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Next up for Baird: Retaining 380 Hilliard Lyons advisors

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Now comes the hard part for Baird.

The firm’s acquisition of Hilliard Lyons, announced Tuesday, is one of the largest in recent years and is set to boost Baird’s headcount by about 44% and client assets by $50 billion, or 25%. That’s easier said than done; getting there will mean hanging onto 380 advisors.

Acquisitions in wealth management have proven tricky in recent years not least because while executives may sign off on selling the firm, brokers have minds of their own.

“Whenever you buy a firm, you suddenly put advisors in a position where they consider their [career] options,” recruiter Bill Willis says.

Baird and Hilliard Lyons share some similarities. They’re both regional brokerages with long histories. Baird, which has more than 890 financial advisors, was founded in 1919. Hilliard Lyons traces its origins to 1854.

But pulling off a successful acquisition in which the bulk of the advisors stay with the acquiring firm, as Baird has done before, is no easy feat. Major deals inked in 2015 illustrate the trajectories M&A deals can take.

When Stifel bought Barclays’ U.S. wealth management unit, it offered the bank’s roughly 180 elite brokers retention deals equal to up to 150% of their annual revenue. Yet despite that and other efforts to entice them to stay, Stifel ended up with about 100 advisors when the deal closed in December 2015.

Many of the brokers who passed on Stifel went to wirehouses and J.P. Morgan Securities. Six advisors in three cities pooled their efforts to open an multi-billion dollar RIA, Summit Trail Advisors.

When Credit Suisse decided to exit the U.S. wealth management market that same year, it opted for a slightly different strategy, signing an exclusive recruiting agreement with Wells Fargo.

Credit Suisse permitted its advisors to move their business to Wells Fargo unhindered; the latter also offered retention bonuses of up to 300% of an advisor’s revenue. But only about 110 of the Swiss firms’ 250 U.S.-based advisors took the deal — which may have proved fortunate for the rest, who avoided any reputational fallout from the bank’s regulatory woes at year end. All joined rival firms, such as UBS.

Terms were not disclosed for either deal. But the departures of so many brokers demonstrate how difficult it is to retain talent after the ink on an acquisition deal dries.

Brokers can have a number of reasons to jump after an acquisition is announced; bad cultural fit, unattractive retention bonus or difficulty transitioning their practice to the new firm.

For some Hilliard Lyons brokers, Baird may prove to be too big (the firm expects to have approximately 1,300 financial advisors after the deal closes).

“It’s a change. What they were loyal to was not just the culture and ethos and the firm, but the size of the firm,” recruiter Mindy Diamond says.

And some brokers may have been plotting a career change when the acquisition was announced.

“For advisors who are already considering a transition, this is perfect timing,” says Dennis Gallant, senior analyst at research firm Aite Group.

The crash of 2008 was intense but, in hindsight, short-lived. Market gains began a few months afterward and have continued with few exceptions.
October 3

Nonetheless, Baird has several advantages, industry observers say. Both it and Hilliard Lyons are regional brokerages that are employee-owned and have similar corporate environments.

Executives from both firms emphasized their compatibility when announcing the deal.

"Hilliard Lyons has an excellent reputation and many other similarities to Baird including a strong, client-centric culture and business model, a commitment to being a great place to work, and a long history of giving back to the community,” Baird CEO Steve Booth said in a statement.

It also has experience onboarding advisors through M&A. Baird successfully picked up McAdams Wright Ragen’s 85 advisors after buying the Seattle-based firm and its seven branch offices in 2014.

Geography may also aide Baird’s cause, according to Willis, the recruiter.

“Hilliard is based in Louisville and thrives in smaller communities. They are more likely to be in Terre Haute than Indianapolis. It’s that kind of firm. That may really fit with Baird. They may be in markets where there will be less of a challenge from other firms,” Willis says.

The wealth management offices of Credit Suisse and Barclays, by contrast, were located in some of the wealthiest markets in the U.S. where many competitors also had operations.

In some cases, the advisors didn’t have to go far to find a new job. When Atlanta-based advisor Sylvia Gort left Barclays, she joined a Morgan Stanley branch located in the same office complex as her former firm.

Of course, a lot may hang on the retention deal Baird offers to Hilliard Lyons’ advisors.

The firm also has to prove to advisors, especially the big producers, that life is going to be better at the new firm, Diamond says. “It will all come down to what Baird promises them,” she says.

A Baird spokeswoman declined to comment on the matter.

And even though M&A is challenging in this industry, especially when it comes to post-deal advisor retention, brokerages pursue it to gain greater efficiency and add more value to advisors, Gallant says.

“It also allows you to broker better arrangements and to pass on those cost savings or buffer yourself against other areas where there make be some fee compression,” Gallant says. “You can go back to your distribution partners and say, ‘Hey, we’ve got 40% more reps here now.’”

Deals can thereby set a virtuous cycle in motion that begets further recruiting wins, keeping a firm’s growth alive.

“Advisors are not only looking for a place that has the right platform, fees, etc., but an organization that is economically viable and will be competitive in the coming years,” he says.

--With additional reporting from Jessica Mathews.

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