Practice Management > Marketing and Communications > Client Retention

Raymond James on Morgan Keegan Deal: Reps to Come; Earnings to Go

Your article was successfully shared with the contacts you provided.

Raymond James (RJF), which released its February performance data on Thursday, said that the Morgan Keegan acquisition would ‘unfavorably impact’ its quarterly earnings even as nearly all of Morgan Keegan’s reps would come over to Raymond James.

The company’s February data showed that securities commissions and fees rose 4.5% over last month and 5.1% from February of last year. Assets under administration grew nearly 3% and 6%, respectively, to $289 billion.

The company also says its integration of Morgan Keegan advisors “continues to progress steadily,” and that 98% of the roughly 600 reps and branch managers presented with retention offers have indicated that they will be joining Raymond James upon closing of the merger, which could be April 2.

At the same time, Raymond James says financing arrangements for the $930 million deal “will unfavorably impact this quarter’s earnings and earnings per share due to both the increased interest cost and common shares outstanding since they took place before the actual acquisition,” according to a press release.

The company would not elaborate on the specific impact of the three financing packages. It did say it completed an equity offering of close to 11.1 million common shares and a $350 million senior note offering in February. Also, the St. Petersburg, Fla.-based financial group said Thursday that it had priced its planned offering of $250 million of 5.625% senior notes due in 2024 at roughly 99.6% of principal.

Raymond James COO Dennis Zank (left) says most of the 1,000 Morgan Keegan advisors could join Raymond James by the expected close of the deal on April 2. Some 600 were given retention offers earlier this year based on their yearly production, which must be $300,000 or higher.

If every advisor came over, Zank added, Raymond James & Associates – the employee channel of the company – could expand to as many as 2,300 advisors from 1,320 in February. (Including its independent, bank and other reps in the United States and abroad, Raymond James now has some 5,400 FAs.

“We lost two in Pensacola, and that’s about it,” said Zank, in an interview with AdvisorOne. “Yes, I tend to be an optimist, but this could be the best retention in the brokerage business in a long time – 98% have signed their letters of intent to stay with us, and that’s with all the recruiters on the planet banging on their door. It’s a pretty amazing number.”

Still, says one recruiter, the number that counts will come a few months from now.

“Some reps could decide not to join over the next 10 days,” said Rick Peterson of Peterson & Associates in Houston, in an interview. “And many reps could sign and then still leave. They’ll soon be getting big deals everywhere.”

Peterson says the 98% figure “doesn’t mean a thing, because the real retention figure will appear by the end of the year or sooner. Call me in June, and let’s talk retention,” he said.

Rivals, including the wirehouses, should continue to pressure Morgan Keegan reps to join, and that could motivate some to break the terms of their retention contract and leave Raymond James. “As the serious money starts to make an impact, the Morgan Keegan advisors will not be so sure that they got a great deal in the merger,” the recruiter said. “In a few months, they could give the money back and say ‘sayonara.’ ”

Zank, naturally, is more upbeat.

“We view financial advisors as those who simply earn their business as free agents,” the COO said. “As they’ve been getting transition offers—and some have been waved in front of them everyday—the Morgan Keegan group remains amazingly cohesive.”

Zank credits Morgan Keegan’s management team. “They are all signed up with us now and are staying. Like their advisors, they’ve always had the opportunity to go to a wirehouse, say, tomorrow or whenever,” he said. “There seems to be a significant bond between advisors and managers in their system, like with Raymond James.”