Stifel Slows Recruiting Of Financial Advisors

(Dow Jones) Stifel Financial Corp. currently has nearly 2,000 financial advisors in its global wealth-management group and believes it can increase that to 6,000 over time, but it has slowed recruiting in a heated environment, said Ronald Kruszewski, the company's chairman and chief executive.

Stifel's global wealth-management division, which has grown from just 400 to 500 advisors five years ago, will remain Stifel's focus of growth, Kruszewski said at the Sandler O'Neill & Partners Global Exchange and Electronic Trading Conference last week.

"We believe that we have the platform and capital and market to grow from 2,000 to 4,000 to 6,000 financial advisors," he said.

Kruszewski also discussed how Stifel's acquisition of Thomas Weisel Partners, which he expects to close in late June or the first few days of July, will complement Stifel's existing business, calling it a "highly complementary" fit. In addition, he said he's concerned about the Volcker Rule, which would place restrictions on banks' ability to own hedge funds and do proprietary trading, saying it doesn't make sense as proposed.

Stifel's global wealth-management segment is already "growing hand over fist," and can continue to grow organically, Kruszewski said. In 2009, Stifel added nearly 800 financial advisors, half through acquisitions and half organically, he said. But he added, "The environment for recruiting has gotten heated, and we've slowed down because the economics don't make as much sense."

Ticonderoga Securities initiated coverage of Stifel in late May with a sell rating, saying that the re-engagement of larger competitors will make it difficult for the St. Louis-based regional brokerage and investment-banking firm to continue to hire productive financial advisors. Headcount growth is a crucial component of Stifel's growth strategy, the analyst said.

Kruszewski said acquisitions are also a possibility, and that Stifel will approach them opportunistically. Its asset-management business is a "scalable model," to which it can add financial advisors anywhere in the U.S., and it will continue to grow in Canada, he said.

The company's wealth-management business, supplemented by its acquisition of wealth-management branches from UBS AG, reported net revenue of $197 million in the first quarter, a 73% increase over the first quarter of 2009, and a 7% increase over the fourth quarter of 2009, Stifel said.

The global wealth-management business has experienced margin compression, primarily due to opening new branches and significant fee waivers--of $50 million to $60 million a year--in its cash products, Kruszewski said. Its margins are at 19% and he said the firm is working to get them back to the mid-20% range.

As for Stifel's acquisition of Thomas Weisel Partners, Kruszewski called it "the perfect fit" on the capital markets side, which will "fast track" Stifel's investment-banking growth. Thomas Weisel's small asset-management business will complement Stifel's existing management team, he said.

The combined company will have a $2 billion market capitalization, $1.5 billion to $1.6 billion in combined revenue and more than $1 billion in equity capital, he said.

Asked about the possibility that a fiduciary standard would be applied to brokers, Kruszewski said, "If you take the worst from the Senate bill and the House bill and put them together, we won't have an investment-banking sector." The Volcker Rule, as applied, or a fiduciary standard applied in a capital-markets system, don't make sense, he said. "The risk could be that you see a separation of banks and brokerages again if these rules come about as written."

He noted, however, that the fiduciary standard has now come down to a study, and if that's done by regulators, "I think we'll be fine." People should focus on the Volcker Rule, he said, which seems to be the administration's top priority in financial-services reform.