benefit on that line item?

So it's not brokerage accounts, lot of it are fee-based accounts just going to cash too, so we're still in fee-based accounts. And so there is no brokerage commission on that, it's just kind of reduction in the fees that we're paying. So just as more – as more and more gets into fee-based accounts, the activities getting fee-based and you just don't see it.

Right, as you, I you follow that I mean, is this reallocation within a fee-based account, so the revenue still is impacted in the asset management fee line currently.

You got to remember also within brokerage revenues, Chris, it's not all transactional, the mutual funds are variable, annuities are market-based too, so the trailing commissions are negatively impacted in down equity markets.

Yes. Okay, understood. And then just one quick follow-up, in Capital Markets, good to hear that the backlog in M&A is still robust. Based on the size of that backlog, do you guys think you can still have growth in I banking revenues this year. If the government shutdown persists for some period of time?

I think we can have growth with M&A, whether we have growth in underwritings and the government stays shut down, that would be hard to do. Now we don't have a – with now that we're coming off a huge number from last year, wasn't the best year for underwriting anyway , so – but certainly if it stays shut down, it's going to have an impact. There will be probably some catch-up with the markets reasonable that opens up but you know it's hard without the SEC not too many people are going to issue with them close.

Okay, thanks guys.

All right.

Thanks, Chris.

Your next question is coming from the line of Bill Katz from Citigroup. Your line is open.

Okay, thank you very much for taking the questions, just a couple of cleanups for me at this point, if you look at the advisory yield on those assets, that ratio seems to be blending lower on a pretty persistent basis. Obviously a lot of market volatility in the last quarter or so, how do you think about the direction of that ratio between asset gathering and the yield just given mix or business conditions or pricing, just trying to get a sense of how to think about that line item going forward?

Well, if you get a choppy market like this, you will see probably higher allocations to fixed income. So you're going to see probably a little lower fees plus the addition of the Scout Reams which is largely institutional fixed income as that becomes a bigger part of our assets under management. I think that's been a big reason for the lower trend to this point. And as – it depends on people's risk-on risk-off appetites for the most part and where we focused – where we're focusing our business, it's always historically has been a small mid cap equity operation for us and it's now certainly a bigger percentage fixed income.

Yeah, maybe I wasn't clear in my question, I apologize, I was just sort of thinking maybe on the within the Private Client business, if you look at the split between the advisory assets and brokerage assets, they looked related revenues. I think that ratio has been blending down on the advisory side, so I was just sort of wondering is there something about the incremental assets that are coming in, that are just priced more thinly to Ray Jay or is it just – just the impact of a volatile choppy market and the ins and outs of assets and client activity.

I think over time what we've been recruiting larger and larger financial advisors and also have larger and larger clients and so on average in the fee-based accounts, if you have a larger account, it's going to have a lower yield. Now the absolute dollars are obviously higher, but the yield for larger accounts in fee-based are going to be on average higher than smaller accounts. I think that's a trend you've seen over time. And then the yields also impacted by the shift to cash as well. There is a billing mechanism that adjusts for certain levels of cash in fee-based accounts.

Great, thank you.

Any other questions, John?

We have no further questions at this time. You may continue.

Great. Okay. We know there is a lot of moving parts here, but I believe we have a strong quarter – we had a very good quarter in. Although there are choppy markets, I think we're in good position and we appreciate you joining in the call and we're going to get back to work. Thank you, John.

Thank you. And this includes today's conference call. You may now disconnect and thank you all participating.