Stifel CEO: Departing Barclays Advisors ‘Were Already Well on Their Way’ Out

So far this year Stifel has completed one acquisition and is set to close soon on a deal to acquire Barclay's U.S. wealth management unit. When completed, these deals are expected to grow Stifel's advisor ranks by nearly a third. But, like its competitors, the St. Louis-based firm is also adjusting to industry-changing trends. Ronald Kruszewski, Stifel's CEO of 18 years, talks with On Wall Street about the competitive challenge robo advisors pose and what his acquisitions are adding up to for Stifel.

HOW DOES STIFEL'S ACQUISITION OF STERNE AGEE FIT INTO YOUR STRATEGY?

It was a significant wealth management player in the Southeast and had a lot of great advisors. It had a strong fixed-income department. Lastly, they had a much larger independent [channel] than we did.

It is worth noting that we had 100% retention. It speaks to the strength of their culture but also to the compatibility of what we are doing, which, again, is advisor-centric.

DOES HAVING A LARGE INDEPENDENT AS WELL AS EMPLOYEE CHANNEL SITUATE STIFEL TO BETTER COMPETE WITH RIVALS LIKE RAYMOND JAMES AND AMERIPRISE?

I'm not trying to pick winners or losers in business channels. I am trying to just offer the best option for our advisors.

I think you can very successful as an RIA or as a traditional brokerage and not cross those boundaries. But I don't think it's a requirement today that you do that.

ON AN EARNINGS CALL, YOU SAID THAT ADVISOR ATTRITION AT BARCLAYS (STIFEL THIS SUMMER AGREED TO ACQUIRE ITS U.S. WEALTH AND INVESTMENT MANAGEMENT UNIT) COULD BE ON THE HIGH END OF YOUR ESTIMATED RANGE. WHY DO YOU THINK SOME ADVISORS HAVE LEFT?

If you talk to the advisors who have left, they wouldn't say they rejected Stifel. They were already well on their way onto their own plans.

ANOTHER BIG PART OF THIS DEAL IS THAT STIFEL WILL SERVE AS THE U.S. DOMESTIC PARTNER FOR BARCLAYS NEW ISSUES; HOW BIG OF AN IMPACT WILL THAT HAVE ON STIFEL'S REVENUE AND ADVISORS?

The agreement will be mostly focused on the Barclays advisors as part of the original deal. But there are some interesting synergies there. But I don't want to go into it because there still some unknowns.

We value the distribution agreement. I think Barclays values it too.  Right now it's a win-win.

THROUGH THESE ACQUISITIONS, YOU'VE BOOSTED STIFEL'S ADVISOR HEADCOUNT. HOW BIG DO YOU WANT TO GROW?

We only do deals that make sense for our shareholders and partners. They can be good deals, but we are going to look at the quality rather than the quantity of whatever we might do.

But do I expect us to grow? Yes. But it needs to be the right deal.

HOW DO YOU RATE YOUR EFFORTS TO BRING FRESH BLOOD INTO THE BUSINESS?

Advisors tend to be older, and their clients tend to be even older than that. So I don't view the retirement statistic to be all that challenging. But I think getting young [advisors] into a successful track is more of a challenge. I think everyone, Stifel included, needs to do a better job of training younger people.

WILL THE LABOR DEPARTMENT'S PROPOSED FIDUCIARY RULE BE DISRUPTIVE TO THE INDUSTRY?

No. I just believe that it's a solution in search of a problem. And generally, when you have solutions in search of problems, you get more problems. It's not good for small investors or buy-and-hold investors. It certainly smacks of "the government knows better."

YOU SPOKE AT THE LABOR DEPARTMENT'S FIDUCIARY HEARINGS. DO YOU THINK THEY WILL MAKE SOME CHANGES TO THE PROPOSED RULE?

I said at the hearings that the purpose of the rule was to eviscerate the brokerage model. I think they gave me a fair hearing, but I don't think I changed anyone's mind.

The best interest exemption is unworkable. If they really wanted people to have choice and maintain a commission-based model, then they wouldn't have written a best interest exemption that is unworkable. I don't think I'm alone in saying that.

WHAT DOES THE RISE OF ROBO ADVISORS MEAN FOR STIFEL?

Robo advisors point to a trend that clients want planning and simplicity. Having that is a good thing. But the day we lose to a robo advisor, shame on us. This business is about EQ — emotional quotient. It's about relationships.

HOW ARE YOU TRYING TO MEET CLIENT DEMANDS FOR DIGITAL SERVICES?

We're looking at using technology to organize and understand a client's wealth, and assess their risk tolerance, and their investment personality and portfolio structure.

These three things — assessing, organizing and seeing risk tolerance — are all things that technology makes easier. But to think that a program can take advantage of the investment landscape — we don't think that.

This is just the next iteration of the discount brokerage. There are always DYI investors. That's been going on for 50 years.

WILL STIFEL CONSIDER DEVELOPING ITS OWN A ROBO ADVISOR?

No. Would I consider it? I guess.

Our client experience needs a human element, and that's what we need to focus on.

WHAT GOALS DO YOU HOPE TO HIT IN 2016?

I want to make significant progress on narrowing the gap between clients and advisors by using technology to help clients have goals-based wealth management.

With respect to the firm, past is prologue.

I never really know what a new year will hold, but I want to be in a position to take advantage of whatever opportunities arise.

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