This article first appeared in the St. Louis Beacon: Wachovia Corp. spent $6.9 billion to acquire A.G. Edwards; and the last thing the banking giant wants is a mass defection of brokers, who have rated higher on some customer satisfaction and broker satisfaction surveys than do Wachovia brokers.
"Whenever you buy a brokerage business, it's difficult to keep all the brokers," says Jaime Peters, who tracks big banks for the independent financial research firm Morningstar. She and other analysts note that A.G. Edwards' broker turnover rate over the years has been one of the lowest in the industry.
Although some brokers have left, it's still too early to determine how well Wachovia will retain the A.G. Edwards employees that it covets amidst the common practice of merger-related poaching by competitors. A.G. Edwards brokers "are listening to the siren song of other firms," says Juli Niemann, executive vice president of Smith, Moore & Co., a financial advisory firm in Clayton.
Niemann isn't sure how many A.G. Edwards brokers will walk now -- or later. "Every time you have a merger of this size, there's always a Phase 2," she says. "It always means more layoffs and more commissions being cut."
The last look at the A.G. Edwards broker lineup comes from a Sept. 20 press release while the St. Louis company was still independent. It had 6,363 financial consultants for the three months ended Aug. 31, down by 260 from the quarter ended May 31, 2007.
Peters predicts it will take two or three more fiscal quarters to gauge how many A.G. Edwards brokers bailed out. "If those numbers hold up, you're OK," she says.
The numbers to which she refers come from Wachovia. The North Carolina banking giant recently said the combined brokerages employed 14,583 Series 7 brokers at the end of the first quarter, or about the same as in the fourth quarter of 2007. Series 7 brokers have the most training and the most responsibility for managing money.
When the A.G. Edwards takeover was announced 12 months ago, the combined Series 7 total was 14,784. Wachovia doesn't provide a breakdown of departures. "Growth in high-producing brokers (was) offset by lower-producing broker attrition," it said on April 14.
Wachovia's last big brokerage deal -- a 2003 joint venture with Prudential Securities -- factored in a 3-percent "regrettable" attrition rate, or the loss of brokers it wanted to keep. Wachovia has said it hopes it can keep the same rate for A.G. Edwards.
Investment companies lose an average of 9 percent of their brokers and advisers each year, says the research firm J.D. Power & Associates. It doesn't say how many departures are "regrettable."
Departures can be expensive. Each defecting adviser takes "an average of 51 percent of their clients and assets with them," says a J.D. Power report issued last year. "At a typical-size firm with at least 5,000 advisors, each 1-percent improvement in adviser retention translates to a potential $1.75 billion in retained client assets and nearly $20 million in fee revenue."
MAKING CHANGES
When Wachovia bid for A.G. Edwards, it said it wanted to raise the productivity of the St. Louis company's brokers.
Wachovia says a Series 7 broker at A.G. Edwards produced an annualized rate of $522,000 based on the first quarter of 2007, while his counterpart at Wachovia produced $688,000. The peer group average of seven brokerages was $703,000.
Wachovia also points out that it has raised broker productivity after acquiring other firms -- from $503,000 a broker in 2003 to an annualized rate of $688,000 based on the first quarter of 2007.
Wachovia adds that each A.G. Edwards Series 7 broker has an average of $57 million in client assets, well below the peer group average of $81 million and Wachovia's $80 million.
Analysts say the lower numbers reflect in part the fact that A.G. Edwards deals with less wealthy clients. If Wachovia wants to squeeze more revenue a year per broker, how will they react?
"While Wachovia has had success in the past in converting brokerage acquisitions, this one could potentially prove be trickier as A.G. Edwards brokers are well known for their independence," said a report by the CIBC Word Markets investment banking firm last year after Wachovia's bid.
And will Wachovia's productivity push mean that A.G. Edwards brokers will court richer clients at the expense of less wealthy customers? "They're not going to send away customers," insists Peters of Morningstar.
SATISFACTION SURVEYS
Wachovia faces a delicate balance of encouraging more money per A.G. Edwards broker at a time when these brokers got high marks for customer satisfaction and gave high marks to their former corporate parent.
An early look at how customers responded to the takeover could come from the next J.D. Power survey, assuming it makes a distinction between A.G. Edwards and Wachovia Securities, which will eventually be combined under the Wachovia brand. Last July, the J.D. Power survey said A.G. Edwards placed second in customer satisfaction with a score of 782 of a possible 1,000 points.
Wachovia Securities was sixth with 761 points, one point below the industry average. (St. Louis-based Edward D. Jones came in first -- for the third consecutive year -- with 802 points.)
Last year's survey, which examined 16 full-service brokerage firms, was based on responses gathered in May and June from nearly 5,000 investors. The survey measured six factors: relationships with the advisor/broker, account offerings, investment performance, commissions and fees, account statements and convenience.
Another J.D. Power survey said happy brokers produce happy customers. Published 12 months ago, it said A.G. Edwards ranked third with 822 points out of 1,000, while Wachovia placed ninth with 689 points. The industry average was 739 points; Edward D. Jones led with 892 points.
"The impact of a satisfied or unsatisfied advisor can truly affect the performance of an investment firm on a variety of fronts," the survey said. It contained seven measurements, including corporate support, compensation and work environment. Online interviews with 4,008 brokers were conducted in January and February of 2007.
Anyone who has endured a merger or a takeover knows they can be traumatic affairs filled with layoffs, new rules and the often-awkward combining of different corporate cultures.
Although A.G. Edwards may have looked less productive to Wall Street numbers-crunchers, it provided something to merit high ratings in customer and broker satisfaction.
The firm was known for a lot of hand-holding with customers. "The broker was the 'customer's man,' " says Juli Niemann, using a term of the 1940s and 1950s that illustrated how brokers managed portfolios while providing advice and "personal care" for clients.
Although A.G. Edwards had adapted to include the modern approach of advisers "rounding up" customers and referring them to money-managers, Niemann says the one-on-one style enhanced customer loyalty. "If the customer decides that something isn't in their best interests, they will go elsewhere," she says.
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Robert W. Steyer is a freelance journalist in New York and a former reporter with the St. Louis Post-Dispatch.