Welcome in to another episode. Today's guest is Ron Kruszewski. He is the CEO of Stifel. Ron, thanks so much for joining us. Happy to have you here.
Oh, it's always great to come to New York and especially come to the New York Stock Exchange. So, I am pleased to be here. Thank you for having me.
We're always happy to have you here. So I want to start our conversation on really probably the most relevant and most talked about topic in all of life really not just in business and that's AI and the technology is everywhere. It's impacting so much of our lives and reshaping industries at an incredible pace. It seems like it's new not only every month or every year but almost every day at this point there's something new coming. When you look at AI now and specifically AI's future for financial services, do the possibilities, do they energize you or does a part of you feel hesitation, caution, worry, or dare I say even fear about what AI could be, not only for financial services, but just for you and I sitting here on a daily basis.
Well, you know what? It's a great question. I think you have to separate them. All right, you have to let's talk about the business side of it and even how my thinking has evolved this year. I mean this year remember in January if you would have said Llama or Mistral you would people would have said what? They didn't know. And so when you think about just how much has transpired in the eight months of this year and then project that forward and that is from a business perspective I view as opportunity I view it as a tool. I got in the business in 1981 and I sat down to an IBM computer that no one knew how to use. Put the floppy disc in and was a computer audit specialist and accelerated my career because of that tool that was thought is going to be replaced every change. But what happened was people just became more productive and so one of the things that I've learned I was the first person that was saying this will replace like young analyst for example it's you know you don't need well it's just the opposite we need more people because we're getting more opportunity so AI on that side is I think is a very very productive tool it's not going to replace human judgment but now that dovetails into the second part of your question which is you know there's a recent article in the economist if I can say that but it was you know can AI gain consciousness and then and that's the scary part of all of this and I and so the business side of me is very optimistic the personal side of me that thinks about my kids and my grandkids there is a fear of you know of the unknown and of course we've all seen the Terminator and all of those things and you know singularity remember that word. So but let's not you know let's not sell humans short just yet.
Absolutely. And I think the fear of all people comes from you know there are thousands of use cases that have already been discovered obviously right AI is being used across industries across our daily life. But I think the fear comes from the fact that there are still probably thousands if not millions of use cases yet to be discovered. And it remains to be seen what those use cases are. You know, whether or not they are productive or harmful to society as a whole, whether or not beneficial or more of a burden on society as a whole too, right? What those use cases are I think will largely dictate how business is done in the future, how people are trained in the future, how people study in the future. Because while I agree with you, I don't think AI will replace jobs. I think we will always need that balance between human and technology, it'll be interesting to see how people learn and how people grow to now have AI besides them. Because I think someone like me, when I went to school, I wasn't studying with the thought that AI would be beside me, but now yet AI is here. So I think we'll have to sort of retrain or people will have to sort of relearn not necessarily life but how they work with AI right beside them.
Well it's a tool again you know back my dad didn't have a Hewlett Packard or 12C and had to do he did and he was a fireman but the people that would do M&A back then did it on spreadsheets and not spreadsheets you know write it down. And so you've had a lot of tools and I view it as a tool. You know, one of the things that I notice really, first of all, and this probably speaks to where we are in AI, doesn't mean it won't change, but I tell people, I say, 'Look, it's an accelerator.' They'll say, 'What do you mean it's an accelerator?' And I'll say, 'Well, if you really know what you're doing, it makes you much smarter. But if you do not know what you're doing, it makes you much dumber. But organized dumb.' And so it's you know I've read some of the most ridiculous papers ever. You know I could write a paper on is the world flat. Maybe it is. I don't think it is but believe me I could have a very well articulated AI assisted theorem on that. But it's the biggest thing but think about this one other thing just think of transformative technologies and here's the problem a little bit and that is electricity. But electricity took years to develop the grid and so it moved slowly and then you can talk about you know airplanes and all the things that would change nuclear which was a big you know concern but we were able to contain nuclear through treaties and it's hard to you know make enriched uranium. So all of these things that maybe you'd be fearful of there were ways to adapt.
Well you had time. You had time.
That's my point. We had time today. The pace of change is so great. So if you and I were having this podcast at Christmas, just Christmas, we're coming into the holiday season. There's going to be a lot that's going to happen that we don't even know about between now and Christmas. And that is scary to a certain extent because there are bad actors in the world. And when you give bad actors powerful tools, you better have some pretty good guard rails. We'll see.
Absolutely. And so I mentioned and it's been widely talked about the impact on people at Stifel. How do you see the balance between the human and the technology, right? Making sure that yes, you optimize the technology in the best way possible to become more efficient, to become faster, to become smarter, but how do you then balance the human with that to make sure that there is still a human at the end of the line so that things don't go, you know, off the rails, so to speak?
Well, I think you answered your own question is that you have a human at the end of the line. All right. And at Stifel, we are first and foremost a human capital business. It's we have relationships. Remember the human brain, I think, processes, you know, 100 plus, you know, inputs and, you know, and we have emotions and we display consciousness. AI today even though you think you can program it is still on off. It's bit bite. It's mathematical. And I'm hopeful, frankly, from a competitive perspective that my competitors use AI to interact in what would otherwise be a human relationship. I'll gain market share. I am convinced of that because a human with AI is going to be better than AI alone. They're going to have the same tool. So at Stifel we encourage and have in fact almost unleashed the ability we're not running it through a centralized we have controls of course and I've been very pleasantly surprised by the productivity but what I've really been surprised about is how good our human output is. If you just let try to do an investment banking transaction and just say let AI do it, you'll lose. Yeah, I'm convinced we'll lose to someone who knows what they're doing. And so will it be a few years from now where you're not interviewing me, your agent is talking to my agent. I don't think anyone would watch, frankly. Or the other agents. Yeah. The other you'll have, you know, a thousand plus downloads of all AI agent watching. No.
I think that's so fascinating because I do think there are just some things that you want to talk to a person about or you want a person to be included with. You can't, you know, when it comes to banking, right? And this is obviously more individual banking, right? If I'm on the phone with my bank and something happens, I want to be able to talk to a person. I don't want to talk to an agent, right? If I'm at the store, I want to talk to a person. I don't want to talk to an agent. So, there will always be those things in which you want to talk to a human about. You don't necessarily want an AI agent involved. Do you think at Stifel that will always remain the case that there are just some things that you'll want and your customers will want to be able to talk to you with people rather than with agents?
Well, I'm sort of betting on it. I mean, I'm basing our business model on the human interaction. I wouldn't be sitting if you said come to this podcast and it's going to be a computer. No. If it was just you, you're asking me questions and I'm answering to a computer. I'm not sitting here. I don't see your body language. I don't see there is so many things that are truly human in nature. Now the question goes if you want to get theoretical about it, what is intelligence? You know, does intelligence require the ability to make a mistake which humans often do and then learn or is intelligence always getting it right every time. I find today I keep telling people but AI is very good at is math. Writing. But remember in markets what I do right now, you can put a set of inputs in and get an answer. Five seconds from now the markets changed. The yield changed. Something changed. So you're trying to analyze running water by catching in a bucket. Well, it's not running anymore. And that's where we'll see. Everyone's telling me that we'll have human consciousness and empathy and all of those things built into AI models. And I think not for a while.
How hard is it for you and your leadership team as a whole to think about resource allocation and staying technologically relevant in a time where the pace of change is so quick because you know you mentioned right you can put a bunch of details into an AI agent and get an answer but 5 seconds later that answer may change and it's the same thing with technology just because we have something today doesn't mean it's going to be the same tomorrow today's best technology might be obsolete a week from now. How hard is that to allocate resources and stay relevant when everything is moving so quickly around us?
You know, I think it's the pace of change. Technology in and of itself. You know, I've been in this business since the early 80s. I remember though growing up when the New York Stock Exchange used to have to close on Wednesdays and Saturdays because they couldn't keep up with the paperwork. There was no DTC. There was no NSC. Then you get in the 80s and suddenly you know email in the 90s and then electronic trading and then you know all the pace of change and today and T+1. So change is constant and you shouldn't get overwhelmed with trying to be and we've never tried to be the next you know iteration of change. We're going at a pace, but I'm investing in this. Well, you know, I'll give you something. I'll take a slight detour here just to tell you that one of my thoughts and all of the AI hyperscalers are going to disagree with me on this, but one of the things that people are worrying a little bit about is okay, the cost of human capital versus tokens. You know, how much what's going to be more? My belief is this is going to be really good for industry in that there's never really been a general utility. Railroads for example that where if you don't have monopoly pricing power what ends up happening will be tokens will become in my opinion like cell phone minutes. I used to yell at my kids how did you spend 150 minutes on a Friday? Do you know how many minutes you use on your You have no But I remember my parents doing the same thing to me saying, 'Got to stop sending texts. We don't have enough minutes left.' You only get an x amount of texts per month or whatever. I'm turn your phone off. Okay. Because and so what'll happen, I believe there's so much investment being put in this that they'll end up having pricing and industry and the economy as a whole is really going to benefit. I'm not so sure about all the trillion that's being put into the infrastructure when we'll overbuild probably and then guess what pricing. So it'll be interesting.
It certainly will be. That's fascinating. So Stifel is a 136-year-old company which is a remarkable thing to say in an industry that obviously is ever evolving. You know, we have been speaking about technology and the balance between humans and technology over the first couple questions, but on the topic of balance, how do you balance honoring an over century-long legacy while obviously still needing to be relevant and modern to today's clients and institutions?
Well, you look backwards a little bit and you try to understand that the one constant over all that time frame is change. And so when the constant change then you look and see how did you evolve and how did you compete and Stifel again was founded in 1890. We're one of the really firms that was founded as Stifel Nicholas on Broadway in St. Louis and we're still on Broadway 136 years later. Not the same building obviously, but when you look and you think about the fact there wasn't a Federal Reserve, you know that there wasn't World War I and then World War II and the Great Depression and then World War II and all of the things that have happened we sort of forget. But when I look at our legacy, I see a company that was adapted to change but never really tried to get over its skis by leveraging into change. And that's so, you know, you remain conservative and that's what we've done. But I'll tell you, we've really grown over the last 28 years, which you know, I always say Stifel is 136 years old, but in my ego, it's only 28 years old.
Absolutely. And you know, it's funny you bring that up. In November, I believe Stifel will reach 40 years as a listed company here on the New York Stock Exchange, which is a remarkable milestone. And obviously I just asked about remaining relevant and remaining modern but yet still honoring the legacy of a over century old firm. What does hitting the mark of 40 years mean to you? You've been leading the company for near 30 of those 40 years both personally and professionally. What does that 40-year mark mean for you and for Stifel?
When people say how do you deal with predicting the future? I say we don't predict the future. We compound the past. And that's been true over 40 years. So what we keep doing is we keep adding our capabilities. We keep evolving and then we compound it and what you're compounding is your capabilities, your intelligence, your everything you do over 40 years suddenly is an advantage because we have an institutional mindset and a culture that thinks long term and doesn't, you know, think about next week necessarily.
And so not only over those 40 years but over the 136 of Stifel you mentioned obviously the company has been through wars been through financial crisis obviously went through COVID earlier in this decade yet through it all and through all the market cycles and frankly life cycles that the country and all of its people have been through and the world has been through really Stifel has remained resilient and remained successful and I think that points to those before you and even yourself the ability to dictate between what's signal of change or signal for change and what's just noise for you. How do you distinguish the two? Because it's very easy to get caught in and sucked in by the noise that we hear all around us. Yet, there are some things that are clear signals that change needs to happen. How do you differentiate between what's just noise that's going to come and go versus what is a signal that will dictate the future of not just what Stifel will look like, but what business as a whole will look like.
Well, today we're dealing with the New York Stock Exchange is dealing with this and you know, how quickly am I going to accept or adopt tokenization, for example, and stable coins and the fact that all of the crypto guys would sit there and say, 'We don't even need the '33 Act anymore. That's old. You know, we don't need it. Let the code, you know, any 18-year-old can figure this out.' And that's what you have to be careful about, okay? Is thinking that, you know, you're embracing change to the point that you're ignoring the past. All right? And, you know, the one thing about all of this is, and I give a speech on this, which is basically movies predict and history repeats. And there's so many things that today, you know, we're talking about, you know, what happened in insurance companies lending, you know, well, wait a minute, that was the savings and loans in the 80s. You know, Charles Keating built the Phoenician with, you know, savings loan depositor money. I mean, and so history repeats and you need to be cognizant of that because generations don't have memories. They just remember what I mean my kids today they were born in the 2000s okay they don't remember '87 they don't remember let alone you know I was born in '96 well there you go I mean and so you know shoot you were one year old when I became CEO Steve I actually I'm I mean you're a young guy I mentioned that in my next question has a little bit of a note to that but continue no no so you're making a great point. But what I want to say is that you have to be careful that we're not just sitting here going, 'Okay, the new technology is tokenization and stable coins and let's collapse our custody and settlement and everything into one.' And you know, damn the torpedoes of the past. That's how you get in trouble and how you stay in trouble is to be adaptive to change but mindful of history.
Sure. And do you think, you know, I'll even include myself in it, right? Like I said, I was born in '96. I believe your tenure started in '97, correct? So, I was one. Okay. When you first started at Stifel, and I'm not saying that to age you, I'm saying that to sort of put your leadership into perspective because you led across generations. Now I have a one-year-old of my own.
Thank you. Thank you very much.
