Who is next?..predictions

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gusdelaney's picture
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My prediction is that opco goes to RBC Dain.  UBS sells its brokerage division to CITI and that EDJ and SF get gobbled up by year end.  In <3 years there wil be 4-5 major firms and bunch of independents.  No "mid-sized" firms can/will survive!  FA's doing less than $500M will be quickly squeezed out!

aldo63's picture
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i believe mid size firms can survive. they are profitable. the problem is when you are offered 3.7 times book( i think that what age is being bought at), how do you not do it? then you get a retention bonus to stay?. look at when merril bought advest. they could not have made money off that deal. there have been so few brokers to make it in the last 7 years that these companies are desparate to grow and need to buy to do it. AGE refused to pay upfront money and that is what killed them. most offices had one or two large producers and a bunch of 200k producers. the 200k producers were profitable there but will have to join up with someone to survive the wirehouse. i also heard they are change the name to......
wachoviaprudentialcorestatesfirstunionwheatfirstevernkemperi nterstatejohnsonlaneageedwardssecurites
now that is a mouthful

bankrep1's picture
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My prediction is Merril...by a bank

Greenbacks's picture
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LPL buys RJFS! Just a rumor so far!  
The private equity firm that owns a large percentage of LPL also owns a large position at RJ.
Don't get me wrong I would not favor this deal but I am still indy and if I do not like it I can leave. LPL would not have any hold on my clients! Still a huge hassle to move a book  
 

troll's picture
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bankrep1 wrote:My prediction is Merril...by a bank
 
Who knows, since that rumor is at least 20 years old. Then again, I doubt it.

FreeFromJones's picture
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I think Jimmy W. will convince the GPs that they can be so much richer is they'll sell out to Merrill.  What a deal.  The GPs make the money and the working stiffs get stiffed.  BOHICA!!

Dontknow's picture
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Would anyone actually want EJ's "unique" model?

bspears's picture
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The Chinese...they don't have cars..so doorknocking would be very suitable.

Indyone's picture
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Greenbacks wrote:LPL buys RJFS! Just a rumor so far!  
The private equity firm that owns a large percentage of LPL also owns a large position at RJ.
Don't get me wrong I would not favor this deal but I am still indy and if I do not like it I can leave. LPL would not have any hold on my clients! Still a huge hassle to move a book 
I think that would be a huge mistake on LPL's part.  Reps at RJFS are there for a reason...they didn't like what LPL had to offer.  Same goes for reps that chose LPL over RJFS.  If these two merge and the "winner" uses their culture as the standard, the acquiree will lose reps by the boatload.  RJ's annuity haircut was a stupid idea and if LPL adopts stuff like that, I'm gone.

troll's picture
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Dontknow wrote:Would anyone actually want EJ's "unique" model?
 
All kidding aside, I doubt it.

Indyone's picture
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Gus, with all due respect, I think you're full of beans.  EDJ is unique and not a good fit for any acquirer.  Plus, I seriously doubt they have any desire to be acquired.  Who do you think would swallow them?
...and as far as consolidation, the same thing was said years ago about banks and I see de novo banks springing up all over the place and plenty of mid-size banks still in the hunt.  Some consolidation, yes, but nothing on the order of your prediction.
...and just to be consistent, I also disagree with your small producer prediction.  Plenty of firms have shown a willingness to service even part-time producers if the split is right.

EDJ4now's picture
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If a purchaser came in and tried to change EDJ's model, i.e. put them into branch offices, they would leave by the boatload.  You may not view EDJ reps as independent, but that's how they view themselves, and if a PutTrader clone tried to pretend he was their boss, it would last about a week before the EDJ rep moved to LPL.
The only way for it to work would be if a purchaser wasn't very heavily involved in the financial advice business, and was willing to accept EDJ as is, leaving their system basically untouched.  Come to think of it, that would be a pretty nice payday for the GP's (not that they ever let their interest get ahead of the hardworking IR in the field).
Conspiracy theory aside, I would be shocked in EDJ was acquired by anybody.  Even with the potential payout for GP's, it's not like they are hurting for money, and as Mel Brooks said, "It's good to be the king."  I think they would take their current millions and the power over the potential additional millions but having to answer to a board or directors (or stockholders).

farotech's picture
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Joined: 2007-01-05

I've heard it from the horse's mouth. Jones would be willing to be bought out for 10x book.

Indyone's picture
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farotech wrote:I've heard it from the horse's mouth. Jones would be willing to be bought out for 10x book.
...me too...

Vin Diesel's picture
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Joined: 2007-04-18

IMO Piper, RBC, and Oppy seem most likely takeover canidates.
 

BankFC's picture
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On a side note...I've heard serious rumors that Regions Bank will soon be acquired, aka before the year is out.  The two suitors are Citi and Wells Fargo.
Then again, I've heard Wells Fargo was going to buy SunTrust for a few years now...and nothing so far.

apprentice's picture
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VD - agree on Oppenheimer - but RBC is too huge (and Canadian, eh), may be looking to eat more US property.  The loonie is at a 30 year high - may be time to spend some C$.

bankrep1's picture
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Joined: 2004-12-02

The only way Merrill would buy EDJ is if they were looking to grow their call center...

troll's picture
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apprentice wrote:VD - agree on Oppenheimer - but RBC is too huge (and Canadian, eh), may be looking to eat more US property.  The loonie is at a 30 year high - may be time to spend some C$.
That's what people thought about Fahnestock whey the bought Oppy. Oppy is domiciled in Canada, by the way.

AllREIT's picture
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farotech wrote:I've heard it from the horse's mouth. Jones would be willing to be bought out for 10x book.

And that would be a good price to sell it.

For all it is, EDJ is a creaky old rusty machine, but for the GP's its a pretty good system.

The problem is that EDJ is so leveraged to the sucess of American
Funds. If GFA ends up with the same problems as Fidelity's Magellan
fund did things could get very nasty.

troll's picture
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AllREIT wrote:
farotech wrote:I've heard it from the horse's mouth. Jones would be willing to be bought out for 10x book.

And that would be a good price to sell it.

For all it is, EDJ is a creaky old rusty machine, but for the GP's its a pretty good system.

The problem is that EDJ is so leveraged to the sucess of American
Funds. If GFA ends up with the same problems as Fidelity's Magellan
fund did things could get very nasty.
If?

bankrep1's picture
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Joined: 2004-12-02

How could GFA end up with the problems Magellan had? Magellan had a superstar manager who left, they had superstar performance over a long term, GFA is managed by the infamous MPC system, no superstar, and their returns are not that high above the index like Magellan was. I don't know why you would compare the two, are you some kind of moron?

deekay's picture
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bankrep1 wrote:How could GFA end up with the problems Magellan had? Magellan had a superstar manager who left, they had superstar performance over a long term, GFA is managed by the infamous MPC system, no superstar, and their returns are not that high above the index like Magellan was. I don't know why you would compare the two, are you some kind of moron?
Seriously, AF has been dragging assets in in record numbers, yet the results still stack up.  This has been going on for years.  Could it be that they're the one company that has figured out how to combat large inflows and most other companies (like Fido) didn't have the foresight? 

troll's picture
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deekay wrote:
bankrep1 wrote:How could GFA end up with the problems Magellan had? Magellan had a superstar manager who left, they had superstar performance over a long term, GFA is managed by the infamous MPC system, no superstar, and their returns are not that high above the index like Magellan was. I don't know why you would compare the two, are you some kind of moron?
Seriously, AF has been dragging assets in in record numbers, yet the results still stack up.  This has been going on for years.  Could it be that they're the one company that has figured out how to combat large inflows and most other companies (like Fido) didn't have the foresight? 

I guess it could be, but remember the famous last words - this time its different.
If GFA has a 2% position in TWX, how long will it take them to get out of it? What if they grew their assets another 10% a year for the next three years and had a 2% position? THEN how long would it take to get out of the position? Yes, its been working so far, but I think these things all have their limits, and if they keep growing, its a matter of time. Problem is, by the time we all realize it, our clients will have underperformed for 2 years. I've been diversifying away from AF. Not saying I'm right and your wrong, just my humble opinion, so please dont go into "RegisteredRep Forum Attack mode".

skolbrother's picture
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Vin Diesel wrote:
IMO Piper, RBC, and Oppy seem most likely takeover canidates.
  Piper retail bought by UBS last year, so no. RBC probably not, royal bank of canada (ry) not exactly an insignificant force. Oppenheimer do not know much abut them.

troll's picture
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pratoman wrote:I guess it could be, but remember the famous last words - this time its different.
Exactly.  They have done well and nobody can conceive that the mighty AF would underperform.  Never mind that their good performance in GFA has come in no small part from the fact that their so called domestic growth fund has about 20% in international equities.  Can you say "style drift"?Someone at our firm recently commented that it shouldn't be called "Growth Fund of America", it should be re-named "Blend Fund of the Globe".

AllREIT's picture
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joedabrkr wrote:Exactly.  They have done well and nobody can
conceive that the mighty AF would underperform.  Never mind that
their good performance in GFA has come in no small part from the fact
that their so called domestic growth fund has about 20% in
international equities.  Can you say "style drift"?

Can you say, EUR/USD strength? The hidden secret of international investing.

As GFA gets bigger and bigger, its performance will converge on the total market performance. EDJ can bet the whole firm on the performance of AF, but for myself I wouldn't do that.

Now when GFA materially
underperforms the market (See Magellan, Legg Mason Value Trust,
Contrafund etc), then EDJ is going to have a hell of a time protecting
AUM from various annuity sharks and brokers  waiving hypotheticals
of whatever funds are hot.

If I was a GP, I would be very concerned about this.

jones&amp;out's picture
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Joined: 2006-04-22

When I read the topic, the first thing that came to mind was Ed Jones selling out to Primerica.  That has to be the only other firm to hire away the Beer Truck driver to promise that he will soon be earning in the triple digits.
We have to know that most of the major firms would not take Jones because of their AF leverage not to mention Jones intentionally avoids teaching their reps about many of the products or platforms that the rest of us use.  All Jones reps would have to start from the beginning and go through the training all over again.  It would be less expensive to just hire new people who have some actual credentials.  I actually had a local rep try to transfer out a Behringer Harvard private REIT and made the client call me up to ask how to fill out the paperwork because the rep had never seen anything like it before.  That was the easiest account I have ever saved.

AllREIT's picture
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jones&out wrote:We have to know that most of the major firms would
not take Jones because of their AF leverage not to mention Jones
intentionally avoids teaching their reps about many of the products or
platforms that the rest of us use.  All Jones reps would have to
start from the beginning and go through the training all over
again.  Quote:
EDJ is like a kindergarden art class where the kids have only 8 crayola watercolors work with.

Long term EDJ is going have to get more sophisticated in order to
get new clients and retain existing clients. But its not clear how to
train them?

Do you teach people how to pick funds/make portfolios and run the
risk of them picking the wrong ones? How about the muni platform? How
about building out the research platform to cover more REITs and other
income investments? How about building up a system of model etf
portfolio's for wrap accounts?

One thing that would make EDJ truely useful is if they built up a
convertable bond SMA platform, that would be unique and useful for
clients.

But none of this will happen as long as EDJ has bound itself to
revenue sharing with AF et al. And of course revenue sharing is based
on a percentage of NAV, so if the stock market goes down, EDJ gets less
of a kickback.

http://www.edwardjones.com/cgi/getHTML.cgi?page=/USA/product s/mutualfunds_revenue_sharing.html

Even with only 2.56 bp of asset based based fee's on AF, it still totals $37Million.

IMHO EDJ should be flogging Franklin/Oppenheimer to get even more revenue sharing.

And of course so much of EDJ's fortunes are tied up in AF. If
Suddenly AF were to have mass redemptions, EDJ's clients could be
socked with massive cap gains distributions.

This would be very ineffecient compared to using SMA's with ETFs. Anyone buying new shares of GFA is buying a huge latent tax liability as well.

Quote:It would be less expensive to just hire new people who have
some actual credentials.  I actually had a local rep try to
transfer out a Behringer Harvard private REIT and made the client call
me up to ask how to fill out the paperwork because the rep had never
seen anything like it before.  That was the easiest account I have
ever saved.

What so hard about transfering out a private REIT?

BTW how long untill Behringer Harvard has its liquidity event? So far DCT Industrial went public, and Wells has filed an S-11.

BankFC's picture
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In which BH issue are you referring?  I have used there most recent Income REIT, and am looking at the Opportunity REIT to diversify some folks out of this market I feel like is about to pop...

AllREIT's picture
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BankFC wrote:In which BH issue are you referring?  I have used
there most recent Income REIT, and am looking at the Opportunity REIT
to diversify some folks out of this market I feel like is about to
pop...

I was responding to Jones&out, who said some EDJ'er had a problem with transfering a BH private REIT.

Personally, I'm not a fan of private REITs. Liquidity is poor,
management lacks the spark that public markets bring (e.g if you suck,
PEQ buyers are waiting in the wings), there is no real reason to
control costs or make wise investments.

The classic example of this problem is the public RMR REITs (HPT,HRP,SNH), which have horrible management agreements based on gross assets. This has lead to bloated portfolio's and dilutive equity issuances.

Of course retail investors love the yield, which is the result of the share prices being held down by the horrible management agreement

The other big issue is private REITs is the final liquidity event. Internalising management can be very expensive, and you are wholly dependant on market conditions at time of exit.

Further, IMHO now is not the time to persue value-add opportunities because you are attempting to add value at the tippy tippy top
of the RE cycle. It does you no good to buy and renovate a property and
then find that property values and rents have fallen by 15%.

jones&amp;out's picture
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I will agree with AllReit that the liquidity in a private Reit stinks, in fact they can control how much is available to liquidate and an investor may not be able to get much more than an RMD back, however if you are wise about how much of a portfolio you place into the Reit, this shouldn't be much of a concern.  The benefit to you Bank FC is if you are looking to control emotions during a volatile period of time, your clients won't see the volatility as a private Reit doesn't update its share price every day or with the influence of supply and demand.
I will disagree with AllReit that this isn't the time to invest in real estate.  We all know that there are different segments to real estate.  You have to know what type of properties the companies manage ie: commercial vs retail vs residential.  BH and Wells manage a completely different type of portfolio than Kimco and Weingarten.  I would have to say that with employment looking to continue to improve and availablility of office space continuing to decrease, there is still opportunity in commercial real estate.

Greenbacks's picture
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Joined: 2004-12-21

Walmart buys Edward Jones
 

bspears's picture
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Joined: 2006-11-08

I think H&R Block should buy Jones...this would actually be a good fit.

forge1's picture
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UBS buys MS retail before year end.

troll's picture
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forge1 wrote:UBS buys MS retail before year end.
 
Oh would I LOVE a chance to put some money on that one with you... 

troll's picture
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mikebutler222 wrote:forge1 wrote:UBS buys MS retail before year end.
 
Oh would I LOVE a chance to put some money on that one with you...  I agree.  That's preposterous.

AGE_Inside_Info's picture
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Joined: 2007-06-03

Jones brokers are good at getting old fashioned investors' accounts by
door knocking. Nothing wrong with door knocking, but wouldn't it be
funny if someone knocked on a Jeffrey Dahmer-types door!

I doubt EJ can sustain that model as the baby boomers come into huge
inheritances. It's one thing to give a door kncker a CD coming due; it's an
entirely different thing to give a door knocker your parents' life savings.

EJ would one day make a great acquisition for LPL, if LPL got to the size
that they could acquire EJ. These EJ brokers know how to run their own
business. That's key. Most wirehouse brokers are too dependent on the
system to run their own businesses.

I knew one guy that wouldn't do business with me because he smokes up
w/ his Jones Broker that puts his almost $1M in 7 different fund families
to avoid breakpoints.

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