Experts on Friday generally praised the retention packages that Raymond James (RJF) was offering eligible Morgan Keegan advisors as part of the purchase, noting that it should motivate more advisors to stay and shouldn’t prove too costly.
Raymond James said Thursday that it gave seven-year award offers to those with $300,000 or more in yearly fees and commissions – a figure that is lower than the industry norm of $500,000 in production for retention bonuses. The deals begin vesting at the end of year two and will be paid within two weeks of the expected closing date of Raymond James’ $930-million purchase of Morgan Keegan from Regions Financial (RF), which should be April 1.
“I can only assume that the distribution of Morgan Keegan reps had a significant percentage in the $300,000-$500,000 range and that Raymond James desired to keep these reps,” said Chip Roame (left), head of Tiburon Strategic Advisors, a consulting firm, in an interview with AdvisorOne.
This production level may, at least in part, reflect the demographics of Morgan Keegan’s clients. “Morgan Keegan serves mostly the South and many mid-size cities in the South; in such cities, $300,000 might be considered pretty significant production,” Roame explained. “This is far different than UBS buying PaineWebber, which served primarily large cities. In New York, for instance, $300,000 would seem small.”
“If Raymond James had offered the deals at $500,000, it could have ended up losing some advisors before it had the time to evaluate them,” said Bill McGovern (right), a recruiter for Raymond James and other broker-dealers who worked previously for the firm, in an interview. “The thinking seems to be: why not lower the figure, at least for a time, and see if the advisor can bring over their books and let Raymond James help them grow?”
Other recruiters agree. “That number, $300,000, is seen as that of a successful advisor at smaller firms, and it makes sense to retain at that level,” said Danny Sarch of Leitner Sarch, a recruiting firm that works with broker-dealers including Raymond James, in an interview. “It’s no surprise.”
Raymond James includes about 5,400 financial advisors, the majority of whom do business in the United States through its independent-advisor channel. The Morgan Keegan deal could potentially add up to 1,000 employee advisors to Raymond James’ headcount.
As for the exact bonuses level money, Raymond James is not releasing any more details. “We are offering five graduated levels of awards based on annual production, beginning with advisors whose trailing 12-month production is at least $300,000,” said COO Dennis Zank (left), in a statement.
Based on the fact that traditionally Raymond James has recruited employee advisors by offering them less upfront than the wirehouse firms, which often pay 100% of production or more, recruiters and other experts say that is likely that the deals being offered upfront to Morgan Keegan reps are under 100% of their latest yearly fees and commission.
“The retention deals likely make sense financially” for Raymond James, said Roame. “Firms can offer retention money down to $300,000 reps as long as they don't give them excessive retention payments and as long as the advisors are required to stay and/or grow their book. With smart math, the firm should be able to protect itself and not lose.”
Raymond James includes about 5,400 financial advisors, the majority of whom do business in the United States. The Morgan Keegan deal could potentially add up to 1,000 employee advisors to Raymond James’ headcount.
“If the Morgan Keegan advisors had wanted to be at a big firm that pays the most, they’ll go, and some have,” said Sarch. “Raymond James’ upfront money won’t be [the biggest factor in their] a choice to stay. It’s the most similar culture, and the small-firm feel means they should be happy at Raymond James.”
Retention payouts of 100% were offered to some Smith Barney reps after Morgan Stanley merged with it and after Bank of America bought Merrill Lynch during the financial crisis. “Raymond James does not pay as much as these firms,” added Sarch.
Still, he notes, its retention rate is extraordinary.
The retention deals seems to make sense in the long term, according to McGovern. “Raymond James is taking a good long-term perspective in its decisions,” he said, and not expecting a big bang from the Morgan Keegan advisors. In other words, it is looking for these reps to grow their books not so much in one or two years but over the next five.”