Q&A Exclusive: Stifel's Kruszewski optimistic about economic trends for financial services by Calvin Trice

Eaton Partners Jan 19, 2016
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Stifel's Kruszewski optimistic about economic trends for financial services SNL Financial Services Daily By Calvin Trice 12 January 2016, Stifel Financial Corp. maintained an active pace of acquisitions in 2015 with deals that brought Sterne Agee Group Inc. and Barclays Plc's U.S. wealth and investment management business under its umbrella. Co-Chairman and CEO Ronald Kruszewski hinted that there could be more to come, as the company continues to seek competitive relevance in more areas. Kruszewski agreed to an interview with SNL in mid-December as part of its report on the most influential financial services figures of 2015. The following is an edited transcript of that conversation. Stifel Financial Co-Chairman and CEO Ronald Kruszewski Source: Stifel Financial SNL Financial: What made the Sterne Agee and Barclays deals attractive to you? Ronald Kruszewski: I think it's been consistent with our strategy. These were attractive, people-oriented businesses that help Stifel grow into our objective to build a premier wealth management investment banking firm. One of the issues that came up for the Sterne Agee deal was how it diversified you into the independent adviser network platform, how has that gone so far? Sterne Agee had a long tradition in Southeastern-based wealth management, along with an independent channel, as well as a with a fixed-income credit business that we thought highly complemented Stifel's existing businesses. We had businesses in all of that. We had wealth management; [Sterne] made us stronger. We had credit, but it made us stronger in credit. It almost tripled our independent channel. What's your evolution from here? Past is prologue. We want to continue doing what we've done in the past, which is to take advantage of opportunities and try to add to our capability both organically and via strategic acquisitions that add to our relevance, add to our shareholder value and provide a new partner an opportunity to succeed. That's been our playbook for the last 20 years and I don't see it changing. What are your thoughts for the company moving forward? The Fed for the first time in nine years has increased rates; it has been a difficult rebuilding of worldwide economic activity since the financial crisis. I'm optimistic that the years ahead will provide a good market environment which will help the investments that we've made pay off nicely for our shareholders. What do the Merchant Capital LLC and Eaton Partners LLC deals do for Stifel? We have built a public finance business where we've have gone from 30th nationwide to sixth in negotiated transactions … and deals like Merchant are part of that story. Merchant gave us a nice presence in the Southeast in public finance, which we did not have. Eaton Partners really raises capital for private equity firms, which provides growth capital for small cap companies, and we think that's an important arrow in our quiver too, of what we're trying to do. So both of those deals fit nicely. What do you think about the Federal Reserve nudging up the prime rate? I think the hike is almost symbolic as to the fact that the economy is [healthy enough] to withstand an increase in rates. What's fueling my optimism is just a general belief that the asset valuations around the world are so out of whack; we're just getting those under control. It's been a slow trendline. I just feel like, with the economic activity in the world and in the U.S., the trendline will quicken and get better. It's been a long, arduous process, and we're not out of it, it's just that it's getting incrementally better. What are your concerns about the Department of Labor's proposal for a fiduciary rule for retirement advisory services? I don't think anyone sets to write a rule with bad intentions, but I think the consequences of the rule are going to really hurt small investors saving for retirement. I'm so consistent on this, and I've said it, and I'm going to continue to say it: The rule will limit choice and increase cost for the smallest investors who are beginning to save for retirement. Explain your statement that the federal government is trying to de-risk retirement investment. I think this rule is attempting to get to the one-tenth of one percent — the bad apples, and we do have bad apples in our industry — by limiting advice on the other 99%. I'm not a fan of the rule. If implemented, I actually think it increases revenue in our firm. I try to add that balance. It's not like I think it hurts us. I think it hurts small investors. How would Stifel have to change its practices to comply with the DOL rule as proposed? The difficulty in the DOL rule is in their construction of a best interest contract. The best interest contact would require everyone to change the way they approach brokerage IRAs. We're not alone on that, everyone would have to change or simply … many investors will not be given the opportunity to have brokerage IRAs because the rules are so proscriptive that it will be very difficult to do. If as proposed becomes rule, not only is it bad for investors, the cost in the industry are going to be substantial. SNL Financial LC
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