Ladenburg Contractually Limits FA Retention Bonuses Ahead of Sale
Ladenburg Thalmann cannot contractually pay significant retention bonuses to its brokers and their staff, nor signing bonuses to prospects, before its takeover by Advisor Group, according to the companies’ merger plan agreement.Between the deal’s announcement on Monday and the planned closing date of no later than March 31, 2020, Ladenburg will invest no more than $5 million in aggregate, and $500,000 individually, in its 4,400 independent brokers, the companies said in the Nov. 11 agreement filed with the Securities and Exchange Commission. The contract similarly limits “recruiting loans or similar advances” to prospects to $500,000 individually and to $2.5 million in the aggregate.
The aggregate cap translates to an average retention payment of $1,136 to existing brokers, and the individual cap leaves little room to lock in top producers, according to recruiters.
“It suggests they’re not doing a retention deal, and it makes them vulnerable,” said John Chudzik, a managing partner of broker recruiting firm Hanover Search Group. “The advisors are going to have a new owner, and this is an opportunity for them.”
Neither firm has formally commented on retention bonuses, which are a standard tool used in broker mergers. “We are still in the early stages of this transaction process, and no decisions have been made with respect to advisor retention bonuses,” a Ladenburg spokesman said.
Advisor Group CEO Jamie Price earlier this week said in an interview with “Investment News” that the firms “don’t anticipate the need for a bonus” because of expectations that Ladenburg brokers will have an easy transition due to common clearing firms. In their press release on the deal, both firms also emphasized that their almost 11,500 combined brokers will continue to operate under the brands they currently have. Advisor Group has four affiliated firms, and Ladenburg has five.
Although Price will head the combined venture, at least two Ladenburg executives appear to have positioned themselves for survival after the merger. Chief Financial Officer Brett Kaufman and top lawyer Joseph Giovanniello, Ladenburg’s head of corporate and regulatory affairs, each negotiated an incremental severance payment of $550,000 to supplement what they would receive under their employment agreements if they are terminated after completion of the merger, according to a proxy statement Ladenburg filed on Thursday.
A Ladenburg spokesman declined to comment on the executives or their future roles.
The proxy statement also indicated that the deal, which is valued at about $1.3 billion, will include accelerated vesting of options and restricted stock held by Ladenburg employees and shareholders so that they will receive cash from Advisor Group, which is controlled by private equity firm Reverence Capital Partners. Preferred shareholders of publicly held Ladenburg, which will be delisted, also will have right to convert their holdings into cash, according to the filing.
Reverence has agreed to pay $230 million of the purchase price in cash from four of its buyout funds. Bank of America and UBS Securities are leading debt financing for the transaction.