Raymond James Financial Inc. won't offer Morgan Keegan & Co. Inc. financial advisers who produce less than $300,000 annually any retention packages to stay on, and the offers for the biggest-producing advisers may be substantially less than they could get from competitors, according to one recruiter who received details of the retention bonuses from a Morgan Keegan branch manager.
Top Morgan Keegan brokers are heading to Raymond James headquarters in St. Petersburg, Fla., this week to discuss the retention offers. Raymond James agreed to buy Morgan Keegan, a unit of Regions Financial Corp., on Jan. 11 for $930 million.
“We are offering five graduated levels of awards based on an adviser's annual production, beginning with advisers whose trailing-12-month production is $300,000 and above,” Raymond James chief operating officer Dennis Zank said in a statement last Thursday.
The company said that the retention awards will be made two weeks after the merger closes — expected around April 1 — and that “the retention period is seven years, with vesting beginning at the end of Year Two.” It didn't disclose further details of the awards.
Early indications are that Raymond James is living up to its conservative reputation and offering deals significantly lower than many advisers could get from competitors in the market.
One recruiter, who asked not to be identified, was told by a Morgan Keegan manager that advisers who produce more than $1 million in fees and commissions will receive up to 70% of their trailing-12-month production.
The source said that the retention payouts to the rest of the adviser ranks are the following: 50% for producers between $500,000 and $1 million, 40% for those between $400,000 and $500,000; and 30% for advisers producing between $300,000 and $400,000 in revenue. The missing fifth payout rate is likely for advisers making between $750,000 and $1 million.
The unconfirmed figures are on the low side, said industry recruiter Rick Peterson. “The biggest producers at Morgan Keegan know they can get 140% to 180% [of trailing annual production] at a competitor across the street,” he said. “Any adviser making north of $400,000 would be nuts to take the deal.”
It's clear, however, that money isn't the only — or even the most important — motivating factor for Morgan Keegan advisers. During the six months it took for Regions to find a buyer for the firm, fewer than 30 advisers out of a force of nearly 1,100 left Morgan Keegan. According to recruiters, they are devoted to their branch managers and want to avoid the hassle of moving their clients to a new firm.
“I don't think these advisers are as motivated as many by a big check,” said Tim White, a managing partner at recruiting firm Kaye Bassman International Corp. “They care more about culture and the impact of change on their lives.”
"CLOSE CULTURAL FIT'
Shortly after the merger was announced, Eddie Lyons, an adviser with Morgan Keegan in Shreveport, La., since 1993CHK DATE, said that he was “very pleased” with the “close cultural fit” of the two Southern-based brokers. He also said that he expected most of his peers to be happy with the deal.
“I think most Morgan Keegan advisers' first inclination is to stay, and if Raymond James makes an acceptable offer, I think they will stay,” he said. “If they don't make a reasonable offer, they'll have a problem.”
At the time, Mr. Lyons suggested that 70% of trailing production was a reasonable offer — 30% was not. He was not available to comment further.
While 70% may indeed be less than half of what the biggest producers at Morgan Keegan could get from a wirehouse, recruiters contend that few are interested in moving to one of the larger firms. Many, in fact, came to Morgan Keegan from larger brokers.
“The organizations they least want to work for are the ones dangling the biggest carrots,” said Mr. White, who had heard that the deals for the biggest producers might be closer to 50% of trailing production rather than 70%. “If they wanted to go work for Merrill Lynch, they already would have gone by now.”
Mr. White said he expects that even with a 50% payout, most of the million-dollar producers will take the deal and wait to see how the integration of the two organizations played out before deciding whether to leave.
The bigger risk for Raymond James, according to Mr. White, might be that Morgan's top advisers might choose to go independent.GOING INDIE
With the cost of going independent dropping and the quality of off-the-shelf tools for advisers im-proving, the independent channel is an increasingly attractive option for successful in-house brokers.
Raymond James has an independent-broker channel and pays those advisers about 90% of the revenue they produce, but has not indicated whether Morgan Keegan advisers will be offered the option of going that route. They most likely would not receive any retention money were they to go that way.
The payout rates that are reportedly being offered are most likely a starting point for conversations with the Morgan Keegan advisers — particularly the bigger producers. Recruiters suggested the company will consider the nature of each adviser's book and the sustainability of his or her production when it comes to the specific offers they make.
“The first offer is usually a trial balloon. They'll see if it floats,” Mr. Peterson said.
aosterland@investmentnews.com
