Raymond James CEO Paul Reilly talks taxes and the firm's earnings

President Donald J. Trump's proposal this week to cut the tax rate to 15% for pass-through businesses, under which many independent financial advisers operate, "came out of the blue and was a surprise" and, if enacted, would be a boon to those advisers, said Paul Reilly, CEO and chairman of Raymond James Financial Inc. "All I've seen is news flashes, so it's hard to say. But as I understand the proposal today, if you are an S Corp or a limited liability partnership, the income is passed to you and you are taxed at individual income tax rates, which is currently 39%," Mr. Reilly said Thursday morning. He was speaking to reporters during the annual Elevate meeting for Raymond James Financial Services Inc., the independent broker-dealer unit under the Raymond James Financial roof. "What I understood the solution to be was to tax you like a corporation, which is proposed to go down to 15%," he said. "That means, yes, there would be a great tax benefit [to advisers this applies to], if that is what happens." Meanwhile, Mr. Trump's plan to cut corporate tax rates to 15% from the current high marginal tax rate of 39% could prove to be a bridge too far, particularly if the federal deficit were to increase, Mr. Reilly said. "A 15% corporate tax rate seems pretty darn low to me," Mr. Reilly said. "I think we are high, but I don't know if that's a proposal to negotiate off of or a serious rate, but it's pretty low." He suggested benchmarking the United States to other industrial countries. "It appears to me to get support to lower corporate taxes, to get bipartisan support, the rate would have to be somewhere in the mid-20% range," he said. "Below that, I think the question is going to be, what are you doing to the deficit. How are you making that up? What's revenue-neutral?" RECORD REVENUES Raymond James Financial reported earnings Wednesday for the quarter ending in March, its second quarter for fiscal 2017, which ends in September. Its private client group reported record revenues of $1.09 billion, up 23% from the same period in fiscal 2016. However, pre-tax income in the group was negatively impacted by the $100 million of legal reserves during the quarter for the previously announced $150 million settlement associated with the Jay Peak, EB-5 matter, the company said. Extremely low adviser turnover and strong recruiting, along with increasing assets under management and interest rates, "have driven strong financial results," Mr Reilly said. "It's all helped generate the best six-month start [to the company's fiscal year] we've ever had."