Morgan Keegan & Co. Inc. reps coming on board at Raymond James Financial Inc. will be given the opportunity to select whether they want to affiliate as in-house brokers or would prefer to go independent.
Providing that choice to the newly added advisers won't affect the economics of Raymond James's deal with Morgan Keegan. RJ purchased the broker from Regions Financial Corp. last month for $930 million.
“We tell [advisers] they can choose what they want,” Paul C. Reilly, chief executive of Raymond James, said. “We're trying to get everyone over as employees, and then they can choose their path once they're in. Our view has always been that it's the adviser's choice.”
He added that historically, there has been little movement between the two sides of Raymond James' platforms. “Employees like being employees; independents like being independent,” Mr. Reilly said.
But offering the choice regarding how to affiliate with the broker-dealer — a rarity in the brokerage industry — could prove alluring for Morgan Keegan reps.
“Mr. Reilly's acknowledgement that the reps will be offered the choice is clearly compelling to the Morgan Keegan advisers,” said Barbara Herman, senior vice president at recruiting firm Diamond Consultants. “Having that choice is very much what differentiates Raymond James.”
Whether advisers will choose to go independent remains to be seen.
Mr. Reilly said that incoming reps historically have maintained their affiliation, be it employee or independent contractor.
But recruiters said it's only natural that some Morgan Keegan advisers at least have been thinking about going indie — especially after the firm went through litigation involving investors who lost money in Morgan Keegan's mortgage-tied mutual funds amid the housing market collapse.
“Let's face it — Morgan Keegan has been in play for at least six months,” said Danny Sarch, founder of Leitner Sarch Consultants Ltd. “Their troubles haven't been a secret. You have to think some percentage of those advisers were considering going independent — and this is an easy way to do it.”
Ms. Herman noted that prior to the acquisition, Morgan Keegan reps had been talking to Raymond James about joining and affiliating with any of the firm's channels. She said that while it's been said in the industry that reps commonly don't switch models, things could change.
“The independent space has captured the attention of the traditional captive employee-model adviser,” she said. “I think we're going to see some increase in the number of advisers who are more willing to make the change in affiliation.”
If reps decided to take the independent route, it wouldn't affect the economics of the deal, Mr. Reilly said. “We'd have a little more branch cost that would have to be filled in, but we could fill that in over time,” he said.
Overall, Mr. Reilly is upbeat about the acquisition and expects to retain more than 90% of the Morgan Keegan advisers.
Top brass at Raymond James met with major Morgan Keegan producers this week in St. Petersburg, Fla. to discuss retention packages.
Mr. Reilly would not confirm published figures that broke down the payouts as such: 50% of trailing-12-month production for reps between $500,000 and $1 million, 40% for those between $400,000 and $500,000, and 30% for brokers producing between $300,000 and $400,000.
Advisers bringing in more than $1 million in fees and commissions are reportedly expected to get up to 70% of their trailing 12.
Though some have said that the payouts are on the low side, Mr. Reilly said the compensation is fair. “If you look at past transactions, what we're offering is similar,” he said. “We want people to stay because they like Raymond James and Morgan Keegan as an operating entity, and not because they have a check.”
For several years, Leech allegedly favored some clients in trade allocations, at the cost of others, amounting to $600 million, according to the Department of Justice.
