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Does Stifel Have an Attrition Problem?

Advisor attrition is high, but the details are what make or break this deal

Over 20 percent of Barclays advisors have departed since Stifel Financial announced it would acquire the U.K. bank’s wealth management unit in early June. And yet, Ron Kruszewski, the St. Louis-based firm’s chief executive, remains upbeat.

“I'm excited about the Barclays transaction,” he said during an earnings webcast Monday.

Stifel agreed to purchase Barclays’ U.S. wealth operations in early June, which at the time, had 180 advisors and over $56 billion in client assets. As part of the deal, Stifel offered Barclays advisors a retention package that paid them 100 percent of their trailing-12-month production. The package reportedly was structured as 70 percent cash, in the form of a promissory note, and 30 percent restricted stock.

Two months later, about 40 advisors and more than $8 billion in assets have left, according to publicly disclosed hiring information. But industry recruiter Ron Edde, founder of National Recruiting Director, said the number is closer to more than 50 advisors when taking into account non-public hires.

The headlines make the situation seem worse than it really is, according to industry recruiter Mindy Diamond, head of Diamond Consultants. “Every day we read about another team, another mega-team, leave. And it feels like a lot, but I think it feels like a lot because they were starting with a small number to begin with.”

The attrition rate may be abnormally high when compared to other industry acquisitions, but Diamond said the circumstances surrounding the deal must be taken into consideration.

“The Barclays advisors are a successful lot, for the most part, they’re multi-million dollar producers that control really good books of business, so that makes them valuable,” she added.

These advisors also were in limbo for a long time, Diamond said. “For sure, even though not 100 percent of them will leave, 100 percent of the advisors were out exploring their options and finding a Plan B.

“The number of advisors jumping shouldn’t be taken as a sign that they don’t like Stifel." Diamond said. "The fact that they were acquired provided an opportunity to re-vet their situation.”

But even Kruszewski admitted that the level of advisor attrition is at the high-end of Stifel’s projected range.

Yet the firm is still “comfortable” with the deal because of the deal’s structure, which Kruszewski likened to “an accordion,” in that the final purchase price is based upon the eventual size of the firm once the deal is concluded.

“I would say that considering all the circumstances surrounding the Barclays situation and the various news reports prior to when we announced the deal, we expected advisor attrition, which is why our purchase price adjust was based on the ultimate revenue we achieve,” Kruszewski said. The firm expects the deal to close in the fourth quarter of 2015.

And Stifel was looking to acquire more than just advisors. Kruszewski predicted that because of the Barclays acquisition, the firm's banking division will grow by nearly $1 billion in loans, replacing some of the company's existing contracts. Assets at Stifel bank increased 5.9 percent over the past year to $10.1 billion at the end of the second quarter.

Additionally, there’s the brand value that Stifel is hoping to bolster. “There was an intangible part of this deal—that Stifel could up their perceived status by purchasing Barclays,” Edde said. “If they take just two advisors, they still absorbed Barclays. And that does carry some value.”

Kruszewski seemed to echo this himself. “I'm really excited about what it does for overall wealth platform from a competition perspective as to our ability to compete in the advisory space.”

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