Raymond James’ announcement in December that it is acquiring the U.S. private wealth business of troubled Deutsche Bank confirmed industry speculation. But it did a lot more than that, according to the firm and industry experts: it gives the firm an additional channel to offer to recruits, one focused on high-net-worth investors who want to work with a boutique.
“This is a very clever strategy,” said Mark Elzweig, an executive search consultant, in an interview. “If Raymond James is successful in retaining the bulk of the 200 Deutsche Bank advisors, they can really position themselves to compete for advisors who want to work at small high-end boutiques.”
The unit — which will be branded Alex. Brown — has a total of about $50 billion of client assets and $300 million of revenue. This means its advisors have an average level of production (or fees & commissions) of $1.5 million — putting it way ahead of Merrill Lynch, for instance, whose reps average $1 million in production.
“The timing is perfect,” Elzweig said. “They are doing this as the number of high-end boutiques in the world is shrinking, as many foreign banks are exiting the business.”
Raymond James, which has about 2,500 employee and 3,500 affiliated independent advisors, confirmed the deal means it is adding the boutique option to the “Advisor Choice” list of offerings that it shares with potential recruits at wirehouses and other broker-dealers.
“For wirehouse and other advisors who can come into that division, this in essence opens up another channel in their already successful recruiting campaign,” Elzweig stated. “And Raymond James has been phenomenally successful this year at attracting many top advisor teams.”
Plus, he added, “Retaining the Alex. Brown name is going to be a big morale booster for the Deutsche Bank advisors, who are likely to be excited with the fact that they will be with a firm which is self-clearing.”
As part of the deal, the advisors staying with Alex. Brown — and those joining it — will have access to equity syndicate flows, equity research and “a high array of high-net-worth support services for many years,” Raymond James CEO Paul Reilly said during a call with analysts on Thursday. They also maintain their ability to use an institutional trading desk.
Raymond James says it expects to pay 1.4 times revenue for the acquisition, or $420 million. About 70% of this, or nearly $300 million, will be spent on seven-year retention agreements. Assuming these packages are offered to all 200 advisors, that represents a $1.5 million retention deal for each Deutsche rep.
Along with the high-net-worth focus of the acquisition, the St. Petersburg, Florida-based firm is also upbeat on the geographic presence it brings.
“The agreement significantly accelerates our expansion,” explained Reilly. “We’re very focused on growing in the Northeast and the West and the positioning in the Northeast and Mid-Atlantic, some of the wealthiest markets of the country, really provide a strong foundation.”