A potential acquisition of Sterne Agee Group Inc. by Stifel Financial Corp. would greatly bolster Stifel's presence in the independent broker-dealer industry.
Stifel has 1,943 employee reps and advisers in the traditional employee model of retail brokerage, but only 188 in the independent model
through its Century Securities Associates Inc. subsidiary.
Sterne Agee's broker dealer, Sterne Agee Financial Services Inc., has about 630 reps in the independent channel. Picking up those reps would arm Stifel for further expansion as the business combination of brokers and registered investment advisers, known as “hybrids” in industry jargon, continues to dominate the retail financial advice business.
A deal between Stifel and Sterne Agee, a Birmingham, Ala.,-based privately held investment bank and retail brokerage with nearly $26 billion in client assets, could be announced within days,
according to a report Friday by Bloomberg News.
Stifel's chief executive officer, Ron Kruszewski, did not return an email on Friday seeking comment. Spokeswoman Lynda Hofstetter said the company does not respond to market rumors.
"Sterne Agee has never been stronger and we don't comment on market rumors," said Eric Needleman, chairman and CEO of Sterne Agee Group, in a statement.
Since 2005, Stifel has made 11 acquisitions of investment banks and financial services firms. Only two, however, were acquisitions of entities that focus on retail financial advice.
In February 2007, Stifel closed its acquisition of Ryan Beck Holdings Inc., a full service brokerage and investment banking firm with a private client focus. And in the second half of 2009, Stifel acquired 56 branches from UBS Wealth Management.
If the Sterne Agee deal goes through, Stifel will be facing a number of challenges.
Sterne Agee itself has been a buyer of independent broker-dealers in recent years, the latest of which was WRP Investments Inc., a midsize firm. Since the close of that acquisition, WRP reps and advisers have been moving accounts to Sterne Agee, which is a self-clearing broker-dealer. If advisers have to move their client's accounts again, this time to Stifel, it makes life tough for the adviser, said Larry Papike, president of Cross-Search, a third party recruiting firm that focuses on independent reps and executives at such firms.
“If that's the case, it makes it extremely difficult for advisers to go back to customers and say, 'We're moving your account to a different clearing firm,' and explain a whole new situation about their broker-dealer again,” said Mr. Papike.
“Telling a whole new story to clients again is just hard for the adviser," he said. "The disruption in the adviser's life is monumental, and each time they have to tell the story again they lose a little bit of credibility with their clients.”
Meanwhile, Sterne Agee has been under a cloud for most of the past year, although that could work in Stifel's favor if it was able to pick up the firm at a fire sale price.
Sterne Agee last May fired its former chairman and CEO, James Holbrook Jr., for allegedly misusing company assets and spending lavishly on perks. The board of Sterne Agee fired Mr. Holbrook after it learned of a federal criminal investigation into possible misconduct by the CEO.
Then, in December, Sterne Agee
sued Mr. Holbrook for the same reason: allegedly using company assets and resources in activities that were not in Sterne Agee's best interest but were, instead, in Mr. Holbrook's personal interest.
In 2015, high costs of technology and compliance are expected to continue to force small broker-dealers to sell to large firms that have the scale to afford the bells and whistles broker-dealers need to compete.
“I don't know the specifics of a potential deal, but it isn't shocking that this deal could culminate,” said Derek Bruton, CEO of Lucia Capital Group. “From regulatory pressures to competitive pressures, for firms to compete with larger firms, acquisitions and mergers of strengths and capabilities make sense right now.”
