GMP sustains defections

It’s week five of the country’s largest retail brokerage acquisition this year, the unconditional $132-million purchase of Macquarie Private Wealth by Richardson GMP Ltd. And the troops at Macquarie — the 185 advisory teams and the $12.9-billion in assets that are core to the acquisition — are restless. restless at what they see as the slow pace of discussions and the lack of communication from the buyer, which in addition to paying $132-million has also taken on $70-million of debt at a rate of prime plus 4%.

Two of Macquarie’s Ontario brokers took their leave yesterday and joined a bank-owned dealer. And the word is more could follow given the overall information gap and the impending details of the retention package, a package that will offer the Macquarie employees a combination of cash and stock to join GMP.

Last week the Macquarie troops were given the basis for the valuation of richardson GMP share price, a valuation that has come under criticism from both the brokers and other brokerage firms, including raymond James. (The u.S. firm has done its own analysis using publicly available information and its own estimates.)

Andrew Marsh, richardson GMP’s chief executive, explains it this way. “Our deal is very disruptive to the industry. Our competitors are very aggressive with their cash offers. We are very comfortable with our opportunity and the positive response we have received from most Macquarie advisors,” he said in an interview. Marsh added “the majority of their advisors will hear us out, give us some time and embrace the new company,” adding “we will lose some people on the way.”

but acquisitions of retail brokers and their associated assets under management are different from a transaction where physical assets are involved. As the saying goes, “the assets go up and down the elevator each night.” Accordingly people and their books of business are mobile. And they act especially so when they don’t receive the kind of treatment they feel they to deserve.

In 2011, National bank of canada found that out the hard way. In September 2011, it agreed to outlay $206-million to buy the HSbc retail brokerage unit and its 120 investment advisory teams and their $14.2-billion of assets under administration. When the acquisition closed the price was readjusted because not all the HSbc brokers and all their assets joined. It’s understood that, despite an attractive retention package, about one-third of the assets didn’t move to National. (defections to other firms, started within two weeks.)

The Macquarie brokers are also restless because no decision has been made about the future of earl evans, Macquarie’s ceO. evans, a transplanted Aussie, was the driving force behind the $93.3-million acquisition of the former blackmont capital from cI Financial in late 2009. That deal brought 130 financial advisors and 130 advisors. Though Macquarie was the buyer, evans wasn’t initially named as chief executive. (He got the top job later.) evans spearheaded an expansion of both brokers and assets. Those brokers have some loyalty to evans.

“Put earl in the picture and it’s a totally different deal,” noted one broker. “The year-long integration will be difficult and will require a very broad and strong management team,” added another.

evans declined comment deferring to richardson GMP’s Marsh.

Others argue the retention package — namely what’s in it for the brokers — will be the biggest factor in what the Macquarie brokers will do.