Paltry retention bonuses for some at Morgan Keegan

(Reuters) - Raymond James' retention offers for some Morgan Keegan brokers have arrived, and for many brokers the figures leave a lot to be desired.

For the top revenue-generators among the roughly 1,000 advisers who stayed with the firm since it was first put up for sale in June 2011, the offer from the new owner is far less than what they are being offered to move to competing firms.

Analysts had said that retaining top Morgan Keegan producers, those who bring in more than $1 million in revenue per year, was critical both for keeping Raymond James' credit rating and to justify the $930 million pricetag the firm agreed to pay to Regions Financial for the brokerage.

"Even at second-tier firms, the offers that they're going to get are still a bit better" than what Raymond James is offering Morgan Keegan's advisers, said New York-based financial services recruiter Alan Reed, vice president of Michael King Associates.

Advisers who generate less than $300,000 in annual revenue will not receive any up-front cash bonuses, according to sources at both firms who have been briefed on the offerings. The average Morgan Keegan adviser generates about $363,000 in annual revenue.

Those who generate $300,000 to $400,000 in revenue will receive an up-front bonus equal to 30 percent of their annual production; those between $400,000 and $500,000 will receive 40 percent; and those who bring in more than $500,000 will receive 50 percent of their annual revenue.

For top advisers, typically considered those who generate more than $1 million in revenue, upfront bonus packages could be as much as 70 percent of their annual production.

It is not clear how many advisers fall into these categories at Morgan Keegan. Raymond James declined to comment.

The bonuses, commonly referred to as promissory notes, are structured like loans forgiven over a set period of time. In this case for the Morgan Keegan brokers, one-seventh of the amount will be forgiven each year over the next seven years.

Advisers began receiving retention packages late Tuesday, with the bulk of Morgan Keegan advisers due to receive their offers by the end of this week.

A number of competing firms have offered attractive recruiting packages to woo Morgan Keegan brokers.

Competing firms have lately been offering top producers between 150 percent and 170 percent of their annual revenue generated as a sign-on bonus. Financial services recruiter Ron Edde of Armstrong Financial Group said he knows of at least one firm that has offered up to 215 percent - more than three times what the adviser would receive by staying put.

Since June, at least four teams with more than $1 million revenue each have left for competitors like Wells Fargo and Morgan Stanley Smith Barney. As defections picked up speed and size toward the end of the year, some analysts said the value of the brokerage unit was slowly being hollowed out.

"That's where Raymond James is feeling the most vulnerable," Edde said.

The St. Petersburg, Florida-based firm is flying Morgan Keegan's top 15 producers to Florida on Monday to make a tailored pitch in an effort to convince them to stay.

Raymond James said earlier this month that it set aside $215 million in cash and stock to retain Morgan Keegan advisers. Raymond James agreed to purchase the brokerage from the troubled Regions Financial bank two weeks ago.

Standard & Poor's rating agency put Raymond James on a negative credit watch a day after the sale, citing the possibility of lowering the firm's credit rating if it "doesn't retain enough high-revenue producers to justify the price paid for the company," S&P said in a statement.

As an added incentive to stay, Raymond James is offering to defer the taxes due on the amounts to be forgiven over the first two years.

"It makes the package look more attractive, when you get a bigger upfront piece," Edde said. But the taxes would still be due in years three through seven - with a bigger bill.

Even that upfront bump could be offset, however, because the

packages offered would be reduced by any outstanding bonus that is not yet forgiven from previous retention packages set up before the acquisition. For an adviser who generates $450,000 in revenue and still has $20,000 to be forgiven on a previous package, that means a new retention bonus of just $160,000.

(Reporting By Ashley Lau; Editing by Jennifer Merritt, Gary Hill)