Just two months after its $930 million acquisition of Morgan Keegan, Raymond James said Wednesday that 98% of the roughly 600 Morgan Keegan financial advisors who received retention incentive offers have agreed to stay with the firm.

Those advisors will officially join Raymond James when the acquisition is finalized, the firm said in an operating data report. The deal is expected to close by April 2.

“While we were very confident that the cultures of these two firms and the values of the two firms are very similar, I don’t think we were anticipating a number of 98-plus percent,” Raymond James Chief Operating Officer Dennis Zank said in an interview with On Wall Street on Thursday. “We were certainly anticipating a number with a nine in front of it. This is certainly a good number. Both management teams are happy with the outcome to date.”

The retention offers do not extend to all of Morgan Keegan’s 1,000-plus financial advisors. That’s because Morgan Keegan had a very active training program and most of those trainees were not offered retention deals unless they showed great promise in their first few years in the industry, Zank said.

Advisors who joined Morgan Keegan in the last several years who are still under a transition package also did not receive a retention offer, or a very modest one if they did, according to Zank.

Zank said he attributes part of the retention success to the process Raymond James immediately employed to engage those advisors following the Jan. 11 announcement of the acquisition deal.

Shortly after that date, Zank said, Raymond James approached Morgan Keegan’s advisors with a timeline of what to expect. After Raymond James processed all the compensation data, including trailing production and existing notes, Raymond James sent select Morgan Keegan advisors letters outlining what they intended to offer them in late February.

As of Wednesday, Raymond James has received all of the letters of intent back from the Morgan Keegan financial advisors who received them, Zank said. The actual retention bonuses are expected to be paid out within 10 days of the close of the transaction.

Raymond James’s retention offers to Morgan Keegan advisors include the option to take all cash or a combination of cash and restricted stock units in Raymond James Financial. Those deals started with advisors at $300,000 in annual production and up, which includes more advisors than the $500,000 industry standard, Zank noted.

“Those awards are modest at those levels, but we just thought it was the right thing to do,” Zank said. “Morgan Keegan has many locations where if you’re doing $350,000, $400,000 in production, that is a very, very nice living in some of the towns [in which] Morgan Keegan operates.”

Raymond James has also been successful in retaining most of Morgan Keegan’s management, with 12 of their top executives expected to stay. Within the private client group, Morgan Keegan’s six top leaders, including four regional managers and the two co-heads of the private client group, are also expected to come on board, Zank said.

While both Raymond James and Morgan Keegan have a strong presence in the Southeastern U.S., their locations have been “very complementary,” Zank said.

“We have very little overlap, and where there is overlap in locations, it is in very large cities like Houston or Dallas where it’s common for Raymond James to have more than one location,” Zank said. “I don’t know if it could have been a better fit.”

As the integration continues, Raymond James will map out how to integrate both firms’ systems including both private clients and advisors in the next 30 days, Zank said. Those conversions will likely be slated for early 2013, Zank said.

Raymond James also said it has completed a third round of financing in the form of a senior note offering to help finance the Morgan Keegan acquisition. That transaction follows two offerings in February that included offerings of 11.075 million common shares and a $350 million senior note.

The three offerings had “favorable” terms, Raymond James said in a statement on Wednesday, but may have a negative effect on this quarter’s earnings and earnings per share after they increased interest costs and common shares outstanding.

Lorie Konish writes for On Wall Street.





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