January 31, 2012 / 9:56 PM / 6 years ago

Raymond James looks to woo Morgan Keegan advisers

NEW YORK (Reuters) - Regional brokerage Raymond James Financial is hoping that Morgan Keegan’s 1,000 financial advisers value its culture and reputation for catering to brokers more than big bucks as it pursues the biggest takeover in its 50-year history.

Raymond James on January 11 agreed to pay $930 million for a combination that would create the No. 6 U.S. brokerage, a bold acquisition whose long-term financial success will be judged largely on how many advisers stick around. [ID:nL1E8CBIC6]

The Florida-based bank hopes to win over Morgan Keegan brokers by rolling out the red carpet and promising a light touch while integrating the firms.

“We believe the advisors will value the culture at Raymond James ... as highly as the retention packages,” said Tash Elwyn, president of Raymond James & Associates, a unit which employs more than 1,300 financial advisers, in a recent statement.

Raymond James has vowed to keep Morgan Keegan’s broker managers and offices indefinitely. And for the first year or so, Morgan Keegan brokers will continue doing business separately, using the Morgan Keegan name.

Other parts of Morgan Keegan, in particular its fixed-income business, initially will adopt both names in a “co-branding” arrangement, according to Raymond James Chief Executive Paul Reilly.

Reilly has said he intends to pursue “measured changes” and a slow integration. That approach might appeal to Morgan Keegan employees, but it has vexed analysts looking for a more immediate payoff.

A working group of Raymond James and Morgan Keegan executives is beginning to hammer out integration plans, a process that will intensify when the merger is completed around April 1. Raymond James Chief Operating Officer Dennis Zank and Morgan Keegan COO Patrick Kruczek are leading the integration.

Among the arduous work is figuring out how to integrate technology, operations, compliance and regulatory policies.

Merging technology systems has been a headache for other Wall Street purchases, most recently Morgan Stanley and Citigroup’s Smith Barney joint venture. More than two years since the venture began, Morgan Stanley, the controlling partner, has reported lower-than-expected returns as it spends money to resolve technology woes while combining platforms of two brokerages.

Raymond James in 1999 followed a similar go-slow plan when it acquired Roney & Co and its roughly 300 advisers. The small Detroit firm did business under its own name for several months before switching over to Raymond James, said Bill Roney, former CEO of Roney & Co and now a regional manager at Raymond James. Roney’s firm pursued the sale to Raymond James.

Roney’s operations center remained in Detroit, where employee headcount has since doubled and advisers in its legacy offices grew by half, Roney said. But the firms used the same systems, making technology integration easier, Roney said.


Of course, Raymond James is tackling a much bigger challenge in Morgan Keegan, a transaction expected to wipe out earnings growth this year, absent any market upturn. Analysts have said retention is crucial to making the deal pay off.

Raymond James is pouring on the charm, with a trip early this week to its Florida headquarters for Morgan Keegan’s 75 top revenue-generating brokers and managers. Raymond James executives said they will tout the similarities of two firms with Southern roots and close-knit “regional” cultures. This follows a similar trip by Morgan Keegan’s 85 branch managers. Another 300 to 400 advisers will be invited to visit next month.

“They’re trying to buy time, to be able to show Morgan Keegan folks that Raymond James can be a productive place for them,” said Marty Mosby, a Memphis-based bank analyst for Guggenheim Partners.

It could be a tough sell for some Morgan Keegan advisers, though, after learning the details of the retention packages Raymond James is offering as part of the deal.

Brokers generating less than $300,000 in revenue each year receive no retention bonus package. Recruiters estimate as many as a third of advisers fall below the threshold.

And while brokers generating more than $1 million in revenue would receive a retention package equal to 70 percent of their annual production, these advisers could get double that amount by defecting to a bigger, national firm.

Retention bonuses are amounts paid by firms to brokers in order to retain them - in this case for seven years.

Raymond James is banking on its image as an alternative to Wall Street’s giants -- a place where managers are accessible to rank-and-file advisers -- and its promise of a smooth transition to help keep advisers in place despite its low bonus offers.

Its adviser-first approach may appeal to Morgan Keegan brokers, accustomed to a flat organization where managers have a lot of discretion.

But Raymond James also has a no-nonsense reputation, with more policies and procedures handed down by management. That means Morgan Keegan brokers may have less freedom than they are used to, recruiters said.

In the end, Morgan Keegan advisers may find the changes difficult to absorb, no matter how slowly they come.

Reporting By Joseph A. Giannone, editing by Matthew Lewis

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