Tash Elwyn's job just got more complicated.
The new president of Raymond James & Associates sat in a conference room in late December in St. Petersburg, Fla., at his company's headquarters discussing his plans for his unit, now that he was assuming the mantle of leadership following the promotion of Dennis Zank. But that was just a few weeks before the parent company struck a deal with Regions Financial to buy its Memphis-based Morgan Keegan unit for $930 million.
"I have — very much in jest — said to a few folks that a week and a half ago it didn't appear it was going to be challenging enough and we needed to take it up a notch," Elwyn said. But that was before the historic deal was announced in mid-January. Now, he said: "There's going to be a lot of heavy lifting for many months to come."
Back in December when Elwyn was asked about whether there was a bigger growth target for RJA in 2012, he responded that the firm would "continue to place quality instead of quantity." In fact, he said it was the intention of Raymond James "not to morph into the biggest firm. Our goal has been to be the premier alternative to Wall Street." At the time, he also said: "I think the most significant challenge is first demonstrating and affirming what's NOT changing."
However, a great deal of change is coming to Raymond James. Call it the next step in its evolution. A small firm with southeastern roots, Raymond James just saw its footprint get a lot bigger with the potential to see its brand become significantly more prominent. And what does it mean in the long term for Tash Elwyn?
The entire Morgan Keegan private client group team — which includes its leadership, the branch managers and the 1,000-plus advisors (who are all in the employee channel) — will be operated as a separate unit.
And, Dennis Zank, recently promoted to chief operating officer at Raymond James Financial, will manage the integration of Morgan Keegan into Raymond James.
As for the deal itself, it will deliver $1.18 billion in proceeds to Morgan Keegan's parent company, Regions Financial. The deal includes a $930 million stock purchase agreement with Raymond James. Morgan Keegan will also pay a $250 million dividend to Regions before the deal closes. Regions will also indemnify Raymond James for Morgan Keegan's litigation issues, which is estimated at $210 million.
Raymond James also plans to pay up to $215 million in retention payments in a combination of cash and restricted stock units to certain Morgan Keegan employees. Those retention funds are set to include Morgan Keegan's management and brokerage and capital markets employees. RJ's private client group will total 6,147 with the deal, up from 5,113. And, RJA's FA force will be increased by 60%. Finally, Raymond James's ranking will jump to the seventh largest brokerage by assets under management with an estimated $326 billion, up from $256 billion.
The Real Deal
Several recruiters and consultants gave the deal favorable marks.
"They're not playing in the same ballpark as the wirehouses, but it's a ball park that they want to be in. They've found their niche in small towns...in a way more like an Edward Jones," said Manhattan-based recruiter Rich Schwarzkopf.
"The merger will work," added Los Angeles-based recruiter Mickey Wasserman, "unless they woefully underpay on a retention package. Everybody's taking a wait and see attitude right now, and I believe that there's a bit of relief that a private equity firm did not come into play. I think that this is a good marriage."
"It is a great buy for Raymond James, albeit at a steep price," said Charles "Chip" Roame, managing partner of Tiburon Strategic Advisors, the Tiburon, Ca.-based research and consulting firm. "While Raymond James will absorb much of the Morgan Keegan managerial infrastructure, complicated organizational structures like this have a way of clearing themselves up a year later as some people retire, move to companies, etc."
In fact, even though the Morgan Keegan employees will come in as a separate unit, that leaves the rest of the Raymond James employee channel to Elwyn. In a statement following the deal's announcement, he said: "Morgan Keegan offers a strong private client business, one of the industry's top fixed income groups, and a significant equity capital markets division. While an addition of this size is a departure from our focus on organic growth supplemented by individual hires and small acquisitions, it is not a departure from our overall strategy. We have used strategic mergers to grow throughout our history when the timing and pricing are right and, most importantly, when there is a strong cultural fit and clear path for integration."
Elwyn knows a lot about cultural fit. He has spent his entire 18-year career at Raymond James. And, as he has moved up the corporate ladder he has maintained his status as a financial advisor. "I still have a book of clients — it's roughly 60 families," he said. His ongoing experience as a financial advisor, he says, is "critically important" as to how he will think, lead and manage the RJA unit. "It helps from a credibility standpoint," he said. "It's not unique at Raymond James but it is in the industry...Very few people in senior leadership roles in the industry today began as an advisor and still are today."
Recruiter Danny Sarch of White Plains, N.Y.-based Leitner Sarch Consultants agrees. Elwyn, Sarch said, "ran a significant portion of the country for [RJ.] It's a nice promotion...and a natural promotion. He's done a great job of both running his business and responding to the field. He is really good. He's been an advisor. He's been a manager. He's been assistant divisional, now he's divisional, now he's running the whole thing...There's credibility when these guys have sat in the seat. Tash is somebody who did sit in the seat."
And he has gone through the experience of every advisor in the business. For instance, at three different times in his career Elwyn has selectively trimmed his book, introducing segments of his client base to other Raymond James advisors who could best meet their needs.
Moreover, Elwyn found his client niche in both traditional and surprising areas. He had technology entrepreneurs and people in the retail, gas & distribution industry — jobbers — who own and operate convenience stores and gas stations.
He also had a significant niche in the music industry. "I had several hip-hop and R&B clients," he said without naming names. The foray into the music began when he was a trainee at the age of 21 and decided to join Toastmasters in order to develop his public speaking skills as well as to network. It was the largest Toastmasters group in the country at the time. More than 75 people turned up every Tuesday. One of Elwyn's fellow members got him into the Atlanta chapter of the Young Entrepreneurs Organization. At his second meeting of the only two meetings the group ever had, Elwyn was seated next to a certified public accountant from Tampa who needed a financial advisor. "I dripped on him in the ensuing months with newsletters and he hired me as the family FA," Elwyn said. "Then he began selectively introducing me to people in the music industry," Elwyn recounted.
"It's more exciting and glamorous on the surface than it proved to be a substantial business opportunity for me," Elwyn said. "Many professional entertainers and athletes choose to live a lifestyle as if the income they have today is going to be the income they have for the rest of their lives. And that career is going to be much lengthier. It was probably the most difficult clientele I worked with because the cash flow needs were very difficult to manage."
Business owners as clients were much easier, Elwyn said. However, no matter what type of clients they are, "it is still about retirement income, educational planning, risk management, wealth management, financial planning, caring for your parents; the planning solutions and tools that the investing public needs from us are not unique but certainly the marketing to those groups may be niche marketing."
Elwyn has been in the management ranks for a long time as well. He spent 2003 to 2005 as the producing branch manager of the Chattanooga, Tenn. office for Raymond James. And his ties to the state that Morgan Keegan is based in don't end there. He and his wife have a summer home in the state's mountains.
Although he was born in Boston, Elwyn grew up just outside of Atlanta. And he easily blends the natural beauty of the south with the modern world of technology. "My father graduated from MIT in just three years and had a background in computer science and software." A software engineer, Elwyn's father became the number three person in an Atlanta-based tech company. Elwyn himself grew up surrounded by personal computers at home, which helped in his academic and professional career contributes to his being an early adopter of high-tech gadgets. "I spend two to three days a week visiting branches and I have not turned on my RJ laptop since January 2011. For the last 12 months for the two or three days that I'm working remotely, I've run my entire business on an iPad and that's available to every FA." He adds that visitors "are a little unsettled when they come into my office because there is no paper. I'm not quite paperless but virtually paperless." But, as high-tech as he is, he still relies on the importance of an old-fashioned, handwritten note when it comes to communicating with advisors and staff on birthdays and other important occasions.
And one of Elwyn's chief projects is investing in training for service associates at the firm. "We're putting the finishing touches on an SA recognition club program" that will be shared across both broker-dealers RJFS and RJA.
Meet The Parents
While Raymond James is "committed to growth overall, it means selectively affiliating with the right advisors," Elwyn said. Some of those "right advisors" arrived on Tuesday, January 17th, when some 70 Morgan Keegan branch managers and several of its executives landed at Raymond James headquarters for a two-day meet-and-greet. It was a week after the deal hit the news.
"It was an opportunity for their branch managers to hear from and interact with" Raymond James executive chairman Thomas A. James, chief executive officer Paul Reilly, Zank, the firm's executive vice president and CEO of the global private client group Chet Helck as well as Richard Ferguson, president of Morgan Keegan's private client group and Bill Geary, executive managing director of the MK private client group.
Not only are the values to the two private client groups "almost identical" Elwyn said, there is little geographic overlap. "Two-thirds of the markets that Morgan Keegan is in, we have no Raymond James presence. The other third where there is overlap, there is still significant upside to grow their respective practices."
The meeting also covered the integration of Morgan Keegan into Raymond James and preserving the MK brand for the foreseeable future as well as retaining the management and advisor force. Elwyn pointed out that in the 1999 acquisition of Roney & Co. (a regional firm with 320 advisors in 28 offices in Michigan, Indiana and Ohio), it operated for a year as a unit of RJ as an autonomous brand. With Morgan Keegan, he said, the pace of integration will be determined.
And Reilly told the Morgan Keegan staffers that the deal was a once in 20-year opportunity, Elwyn said. The firm will keep a long-term presence in Memphis. "Raymond James and Morgan Keegan are focused on where we going to be six to 12 years from now and not six to 12 months from now," Elwyn said.