How Raymond James finally landed a big Bear Stearns team after JP Morgan retained and detained it for six years

Brooke’s Note: This is a not an RIA story per se. But it is a crumbling-of-Wall Street tale and therefore a close cousin and one we couldn’t pass up. It’s one thing to beat the Green Bay Packers; it’s another thing to do it at Lambeau Field. If you’re Raymond James and you take out a New York wirehouse team with J.P. Morgan on its brokerage statements in the heart of deepest Gotham, it’s good for the ESPN-equivalent round-up of advisor news. But of course, there is a story that goes with it commensurate with the recruiting gem.

Howard Franzblau had a front row seat to one of the most spectacular collapses in American financial history.

The managing director of Quattuor Capital Partners and his three partners had ditched their old desks at Oppenheimer & Co. when its retail brokerage was bought by the relatively no-named Fahnestock Viner Holdings in 2003. It was a jumble and culture mess that left them determined to leave for a solid rock.

For their next act, they chose to move up the Street and join one of the few Wall Street firms that weathered the Great Depression without laying off a worker — and Fortune magazine’s second-most admired securities firm in 2007: Bear Stearns.

It was a good move, but then again being in the Bear Stearn’s Private Client division was ground zero when when the 2008-'09 crisis hit. An overextended Bear’s share plummeted from $170 to under $2 in little over a year amid serious concerns about the investment bank’s capital and liquidity.

“That was a very difficult time in all of our lives,” says Franzblau, “When you’re at a company that is going under, it creates a lot of stress for the clients and it creates a lot of stress for the group.”

'Going under’

Concerned that the drama was distracting from serving clients, Franzblau and his three friends, Richard A. Devine, Wayne Froud and David B. Brennan, started to explore outside options. They were disturbed by the Bear Stearns meltdown, and Franzblau says the four tried to find an exit at a firm with “an away-from-Wall Street mentality.” See: An ex-Lehman exec with a 2008 crash sideline seat becomes Mr. Inside for the TAMP, roll-up and RIA where Michael Kitces is Mr. Outside.

Though they gave cursory looks at various options, they quickly zeroed in on Raymond James & Assoc. Inc., the full-service brokerage arm of St. Petersburg, Fla.-based Raymond James Financial, and came away deeply impressed after several meetings with senior management in Florida. See: Raymond James wins breakaway brokers that are 'pragmatists’.

But just when things couldn’t be looking bleaker back on Wall Street, J.P. Morgan Chase stepped in and prevented total annihilation of the investment bank by offering first $2 and later $10 per share for what was left over. At the time, a third of Bear Stearns’s stock was employee-owned.

White knight

Of course, the Wall Street mentality is what it is and J.P. Morgan Chase found that Bear brokers weren’t wholly persuaded to come work for their newfound saviors—especially with competing investment banks dangling lucrative offers. The day after J.P. Morgan agreed to raise its offer to $10 per share, the Associated Press reported that the bank was now offering bonuses to brokers to get them to stay with the company. A source from that article claimed J.P. Morgan was offering 100% of annual production to the top performers — a rate that meant millions to the future Quattuor founders. J.P. Morgan Chase also vowed to pay an additional performance-based bonus to those brokers who stayed for three years. See: Just what good Bob Reynolds’ purchase of J.P. Morgan’s billions — sans sweet brand — will do for his Great West-Putnam 401(k) empire.

Franzblau declined to comment about whether his team received bonuses.

At this point, the four partners decided to put their Raymond James exit on hold and stay with J,P, Morgan Securities. But the seed had been planted in their minds and on Monday they announced that they were finally breaking away from J.P. Morgan Chase to found the first Raymond James & Associates in Manhattan.

The founders of Quattuor (Latin for “four”) have been working together for more than 27 years. They met and became close while working for Oppenheimer in the late 1980’s. Before the breakaway, their team had been managing $900 million in client assets at J.P. Morgan Securities, a unit primarily composed of ex-Bear Stearns brokers (including J.P. Morgan chief executive’s Jamie Dimon’s father, Theodore), and separate from J.P. Morgan Chase’s legacy private client division. See: LPL Financial sees explosive asset growth of model portfolios by linking BlackRock and J.P. Morgan-level brand names to the little guy.

The four had been seriously thinking about moving on from J.P. Morgan for about three years, says Franzblau. Senior Raymond James management clearly cared about the wealth management business, they believed, and, perhaps more importantly to ex-Bear Stearns employees, Raymond James’ balance sheet was rock solid. The firm championed conservative business practices.

Manhattan beachhead

RJ&A’s newest office, co-located with Raymond James Public Finance Group, is located in the International Building at Rockefeller Center. It’s a sign that Raymond James is ready to battle Wall Street on its own turf, literally and figuratively.

“It’s a misnomer to call them a sleepy, little regional firm,” says Mindy Diamond, president of recruiting firm Diamond Consultants of Chester, N.J. who recruits for RayJay but who did not participate in this lift-out. The company, she says, has recently completed a major spend on technology and can compete toe-to-toe with the largest wirehouses for advisor recruitment.

Just as noteworthy is the size of the deal. Raymond James has typically landed smaller advisors with a couple hundred million under management — the average AUM of new advisors in 2014 is under $220 million — not firms with nearly a billion in custody. The deal with Quattuor is the largest for Raymond James in 2014 and the third largest of its 114 breakaway acquisitions since February 2010. See: Raymond James launches a separate RIA unit and appoints a former Merrill Lynch breakaway to head it.

From a platform and technology perspective, Diamond thinks the advisors of Quattuor are sacrificing very little, if anything, in quality of service by joining Raymond James. “Ultimately, the only thing they’d be giving up is the deal [i.e. a wirehouse-style signing bonus],” she says.

While neither Raymond James nor Quattuor disclosed the breakaway deal’s details, the signing bonus could otherwise have been substantial. Raymond James typically pays a smaller upfront cash bonus to new advisors than most other RIAs, which have recently been handing out bonuses that rival those paid to professional athletes. Many firms, including Ameriprise, FiNet, now pay 150% of the previous year’s revenue, while some wirehouses exceed even those figures to elite advisors. Based on the $6.7 million the team earned last year, Quattuor could potentially have been looking at a $10+ million payday. See: https://www.riabiz.com/a/5046070975397888/ameriprise-makes-its-move-upmarket-by-first-moving-its-bonus-payouts-to-wall-street-levels

Expansion plans

Franzblau is adamant that Quattuor’s move is about the opportunity to pursue the business model that works best for them, and to join the culture at Raymond James. “Getting the biggest check meant nothing to us,” he says.

Raymond James’s expansion to the Manhattan is part of a larger initiative by the company to target the affluent areas of the United States beyond its traditional home in the Southeast and Midwest. See: Why the slow-evolving metro New York area is still on course to be the capital of the RIA business.

Over the past two years, RJ&A has focused on targeting the West Coast and Northeast, two regions president Tash Elywn says are relatively dense, affluent and underserved by current branches. In March, the company hired two executives, Peter Alberding and Warren Wright, to facilitate RJ&A’s expansion into Boston and Washington D.C. and it has since opened new offices in the previously unrepresented locales of Portland, Ore.; Seattle, San Diego, Santa Barbara and Beverley Hills in California; and now Manhattan.

But despite the formerly gaping hole in RJ&A’s portfolio, Elwyn claims the New York expansion wasn’t rushed. “We wanted to be in New York City, but more importantly, we wanted to partner with the right advisors,” he says.

J.P. Morgan’s besieged advising business

In the last few years, the complaints of several J.P. Morgan advisors have been picked up and publicized on the front page of the New York Times. An article in July 2012 claimed J.P. Morgan pressures its advisors to sell clients proprietary products, and a March 2013 article profiled an advisor who claimed he was forced out for refusing to do so. See: The New York Times exposes JPMorgan’s brokers, yet again.

But Franzblau says he isn’t in any position to take potshots at his former firm. “They treated us very well and they’re a great company,” he says.

J.P.Morgan declined comment for this article.

Quattuor’s exit does appear to be part of a grander J.P. Morgan exodus. According to Investment News’ Adviser’s on the Move database, 10 groups have left J.P. Morgan Chase since April 2010, with six of those exits occurring since October 2014. Franzblau declined to comment on what retention bonuses he and his team were forfeiting.