Stifel's proposed acquisition of Barclays's wealth management unit offers the chance to serve more lucrative high-night-worth clients. But keeping the advisors who serve those clients may prove tricky.
The Barclays deal, for which terms were not disclosed, brings about 180 advisors managing $56 billion in assets. Many of those advisors are legacy Lehman Brothers brokers, and they currently operate from 11 U.S. offices.
The proposed acquisition brings in a lot of assets belonging to wealthy clients as well as offices that will boost Stifel's presence in key markets like New York. Once the deal closes in mid-November, the St. Louis-based firm will have roughly 3,000 advisors and expects that the addition of Barclays will add $200 to $325 million to the top line.
But can Stifel CEO Ron Kruszewski make this deal work as he has past acquisitions?
Industry insiders say the answer hinges on the retention deals on the table as well as the capabilities that Stifel can provide.
"No deal acquires people," Kruszewski told analysts during a conference call. "We are going to spend the next few days convincing the professionals at Barclays that the best place to continue their careers and serve their clients is at Stifel."
WILL ADVISORS STAY?
When analysts asked about the firm's retention deal during the conference call, Stifel's CEO declined to talk specifics, but he emphasized the firm would approach its new advisors with care about staying.
"People are the most important aspect of any transaction. We know this. We value this. And we have proposed an attractive retention package in light of the transaction that we are doing," Kruszewski said.
Documents seen by On Wall Street, show that Stifel was offering Barclays advisors a retention incentive award comprised of 30% restricted stock and 70% cash in the form a promissory note that will be forgiven ratably over nine years.
Under the plan, advisors at different production levels will receive incentives based on their trailing twelve-month production in different product categories. For example, an advisor producing $2 million in retail revenue would receive a bonus of 150% of their revenue derived from each of the following categories: annuitized, transactional and private equity. That advisor would also get a bonus equal to 50% of their syndicate revenue.
Among other incentives that Stifel is offering, the firm put forward a so-called founder's award. The firm offered Barclays advisors a restricted stock award equal to 5% of their total trailing twelve-month production for all products in retail and institutional business in exchange for not actively seeking employment away from Stifel during the 45-day period following execution of the offer letter.
"Taken all together, we believe the above package presents a compelling and competitive opportunity for you to join our firm. We hope you agree and very much look forward to partnering with you," the documents show.
It was not clear how many advisors have or will be taking these offers. Stifel did not return multiple calls and emails seeking comment.
Recruiters say that firms walk a fine line when crafting retention packages.
"You want to give enough so that they stay but not too little that they leave. It's tricky. It's not an easy equation," says Danny Sarch, president of Leitner Sarch Consultants, a White Plains, N.Y.-based recruiting firm.
"We've heard anecdotally that Stifel's leadership has been in the Barclays branches. These guys are smart and they are used to making deals and my guess is that they carefully considered it before putting it into writing," he says.
Rick Peterson, a recruiter who had not previously seen the documents, says that the retention package sounded generous. He adds that this is an opportunity for Stifel to extend an olive branch to brokers.
"I think Stifel is saying… 'This is going to give us a chance to get to know you, and this is also more importantly a way for you to get to know us,'" says Peterson.
MIXING IT UP
As important as the retention packages are, Stifel will also need to demonstrate to the advisors that they can thrive at their new firm. Industry insiders say that might mean investing in the platform.
Industry insiders say that Barclays neglected the U.S. wealth management unit. One person familiar with the firm's operations in the U.S. said that they were "chaotic" and in "disarray."
Upgrading the high-net-worth capabilities and platform could incentivize the advisors to stay and make the unit more profitable, says Alois Pirker, research director at Aite Group.
"Barclays had work that needed to be done in this area," Pirker says, citing a managed account platform along the lines of Merrill Lynch One as an example. "If Stifel doesn't make those investments [then] advisors might be tempted to consider other offers," says Pirker.
Many of the Barclays advisors derive a significant portion of their revenue from syndicate business, representing another area that will need Stifel's attention.
Kruszewski said that the two firms struck a distribution deal where Stifel will be the U.S. private wealth distribution partner for Barclays's new equity and credit issues in the United States.
"The firms' respective syndicate desks have already discussed procedures to ensure a seamless approach to such distribution. And we are excited about this partnership," Kruszewski said during the conference call, declining to provide further details.
Industry insiders also note that Stifel has built up its capabilities in other areas, such as investment banking.
"It seems like they are putting together the right parts to offer that breadth of services that you might see from a Merrill Lynch," says Bill Butterfield, an analyst at Aite Group.
Butterfield notes that Stifel has a history of being able to digest acquisitions, noting that the firm picked up Sterne Agee earlier this year, as well as 56 UBS branch offices in 2009.
"They have some experience integrating advisors from other firms. It doesn't mean that this won't turn out to be successful, but this is not their first time at bat," he says.
BEST FIT
Recruiters say that while Stifel is making its efforts, former Barclays advisors will be carefully evaluating their options.
"What is the best fit for your business? That may be Stifel or it may not be," Sarch says.
Those with more traditional wealth management books of business may have more options than those more reliant upon syndicate business. Of course, recruiters note that some small portion of advisors may leave despite Stifel's efforts.
"No acquisition is a perfect fit. There will always be individual advisors whose business may not fit perfectly. But overall I think it will be a successful combination," says recruiter Mark Elzweig.
During the conference call, Kruszewski highlighted an added benefit of building up a platform for advisors that serve the wealthy and ultrawealthy: It'll help with recruiting wirehouse advisors that are looking to move to a firm that has the capabilities that they and Barclays advisors need.
"Build it and they will come," Kruszewski said. "That's what we are going to do."
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