While Raymond James Financial (NYSE: RJF) executives were concerned that the integration of Morgan Keegan would put a damper on outside recruiting, the firm posted a solid recruiting quarter as well as record advisor productivity for its independent contractor and employee divisions.
During the second quarter of fiscal 2012, Raymond James added 42 net new advisors, bringing its total rep count to 5,398. This compares to 5,356 as of Dec. 31, 2011, and 5,340 as of the year-ago quarter.
Advisor productivity reached record levels, said CEO Paul Reilly, during a call Thursday morning. Average advisor production was at $361,000 for Raymond James Financial Services, its independent contractor unit, and $546,000 for Raymond James & Associates, its employee channel. That compares to about $700,000 for Morgan Stanley Smith Barney, and $900,000 for Merrill Lynch, said Alois Pirker, research director at Aite Group.
Earlier this month, Raymond James closed the deal to purchase regional firm Morgan Keegan from Regions Financial Corp. for $1.2 billion in cash. The combined firm will have 6,500 advisors and $372 billion in total client assets.
Recruiting Through the Integration
Pirker believes the integration is certainly a distraction and will likely keep the firm busy through 2012 and into 2013. Unlike other integrations, this one will be somewhat easy because Raymond James will be migrating Morgan Keegan reps over to its base platform. Despite the integration focus, that doesn’t mean they won’t continue to recruit advisors, especially from the wirehouses, Pirker said.
“Just because they’re Raymond James and such a dominant player, advisors that are looking around for other options will be checking in with them anyway,” he said.
During the conference call, Reilly said the firm’s main source of recruiting has been advisors who have gone through mergers and acquisitions at their previous firms and now have retention packages that are winding down. They’ve served their time at those firms and want to go back to the environment they once had before the consolidation began.
The Bigger Boost
But for Raymond James, the big boost is going to come from Morgan Keegan, which increases their advisor base by nearly 20 percent, Pirker said.
“In effect, they don’t have to be that aggressive out there recruiting because they’re getting that boost just now with the acquisition, and they have to get that right,” Pirker said.
The acquisition will give them more negotiating power with business partners and product providers, but it will also give them more scale, Pirker added. Essentially, the firm is adding 1,000 more people producing revenue, but the infrastructure stays the same. The costs to the firm stay the same.
The deal also puts Raymond James on closer footing with the wirehouse firms, Pirker said. UBS, for example, has about 7,000 advisors. “It pushes them within reach of that wirehouse scale.”
Morgan Keegan Retention
Since announcing the deal, Raymond James has made Morgan Keegan retention its top priority. And so far, so good. According to Reilly, of the 600 Morgan Keegan advisors who were offered retention packages, 98 percent have accepted. The firm offered retention deals to advisors with $300,000 or more in gross production. The firm expects the remaining 400 advisors to stay on.
The firm did have a handful of “regrettable losses” of Morgan Keegan advisors, Reilly said, but the firm is ahead of its estimates for retention efforts. Originally, the firm estimated it would lose about 10 percent of Morgan Keegan FAs, but the fallout has been much less. The firm will likely come out ahead of this estimate.
But data by Meridian-IQ, a database provider that tracks rep movement using FINRA filings, shows that Morgan Keegan losses were somewhat higher during the quarter. (Registered Rep.’s parent company, Penton Media, is an investor in Meridian-IQ.) According to Meridian, Morgan Keegan lost 39 advisors in the first three months of 2012. (Refer to chart below to see where Morgan Keegan advisors have moved.)
However, these may have been lower producers, which were not offered retention deals. Pirker says total production retained is much more telling than headcount. They likely want to secure 90 percent of the revenue that Morgan Keegan advisors have generated, and that doesn’t mean they need to retain 90 percent of their advisor count.
Overall, Raymond James reported net income of about $69 million for the quarter, down 15 percent from the prior year quarter, on record net revenues of $871.9 million, up 2 percent from the year-ago quarter.
The firm also set quarterly records for assets under management at $39 billion, up 11 percent sequentially, and assets under administration at $292 billion, up 8 percent over the previous quarter.