In a conference call this morning to discuss Raymond James’ acquisition of Morgan Keegan, CEO Paul Reilly said his first priority was retaining Morgan Keegan people, reps in particular. Raymond James said the firm expects to offer $215 million in retention payments to Morgan Keegan reps and some management. On top of that, Morgan Keegan has set aside an undisclosed amount for advisor retention, Reilly said.
The firm said it would be adding over 1,000 reps to Raymond James & Associates, its employee advisor group. Although there’s expected to be some overlap in the two firm’s fixed income and capital markets segments, Reilly said there would be little overlap in the private client group’s branches and that, anyway, Raymond James and legacy Morgan Keegan advisors can work in the same community and be successful.
Raymond James announced Wednesday it will acquire Morgan Keegan for $930 million, but that price could be reduced if certain revenue retention hurdles are not met within three months of the deal closing. Rumors recently surfaced that a deal between the two firms might be in the works. Regions Financial Corp. put Morgan Keegan on the block in June after it agreed to a $210 million settlement with federal, state and industry regulators over issues related to subprime mortgage-backed securities.
On the call, Raymond James executives made it clear they don’t expect immediate earnings growth with the deal, but that advisor retention would be key to the deal’s long-term benefits and profitability.
“The piranhas of the recruiting world are attacking from all directions,” said Thomas James, chairman of Raymond James, during the call. “We have to earn the affiliation of our FAs every day by providing super service.”
One investment banking analyst, who preferred not to be named, said Tuesday before the deal was done that there have been rumblings of advisors leaving Morgan Keegan. Whether they will stay following a Raymond James deal will depend on the kinds of retention packages the firm offers, he said. High-demand advisors will have some leverage to negotiate retention packages, he added.
Kenneth Leon, analyst in S&P Capital IQ’s equity research division, said economics always play into decisions to stay or go after a deal. He said the firm’s got a large retention pool and it’ll likely be used to capture larger producers and certainly others. In general, Raymond James is a good option for Morgan Keegan advisors, as FAs and clients are the firm’s primary business, Leon said. That means it’s an advisor-centric firm.
Aite Group analyst Alois Pirker said firms typically want to make sure the top third of producers stay where they are, and it would be a smart move to offer a retention package.
But a retention package is not the only thing the firm could use to keep Morgan Keegan reps in their seats, Pirker said. Raymond James offers a diversity of advisor models, including the independent model, RIA, bank channel, and captive model. If the firm opens it up for Morgan Keegan advisors to choose the model they desire, this could be a smart move and a way for Raymond James to retain them, especially for those reps looking to explore another channel.
But Ron Edde, senior executive recruiter and associate partner with Armstrong Financial Group, believes the retention package will be more critical to whether reps stay. For some FAs, the money will make the difference because they’ll have to repaper their clients whether they stay or not. Some Morgan Keegan reps Edde has talked to are happier that it was Raymond James that purchased them than Stifel Financial, which was also rumored to be in the running, but only moderately so. Raymond James, based in St. Petersburg, Fla., is Morgan Keegan’s southern neighbor, but the firm has also been a competitor for years, Edde said.
