RBC Dain Rauscher

A Big Parent and a Name Change

This December, RBC will drop the Dain Rauscher name and become RBC Wealth Management. The U.S. retail broker-dealer will be integrated with the institutional broker-dealer.

This year, RBC acquired J.B. Hanauer, a 145-rep firm with fixed-income expertise and branches in New Jersey and Florida. With a current headcount of 1,800 reps, CEO John Taft says RBC could accommodate another 700. To that end, Taft says he's considering more acquisitions—but that he's primarily focused on internal growth.

Taft says high recruiting bonuses paid to brokers to jump firms leads to increased turnover, hurting regionals and wirehouses alike. He declined to give specifics of RBC's transition deal, but one recruiter says RBC has a very competitive six-year deal paying 100% upfront and up to 50% on the back end.

Positives: Like most banks, RBC's parent is willing to invest in technology. The company is about to upgrade from a Beta brand broker workstation to the BPS platform from Broadridge.

The original September 2007 rollout has been pushed back to December. The company also provides useful resources, such as a department dedicated to collecting equity research from other firms.

Negatives: The private-client group is run by two co-presidents, one for each half of the country. One million-dollar RBC rep who asked to remain nameless called the system a split between "an Eastern Kingdom and a Western Kingdom." He added, "We have the worst, most indifferent district management of any place I've been."

Stifel, Nicolaus Inc.

An Appetite for Acquisition—But Biting Off Too Much?

This year, Stifel bought Ryan Beck & Co.'s 400 brokers. In 2006, Stifel managed to flip the typical script—a brokerage buying a bank!—and acquired Legg Mason's trading desk and investment bank.

In July, Stifel Chairman and CEO Ron Kruszewski sent an open letter to all 6,500 A.G. Edwards' reps after the crosstown rival announced its acquisition by Wachovia. Published in St. Louis newspapers, the letter labeled as "hogwash" Wachovia's promises of economies of scale and invited Edwards brokers to transfer to Stifel. "There are no economies of scale in a people business," Kruszewski said in an interview with OWS.

Before making any other big acquisitions, Stifel will have to first thoroughly assimilate Ryan Beck, according to Doug Trott, a former management consultant who's now president of PriceMetrix, a Toronto company that teaches firms how to increase broker productivity.

Positives: More than 50% of the company is owned by employees. That's been lucrative: Stifel is the best-performing brokerage stock over the past five years. But profitability also makes the firm attractive as a takeover target. Trott suggests RBC might buy Stifel, but Stifel President Scott McCuaig says, "Why would we sell when we've got unbelievable opportunities ahead? We'd never be that short-sighted."

Negatives: Critics say Stifel has overextended itself with acquisition costs. If and when there's an economic downturn, Stifel's balance sheet could drag the company into trouble.

Wedbush Morgan Securities

Well capitalized

Founder Edward Wedbush departs from the typical regional emphasis on retail and locale. Wedbush is the number-one trading liquidity provider of Nasdaq-traded NYSE and Nasdaq securities. Company is also correspondent clearing firm for 100 U.S. and overseas broker-dealer clients, including firms in Europe and Panama. Wedbush Bank opens soon.

Positives: The L.A. firm is well capitalized; Trott says peers consider Wedbush to be well managed. Last July, the firm took in about 100 reps from failed Brookstreet Securities.

Negatives: Wedbush Morgan received black eye in 2006 when Catholic nuns and other clients claimed reps stuck them into unsuitable collateralized mortgage obligations. Arbitrators made the firm pay nearly $4 million.

Edward Jones & Co.

The Mass-Affluent Master

Nation's fourth-largest firm in number of reps—larger than Morgan Stanley and UBS Financial Services.

No reason to go public; Jones can fund its own capital requirements for growth. New reps eagerly buy stock in the firm, provide liquidity for retiring reps to sell.

"We focus on doing one thing exceedingly well: working with individual investors," says Jim Weddle, managing partner at Edward Jones & Co., the brokerage unit. That singular focus, Weddle says, allows the company to compete on convenience and service.