Welcome everyone to another edition of the Tony Sirianni podcast. I am thrilled to have my good friend Ron Kruszewski on the show. Welcome, Ron.
Hey, welcome Tony. Love the tie buddy. You know, this is casual. We're in Virginia. It's horse country.
Hey, anything going on? I heard a fourth J.D. Power was in the works there.
Yeah. You know, I love when you start with a softball for me, Tony. Thanks. Yeah, I mean sitting right next to me in case you were going to forget. You know, look, it's just what I like about it. It's employee satisfaction model. But it's voted by the advisors, Tony. So they're the ones that are voting. And then when you look at the results, it's almost the obvious for a guy like you where firms kind of shake out. But fact is for four years in a row now, we've been number one. And that says something, and it's why people are coming our way.
I think it also speaks to retention, recruiting, things like that. I mean, there's an element of that to the satisfaction.
Yeah. But you know the other element is that I took this award, and while I'm proud of the fact, I also took it as a challenge because we placed number two in technology and we've been number one. But it's great because with the advent of AI and what we're going to be able to do and what we are doing, Tony, is right now as I sit here we're reimagining the advisor workflow, workspace, how they interact, how they use LLMs, how they use AI, but importantly combining it with the human element. And we're really going to make some strides here.
Well, let's talk about that a little bit because I think advisors are looking for some leadership and guidance here, right? I mean, there's a level of anxiety around AI and what's it going to replace, what's it not going to do. You and I have talked a little bit about markets that it's not a chessboard, right? There are a lot of factors that come in. There's regulation, there's human elements that come in. And in our business, too, in dealing with clients, I mean, you talk to clients all day. If I'm a $5 million client, am I going to want to talk to an AI thing or am I going to want a person?
Well, I look in the mirror, Tony. I have a family office. I have a Bloomberg, a quote machine. I have access to one of the best research departments in the country. I can talk to traders. I see products, and I have no time. Okay, I need advice. All right, because at the end of the day, a lot of people are busy and they want advice, and that advice is not going to be trusted—and that's an important word—is not going to be trusted by waking up in the morning and saying, "Hey Siri, what should I do in my portfolio?" It's just not how it's going to work. And in fact, when you see a lot of the things today, getting out of sandbox, doing nefarious things—I'm talking about AI—the human element is going to be important. And Tony, just think about it. I just did a quote on NextGen advisors. We honored our NextGen advisors. These are people under 40 that we're talking about the future of this business 30 years from now. They're not retiring. They're going to use AI and deliver great client experience.
And just from a marketplace perspective, people continue to invest in these businesses. They continue to say that advisor businesses have value going forward. So you've got to think that long term there's a future here.
Well, the market tells you that, Tony. I sit there and always laugh when I see an article and then the stocks get hit because the advisors are going to become the buggy whip industry when the automobiles came in. Yet there has never been more competition for high-quality advisors than there is today. So that tells me the market knows that the advice business is going to become more valuable, not less.
Well, also that's a good segue maybe for some of your insights on something that's happened over the last 10 years. You look at the capital that's flowed into the business and what that's meant for advisors and kind of what advisors are thinking about it. And I know you have a lot in front of you every day with this stuff. There's sort of becoming this cottage industry. You have all these RIAs working with M&A, getting capital coming in. But today, there seems to be sort of this fracturing, right, where there's a cottage industry of trying to fix these things that were broken, these deals that were made. I know you've talked about like there's paper flowing, but what does it really mean? What are you guys seeing?
You know, I think we're beginning to see, first of all, there's a lot of great RIAs and there's a lot that I say I don't want to talk necessarily against any of the firms, but that business was sort of fueled by private equity money and then most importantly was fueled by taking private valuations and buying advisor books with highly valued paper. And this isn't new to finance. Okay, you have a high-value stock, you go make acquisitions because banks did it, everyone's done it. But now what's happening is that the liquidity event needs to come. You need to turn some of this to cash. The limit is one cash, the partners want cash, and the advisors are saying, "Hey, what's my business worth?" And here's the thing. You talk about cottage industry. We're the cottage industry, okay? We're the firm that sits between the big wirehouses and the independents. We give you all the freedom you want. We let you brand yourself. And by the way, we do all the things. So what advisors can do, they can spend their time doing what they should be doing, which is building their book, not deciding human resource issues in their firm. It's not even close.
I think it's reasonable to say that the RIA independent movement '26 is Stifel 2019. I mean, you've been doing all the things that everyone's complaining about and wanting to do and the sort of ethos that they believe in. You've always sort of believed in that.
Well, advisors own their book and stuff like that.
Well, you know, the beginning of time for me is 1997. Let's say Stifel '97, not 1919.
Or whatever you said, 2019. Fair enough. But with these players, I think it's a mistake, Ron, to not think that there are bad actors in it. Like you say, people are waiting for paper and liquidity. Sometimes it feels like more than that, like they've been kind of sold a bill of goods. Some of these people, they come in, people who didn't even necessarily understand our business, but maybe they saw the value there and now they're sort of treating these RIAs the way the wires used to treat advisors. You've got to do business a certain way, you have to have a certain product mix, and all that kind of stuff. I mean, there's good and bad actors now in the space.
Yeah, look, I hear you. I don't like to characterize it that way. What I would say is that the economics do not change anywhere you go in the world. Okay? A dollar is a dollar. Expenses get subtracted, comp gets subtracted. In the end, it's not like this model made a dollar $2. It didn't. And so what's happened is the advantage the RIAs had is a structural one. We need capital and they can have debt, and so a little slice of equity plus debt is leverage returns. But you only do that so many times and once that is over, then you're done. You can only have so much debt. So look, it's a fine model, but what I'm beginning to see is I'm beginning to see people in that ecosystem actually start talking to us. It's been a long time since I've had independents say, "Hey, you know what? I think that I'm spending a lot of time not building my book. How about I work with you?" And I'm excited about potentially that trend.
I think that's a tremendous trend. And again, it goes along with kind of what I'm seeing. Like I said, there's an industry in trying to improve these sort of bad deals that people got themselves into.
Our best advisors are growing their books very fast. And here's the one other thing that you can't invent, Tony. At least I don't think we're going to invent, and that's called time. There's 24 hours a day. All right? And the time that you spend servicing clients and getting new clients in our business model has a 65% profit margin. All right? Between what we pay the advisors, what we pay the benefits, and what we pay their support. All right? You tell me what business has that kind of margin. And you're going to go mess around for an extra five points that will cost you a tremendous amount on the revenue side. That's what I've always said. I believe it. That's why we sort of disentangled from our independent model. We're all in on the Stifel model.
Yeah. And you've also had a pretty good quarter. You want to talk a little bit about that? That's real returns. That's real equity and some pretty good numbers.
Yeah. I mean, look, we did almost $1.5 billion in revenue in a quarter. Think of $6 billion. You've got to go back to when I started, Stifel had $100 million in revenue. So we've gone from $100 million to last quarter annualized almost $6 billion. Importantly, the return for us, the return on our tangible equity, was nearly 25%. And what does that mean? What that means is I'm not sitting here thinking, "Oh, we don't have good returns. I've got to cut advisor pay or I can't invest in AI because our business model is challenged." No, we have the ability to not have to try to get returns out of dipping into an advisor's pocket, and we're going to be investing in reimagining the advisor workspace. It's great, Tony. Great quarter. Our institutional business too. If you're an advisor and you have a client that needs custom credit, or you have a friend on the school board and you want to do public finance, or you have someone you know that wants to go public, or you know someone that needs a mortgage, we have it all.
Yes, but that's a big deal. In my experience, no offense to the—you're sitting at a large wirehouse, even if you have a great deal, a guy with a string of 250 dry cleaners and he wants to go public or he needs financing, they go, "Okay, Junior, we'll take it from here." And the finance guys take the account and you never see it again.
Yeah. Well, look, again, at scale and we focus on the middle market. I like to think that I wake up every day and I recognize that the shareholder success and my personal success is so highly correlated to our advisors' success that when I think, "Hey, what can I do to help you do business easier, to get more business and service your clients and be more productive?" I'm actually talking my own book because then my shareholders will be happy and I'm a large shareholder. So it's a nice way to think about the—
That's alignment. We call that one.
So I always look at you as kind of everybody's CEO because you have more experience than anybody else running firms in our sleeve, which is not that easy to do over time, as you know, and successfully. But what do you see? AI presents challenges for us, and I know you're always thinking about technology in the future, but it presents challenges in the workplace. Is that overdone? I mean, when I think about it, AI helping me look up an ETF, I mean I don't really need AI to do that. I'd rather look at it myself and make my own decisions, even if I Google something. But is it hype? Are we there? Is it going to help us large, big picture, economy-wise, not just—
