Location. Location. Location. It matters to advisors as well as realtors.
With Raymond James Financial’s purchase of Alex. Brown from Deutsche Bank, its San Francisco-based advisors have moved up to the 45th floor of a downtown skyscraper, near where they had worked before becoming part of the German bank.
“It is quite exciting for them …,” said Haig Ariyan, president of Alex. Brown. “San Francisco is an example of the opportunity we have to grow the business to more than double what it is today, not necessarily in one year but over the next few years, from the standpoint of the number of advisors. We would expect the assets under management to follow closely along.”
The San Francisco Bay Area branch includes 10 producing advisors. Along with the entire group of 193 advisors nationwide — who have about $40 billion in client assets — these reps seem pleased to be getting their brand back, too. Deutsche Bank switched the group’s original name to Private Client Services.
“Alex. Brown has a long history, and its brand recognition is pretty powerful, even with Alex. Brown buried in other organizations for the last 20 years,” explained Chairman Seth Waugh. “Alex. Brown resonates a lot with individuals in the United States.”
The history of Alex. Brown goes back to 1800, when Irish-born immigrant Alexander Brown founded the first investment bank in the U.S. in Baltimore. That’s about 70 years before Deutsche Bank was started in Germany; about 100 years before its first owner, Bankers Trust, was founded in New York; and over 160 years ahead of the start of its current owner, Raymond James, in St. Petersburg, Florida.
Given the different roots and attributes of Alex. Brown and its new parent firm, advisors and industry-watchers are eager to see how the merger of the two companies proceeds after its Labor Day wrap-up. Research on Wealth looks at how the relationship is evolving, and what the industry can expect from the pairing of a boutique wealth-management group based in New York and a much larger Florida-headquartered company, which now works with about 6,800 independent, employee and bank-based registered representatives in the U.S. and abroad.
Wall Street Meets Main Street
“The acquisition of Alex. Brown was a very savvy move for Raymond James,” said Chip Roame, head of the consultancy Tiburon Strategic Advisors. “It added more high-net-worth focused financial advisors, who were more in large cities and East Coast-based, both good for Raymond James’ synergies.”
Bay Area-based Roame says Raymond James is “the most ‘Wall Street’ of the independent broker-dealers” and of what some industry-watchers refer to as regional firms (though most are now nationally focused), “so it’s less of a stretch” than if a similar rival firm had acquired Alex. Brown. Plus, Raymond James “has some proven expertise in acquisitions,” having bought Morgan Keegan in 2012. (It also just completed the purchase of wealth-manager 3Macs — MacDougall, MacDougall & MacTier Inc. — of Canada.)
Another consultant in the Bay Area agrees. “Acquiring more high-net-worth reps is good for Raymond James,” said Tim Welsh, head of Nexus Strategy. “Raymond James is a solid name in the industry. It’s not like Alex. Brown is going from anything like Tiffany to Kmart. They are both well-known — equal in terms of industry recognition and standing, which should serve them well.”
Raymond James executives naturally are upbeat on how they view the combination. “The opportunity for Alex. Brown to become a division of Raymond James is in many ways a homecoming,” said Tash Elwyn, head of Raymond James & Associates, the firm’s employee-advisor channel. “The Alex. Brown advisors are now affiliated with a client-driven private client firm that shares the focus they have on wealth management.”
From 1999 to 2016, Alex. Brown was part of Deutsche Bank, a financial-services firm with over 100,000 employees worldwide. When the deal with Raymond James was announced in September 2015, the bank’s global asset and wealth unit had about $1.2 trillion of assets under management.
In April 2015, Deutsche Bank agreed to pay regulators in the United States and the United Kingdom about $2.5 billion to settle issues related to its alleged manipulation of the London Interbank Offered Rate (or LIBOR). This fall, just after Raymond James had completed its Alex. Brown acquisition, the U.S. Department of Justice said it was seeking a $14 billion settlement with Deutsche Bank regarding its sales of mortgage-backed securities.
With its move to Raymond James, Alex. Brown’s New York office is relocating to the opposite side of Park Avenue, between 51st and 52nd streets. “Raymond James brings a non-Wall Street point of view to the business and a very successful one,” said Ariyan, who started work with Deutsche Bank as an advisor in Greenwich, Connecticut, in 1996, relocated to the midtown office in 2005 and became head of Private Client Services in 2010.
Alex. Brown’s approach “is very much embedded in Wall Street and what is traditionally offered there,” since its advisors have to keep up with the demands of their generally ultra-high-net-worth clientele, he says. The mix of the two businesses “is a recipe for success,” Ariyan adds.
Transitions in ownership and other high-profile events can lead to advisor poaching. “It only happens every decade or so, making it a time when advisors are urged to stay with their current firm,” said Welsh, and giving rival firms the chance “to snag” some top advisors.
In other words, the retention of advisors “is key in these types of acquisitions,” notes Roame. “Obviously, the core of what is being acquired is the financial advisors, their clients, their assets and the resulting revenues.”
According to both firms, the Alex. Brown advisors nationwide produce about $1.5 million a year in fees and commissions on average. That puts them ahead of UBS Americas’ reps at $1.1 million (as of Sept. 30, 2016), as well as advisors with Morgan Stanley and Merrill Lynch.
For Raymond James, retention of the roughly 200 advisors with Alex. Brown stands above 90%. The firm sees this figure as “a tremendous success,” according to Elwyn.
“To have such a significant percentage of these advisors choose to continue to be affiliated with Alex. Brown and become part of the Raymond James family not only speaks about the power of the combination but also … creates tremendous pride within Raymond James more broadly,” the Raymond James & Associates, Private Client Group president explained.
Elwyn knows the Alex. Brown reps had “their choice” of firms to move to, if they wanted to depart. “They had all firms in the profession knocking on their door and inviting them to join,” he said. “But so many chose to stay and grow their business with Raymond James, which reflects quite positively on the broader organization. We are thrilled with the retention results.”
Hitting this milestone can be at least partly attributed to the fact that Alex. Brown advisors are able to keep offering their clients certain Deutsche Bank products and services. As part of the acquisition, the reps will be able to tap equity new-issue securities, for instance, for seven years. Plus, Raymond James obtains access to some alternative investments and other investment products and services, which means it can “expand its offerings to existing and future ultra-high-net-worth clients,” according to a press release.
“You can say [the deal] is an upgrade for Raymond James, which is why they acquired Alex. Brown,” said Welsh. “Raymond James is one of the few firms that could do it, since Deutsche Bank did not want to sell the crown jewels to a large rival like Wells Fargo or Bank of America.”
Thus, both Alex. Brown and Raymond James executives are upbeat on what the merger means for their respective recruiting efforts. “It’s early days,” said Chairman Waugh, “but we are getting lots of incoming calls. Brands are hard to build and harder to kill. Ours continues to be powerful. The 90%-plus retention of advisors is unprecedented.”
His colleague Ariyan, other executives and the Alex. Brown advisors work to ensure that its “culture is personalized within the firm,” according to the non-executive chairman. “Haig personally hires and helps retain all the advisors, so there is a close, intense culture at the firm — along with all the capabilities we offer to match those of the wirehouses.”
In fact, Alex. Brown has an advantage by being a boutique-size group within a larger organization, but not within one that is too big. “Larger firms [in the industry] have resources, but some can get tangled up in issues due to their size and can have trouble creating personalized service,” Waugh explained. But Alex. Brown doesn’t anticipate having such issues, he says, and instead thinks it can offer clients unencumbered service “using our Raymond James’ resources and our continuing relationship with Deutsche Bank.”
Jon Mallon, the regional executive for the San Francisco and Los Angeles offices of Alex. Brown, says the industry’s post-merger interest in Alex. Brown is inspiring. “We are now seen as being in a growth mode …, which makes us attractive,” he said.