Welcome everyone to another edition of the Tony Serriani podcast. I am thrilled to have my friend Ron Kruszewski, the CEO of Stifel. He typically needs no introduction, but Ron, thanks for being here. Appreciate it.
Great to be with you, Tony. This is a volatile time. Now, I've said this before that if I had your hair, I'd be president of the United States today. But I will say again, if you were president of the United States, we have a lot of stuff going on.
What do you make of what's happening? It's been a real volatile week. I know you're getting calls from advisers and clients and I know you're talking to them all day. So what's your take on what's happening?
Well, before we get to that, let's talk a little bit. I know a lot of advisers watch your podcast, Tony, and I just gave a talk last Friday. What I want to reiterate to your audience is what I said to our advisers here at Stifel: we have to remember that even in volatile times like this, even with equity values down, fee-based account values are down, everyone is angst. It is times like this that we have jobs. It's because of times like this that we add value and that we need to be talking to clients. The worst thing that can happen is for a client to capitulate to fear, as we know because all volatile markets, the good things about when you have a bear market is they're usually followed by new highs in the market at some point. We all know that. And the worst thing that happens is that you try to time the market. And we know it is not timing the market, it's time in the market. And all of those things is what makes the advice business as valuable as it is. So I would reiterate to everyone to make sure that clients understand why these markets are volatile. I mean, heck, the VIX hit 65 yesterday. That's incredible. And this is why Stifel and all the firms like us have clients and we do business because we provide good advice in hard times.
Yeah. And look, you've seen a bunch of these markets as have I. This one there's a weird political element to it as well, where it almost feels like some people are cheering it on or other people don't really understand what could happen since Liberation Day. When you look at the tariffs, which is something kind of new for us, what are your thoughts on it?
Well, I'll back up for a second because in many ways the correction in the market, if you will, was not surprising to us at Stifel. I'll go back to the beginning of the year. When every firm published their forecast for the S&P 500 for this year, Stifel had the lowest forecast on the street. It was 5,500. I think the median was like 6,600, and we had the lowest which was 5,500. The reason for that was not because I'm trying to be pessimistic. I'm not at all. It was that when we looked forward, we saw the ingredients that could cause equity values to suffer: very high PEs, the market was trading at 22 to 23 times earnings, Trump was talking about disruptive policies, primarily tariffs, and we saw those policies probably handcuffing the Fed so that the Fed wouldn't be able to carry through on what people thought were going to be three to five cuts. We put it all together and said, 'We don't think this is going to happen. We think it's going to be a lot more turbulent and therefore the market could correct through the PE ratio.' That's exactly kind of what's happened. It just happened faster than we thought. Now to your question on Liberation Day, I was surprised at the level and breadth of tariffs, but I'm not surprised because President Trump's style, just to be blunt about it, is that he punches you in the nose and then he comes with a band-aid and a nap and a Kleenex and tells you, 'Hey, how can we fix this?' So it's maximum effect, which were these tariffs, and then negotiation. We can all disagree as to whether that's effective. It certainly compresses the time frame for markets, and that's what you're seeing now.
Yeah, for sure. And like you said, the long-term history of this thing is that we haven't had a correction in a long time, and we always end up in a better spot than we were before. So that's good. And some of the things, you've always been a proponent of the latest technology, and it's always something when you visit with us at our big event in October, you always talk about it. That's been progressing and driven markets, the big seven, all these different things. What are you seeing, particularly with AI, which clearly has an impact on advisor businesses on a day-to-day, but the future looks interesting there as well.
Absolutely. When you think about it, what I try to envision is what impact will AI have on our business, all businesses, not just financial services, health care, all services. Everything that can be enhanced through technology is going to be impacted by AI. So when I try, it's hard for me to even imagine five years forward as to what it's going to be like. But what my experience tells me, or at least what I believe, is that AI in our business, the advice business, is a tool. It's going to be a tool. We are not going to replace our advisors with Siri or Alexa. We're just not going to do it. Primarily because I do not believe, and I've said this, that AI will replace or surpass human intelligence. You just said it in a market like this. This is when we're earning our pay. Imagine if you only had a computer to talk to at this point, you wouldn't be too happy. Most people wouldn't be happy because human intelligence. AI still is a neural network and a bunch of them and all these chips, but it's still primarily bit on, bit off, on off mathematical computations. It's very good at doing a lot of things fast. But the human element is a hundred dimensions, maybe more: fear, greed, your experiences, your emotions, your ability to relate, EQ, IQ, all of those things. In times like this, the best advisors are using those skills to properly advise their clients when they understand their clients might be fearful, might have had an experience that our advisors know about, may have their own viewpoints of the world. All of that leads to the human element. So what do I think is going to happen? AI is going to make it easier for us to assimilate information for our clients. But at the end of the day, the value add and where the market share is going to be gained are by the advisors that can use their human intelligence, their EQ, to supplement these tools, not get replaced by them.
So that's kind of where the future of the day-to-day of advisors might go. I'm thinking about the recruiting landscape, M&A in a market like this, what's going to happen. But that sort of dovetails into...
Let me finish though because I didn't answer what I see in the short run. I do want to say that. The buzzword for me is AI agents. What AI agents are is instead of the way we look at it now, which is 'go write me a poem' or 'summarize the Library of Congress,' which many of these large language models really can do. It's incredible what they can do. But in our business, I don't know how much impact that really has. We don't need to take the world internet and try to synthesize it into anything. It can only look backwards at what's already gone on. So it's really a summation of old news. The real key will be being able to use AI agents to supplement our human processes. I'll give you an example. Many advisors are frustrated with firms, and there's a reason for that. It's getting marketing materials approved. I have this brochure that I want to do this seminar on Thursday, and it's in compliance, and it takes two weeks and four coffees and a bagel to get it approved. It takes time because humans are doing it. However, what is really going on is you've got a rule book, the SEC marketing rule book, and you've got a brochure, and you put them together in a simple language model and you let it learn and give the output to a human, an experienced human that can then approve it. That process can go from a week to a minute. And that AI agent works at night and at midnight. The point is you can take that in all of our processes, whether it's in marketing, onboarding, opening an advisory account where you already have an existing thing. There is so much that AI technology can do to make our advisors more productive that I'm almost overwhelmed by it.
You just outlined a business you and I could start because I like that idea quite a bit. Get that thing rolling.
Well, I've started the business myself inside of Stifel. I have a group that I have taken outside of the bureaucracy because anytime you try to do anything and run it through the bureaucracy, the bureaucracy is there to serve the bureaucracy. It's going to slow things down. I've got groups that are looking at can we speed up our marketing approval process, and I'm having it come straight to me so that I don't have to have layers of bureaucracy stop what we think are very productive tools. If you take these tools and apply them to a day-to-day advisor's life on note-taking, summarizing, reporting, and getting all of this done, it's amazing. One caveat: I don't know if your viewers know, but I'll be chairman of SIFMA next year, and I am going to be advocating to make sure that our communication rules get modernized on what we are allowed to say.
Yeah, it's so important. The problem is that they're always a little bit behind, like with texting. Texting was something that everybody was doing. AI is something everybody's using. So let's have the rules so we understand how we're going to do it rather than get a bunch of fines where all of a sudden you're hit with $18 million worth of texting fines for something you did all the time. You probably can't talk about that. It's aggravating. I'm sitting here saying just keep talking. Just keep going. You can talk. I hear you. But don't text me though. I won't. So basically, when we look at what we started with the question of recruiting and what's going on there, and how impactful this market may be on the M&A market, which is another driver of what's going on in advisor movement, I'm just interested in your thoughts on where that might leave us with the rest of the year.
Well, I always feel that tumultuous times put dampers on recruiting, as it should. Now is the time to be gaining new clients. Now is the time to be talking to your existing clients. These are tumultuous times and you need to be focusing on your clients. We tell people that we're recruiting, we tell them, 'Look, recruiting is a marathon, not a sprint. People that come to Stifel, I expect them to retire at Stifel.' So if these markets cause our process to delay a month or so, that's probably a good thing because advisors should be focusing on their clients today. One of the big drivers, it's interesting. I was looking at Stifel stock because one of the big drivers of movement today is equity. People are getting equity in these firms, these smaller firms, and a lot of it is pie in the sky. Very often with the advisors, I find it's like the cobbler's kids have no shoes. The advisors don't ask the same questions of a CEO of a smaller company they would for their own clients. And then I saw that Stifel stock since you've been CEO is up like 6,000%, so like 10 times what the S&P is up since then in the last 20-something years. That's got to be valuable to advisors, I would think.
