Retention a Challenge In Wachovia-Edwards Deal

Integrating A.G. Edwards' sales force of 6,500 brokers will be the main challenge Wachovia faces in the wake of its announced $6.8 billion acquisition of the St. Louis-based firm.

If Wachovia is able to hold on to all the A.G. Edwards brokers, its retail sales network would nearly double in size, to 1,512 branch offices and 15,000 financial advisors. The combination would create the second-largest retail brokerage in the U.S., vaulting ahead of Citigroup's Smith Barney, according to The Wall Street Journal.

However, recent history suggests that's a big "if." Regional brokerage firms like A.G. Edwards allow brokers greater autonomy than big banks, and even offer better compensation, the Journal says. For instance, a big bank may push brokers to sell itsp roprietary funds, while regional firms tend to follow an "open architecture" model that gives brokers and their clients a wide choice of products offered by numerous investment management companies.

"Attempting to introduce more proprietary product will likely be a key cultural hurdle to overcome," wrote Michael Hecht, a Bank of America Securities analyst, in a report quoted by the Journal.

The Journal notes that Merrill Lynch held onto far fewer brokers than anticipated when it acquired Advest in December 2005. On the other hand, UBS AG managed to retain almost 80 percent of Piper Jaffray's sales force after acquiring the Minneapolis-based firm's financial adviser business last August.

Wachovia expects to finish combining its operations with A.G. Edwards by March 2009. Besides the sales network, Wachovia plans to consolidate Edwards functional areas including research, underwriting and investment banking, mutual funds and trust into Wachovia's existing lines of business, the Journal says.