After growing the firm nearly tenfold, what’s next for Stifel’s CEO?

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My first interview with Stifel’s CEO was canceled at the last minute. We were due to talk about his M&A deals and vision for the firm’s future, but an assistant called me in the morning to say he needed to reschedule.

His reason for postponing? Ronald Kruszewski was buying another firm, making his fourth acquisition in 18 months. “I’m a builder,” the chief executive told me a week later.

Kruszewski is one of the longest-serving chief executives in wealth management, and Stifel, founded in 1890, is one of the oldest firms in the business. At the start of 1997, the year Kruszewski became CEO, Stifel had about 800 full- and part-time employees, according to the company. At the end of 2015, SEC filings show the firm having over 7,000 employees and more than $2.4 billion in annual revenue.

A lot of Stifel’s growth has come in the last decade; since 2005, Stifel has inked more than 20 M&A deals. Kruszewski, who has also served as chairman since 2001, has added whole companies — such as Keefe, Bruyette & Woods — as well as individual units, such as Barclays’ U.S. wealth management division.

“I often get asked the question, ‘Where do I get the conviction to do this? You made acquisitions in 2009 when people were very pessimistic. What are you doing?’ To be in my job, you need to be optimistic about the future,” Kruszewski says.

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Even as Stifel has grown, it remains somewhat of an unknown entity to advisers and clients.

“It’s not a household name, unless advisers are very familiar with the middle-markets area, or Stifel is in their neighborhood,” says Louis Diamond, vice president at Diamond Consultants, a recruiting firm in Morristown, New Jersey.

“We recruited people who wanted to be here and understood our platform.” — Ronald Kruszewski, CEO, Stifel

Stifel’s acquisitions have done more than just add to head count, Kruszewski says. They have also expanded capabilities, opened up markets and raised Stifel’s profile. “Our firm is more relevant,” he says.

As the industry further consolidates, opportunities for mergers and acquisitions are shrinking. In 2015, Credit Suisse, Deutsche Bank and Barclays decided to exit the U.S. wealth management market. There remain some acquisition targets, mostly insurance-owned wealth management units, independents and small broker-dealers, says Alois Pirker, research director at Aite Group. “That is probably the pool where [Kruszewski] is looking, for the most part,” he says.

Indeed, Kruszewski rescheduled the interview because he was buying City Financial, an Indianapolis-based firm with 40 advisers and a public finance unit. Terms were not disclosed.

Future deals may not have the same impact as Stifel’s acquisition of Barclays’ U.S. wealth management unit. That deal, announced last year, may typify both Stifel’s future hurdles and its opportunities. (It came just months after Stifel said it would purchase broker-dealer Sterne Agee for $150 million.)

Due to competitive pressures, the wealth management business has become more focused on serving high-net-worth and ultrawealthy clients willing to pay more for bespoke services. From wirehouses to regionals, the drumbeat has been toward wealthier clients and holistic wealth management services.

When the deal was announced, the Barclays unit had approximately 180 advisers serving wealthy clients in 12 major markets and managing nearly $58 billion in client assets. When the deal closed, about 100 brokers managing $20 billion opted to join Stifel, according to a company presentation in December 2015.

The advisers who passed on Stifel left before the deal closed and joined rival firms such as Merrill Lynch and Morgan Stanley. Recruiters say these advisers were attracted to better compensation packages, and firms they perceived to have a stronger cachet with wealthy clients.

“Acquisitions can’t be the only thing the firm does for growth,” says John Pierce, Stifel's head of recruiting.

Some top producers do not view Stifel as “an ‘A’ player,” according to a recruiter who has worked with the firm but has asked not to be named.

Industry insiders say Barclays had not invested much in the unit, which suffered from attrition before Stifel’s acquisition. For some brokers, the deal may have been the final signal to jump ship.

“I think 50 to 60 people left within two weeks,” Kruszewski says. “This was an unsettled situation.”

Despite the departures, the deal was successful, Kruszewski says. First, the price, which was not disclosed, was based on the closing, he says. The transaction also provides Stifel’s advisers with syndicate business in partnership with Barclays. And he got the advisers he wanted.

“I don’t feel that people left,” he says. “I feel that I recruited more than 100 talented advisers who wanted to join Stifel. You can argue whatever you want, but we recruited people who wanted to be here and understood our platform.”

Kruszewski says the deal also improved potential recruits’ perception of Stifel and its capabilities.

“People can say, ‘If the Barclays guys can do business there, then I can, too,’ ” Kruszewski says. “I think our perception lags our reality. I think Barclays helped narrow that.”

But, industry insiders say, the firm may still have further to go in order to entice other advisers, particularly top producers. Stifel has been making additional changes to do just that; the firm hired a new head recruiter, John Pierce, in January.

“Acquisitions can’t be the only thing the firm does for growth,” says Pierce, who previously worked at Merrill Lynch as well as Ameriprise’s employee channel.

Stifel has been revamping its approach, rewriting its recruiting materials, encouraging branch managers to do more outreach and instituting a system for tracking potential recruits — something Pierce says is new to the firm.

“We’re following all of our recruits through the life cycle, from first call to home office visit to offer to start date,” Pierce says.

The firm’s average recruit has nearly $1 million in annual revenue, according to Pierce. “We’re getting more mind share than we have had in the past,” he says.

Bill Willis, a recruiter in Palos Verdes Estates, California, says Stifel is at a place in its growth comparable to where Raymond James was a few years ago.

Stifel has been opening more offices on the West Coast and has done more outreach to advisers in the region, Willis says. “If there’s any reservation that we hear from advisers in certain parts of the country, it’s, ‘Will my clients know them?’” he says.

Like Raymond James, Stifel also brings potential recruits to its St. Louis headquarters.

“The best recruiters for Stifel are Ron Kruszewski and [co-president and chief financial officer] Jim Zemlyak, because when advisers get in front of them, they join Stifel,” Pierce says.

Outside recruiters say a home office visit can seal the deal for many advisers (though one recruiter notes that, if they are visiting the home office, they’re already seriously considering the firm).

The firm is also benefiting from an industrywide shift in adviser preferences.

“If you asked us five or seven years ago, it was probably the submillion producer who was considering the regional option,” Diamond says.

“Now there are plenty of advisers who could start their own RIA or go to another wirehouse but who are choosing the regional option. It fills a void in the market for advisers who are fed up with wirehouse bureaucracy, but who are, at the same time, not looking to be independent,” Diamond adds.

However, the recruiter who asked not to be named says the firm still needs to work harder on defining its culture. Raymond James and some other firms, this recruiter says, have done better in this regard, and captured more adviser interest as a result.

The recruiter also says Stifel does not have a strong reputation for being an innovator in technology— a potential drawback for some advisers, given how fast new technologies, particularly robo advisers, are shaking up the industry.

Aite Group’s Pirker says that firms that do lots of M&A deals sometimes have less bandwidth for technology innovation. He also points to new regulations that are creating similar hurdles.

“If you don’t consolidate your operations, then things like [the Department of Labor’s fiduciary rule] become a nightmare, because you have to make adjustments on many different fronts. It’s a question of how fast you go versus how you consolidate,” he says.

Regulatory and technological changes have spurred an industrywide race to offer clients new robo advisers and robo-type services.
RBC, UBS, Vanguard and Charles Schwab are just some of the larger entrants in this field. In October, Bank of America Merrill Lynch announced plans to launch a robo adviser in early 2017.

Like a few other firms, Stifel has no plans to roll out its own robo adviser. Kruszewski says he wants his advisers to have access to the best tools, but he doesn’t want to add a service that competes with his firm’s advisers.

He repeatedly emphasizes the importance of the human element. His deals, Kruszewski says, have added human capital to Stifel, making it more capable and therefore more relevant to clients’ lives.

“Our assets are not computers, not chairs, not buildings — it’s not any of those things,” he says. “It’s people. Ten years ago, people didn’t have iPhones and all the other technologies that have made our lives easier. Our No. 1 asset isn’t going to be a robo. It’s a person talking to another person.

“People can take exception to that. That’s fine. They can say he’s crazy, it’s all going to be computers, it’s going to be indexed,” Kruszewski says. “Last time I checked, good investing was contrarian.”

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Regional BDs Recruiting M&A Employee retention Ronald Kruszewski Bill Willis Stifel Financial SA Stone Wealth Management Barclays