When Wachovia Securities purchased A.G. Edwards last year, many employees relocated to the new headquarters in St. Louis, Mo. But not Michael Jones, who instead co-founded Riverfront Investment Group. The asset-management firm employs 17 people, 16 of whom came from Wachovia. What follows is the Q&A with Jones, which was edited into a narrative for our February issue, the 2009 Complete Sourcebook.
I first learned about the merger with A.G. Edwards when my boss called me in; they were in the final stages of negotiations. He said we're going to be buying A.G. Edwards, and the first reaction was, "Hey, that's great."
Then he said the headquarters would be moving to St. Louis. There was an overwhelming sense of shock. Then it was the full stages of grief.
There was denial: Well, can't some departments stay in Richmond? No, everything has to go to St. Louis. Then anger: How could you do this to us? And then finally acceptance. I won't say that I got to acceptance in the office in that moment. There is no doubt that it was a full-blown grieving process.
The acceptance component was, I think, when I became determined that no matter what the firm did, I would be staying in Richmond, a decision I came to within the space of a couple of minutes after picking up the phone and talking with my wife.
We had relocated for Wachovia a few years before, in 1999 to 2000, to Charlotte, North Carolina, which is a lovely city. It's a great city — there's nothing wrong with it — but it wasn't home. And when we got the chance to relocate back to Richmond, the kids, my wife — it was literally that, coming home. This is our home, this is where our friends are, we love it here, we love the mountains, we love the beach, we love everything about it. So, this is where we're going to retire.
With the exception of a year in New York and a year in Charlotte, we have been here ever since. We're like ping-pong balls; every time we bounce to a new city, we bounce back.
Q: When you decided you'd stay in Richmond, what did you think you'd do? A: Starve. Clearly, we would have to try and do something on our own, and my morale and my plans got a huge boost when members of my team came into my office and said, "We don't know what you're going to do, but if you go to St. Louis, you're going without us. We're going to stay here, and we're going to try to do something on our own, and we'd like you to do it with us, but if you're going to St. Louis, you're not in." OK!
We called up Pete Quinn, who was somebody we worked with at Wheat First Butcher Singer [Jones' previous company, purchased by Wachovia], and we said we would like to start a money-management firm. We asked, how do you approach people for startup capital, go about all the legal stuff? Would you mind helping us out with that stuff, do you think we have a chance at success? And to our surprise, he said not only do you have a chance at success, but if you do this, I'm going to have to do it with you. So he joined in too; he left his job at Davenport & Company.
I went to St. Louis many times, helping with the merger integration, trying to help them design what the new firm would look like. I tried very hard during the period of time that I was still with Wachovia to help them design a world without me and without my team, because after the conversations that I had with my team, I went to my boss and my boss' boss, and I said that we're not going to St. Louis. That was within a week of the merger being announced, June of 2007.
They made it very clear that we would not still be employees if we stayed in Richmond. And so we told them we wanted permission to start working on developing some business alternatives that we would go to work for if and when Wachovia moved out to St. Louis and when we were no longer employees there. And they gave us permission to do that and also were very clear that they were ultimately going to try to persuade us to stay with the firm.
We said, "I don't think so, but OK," and so we continued to do our jobs, and they continued to try to persuade us to come to St. Louis. They were very generous with financial incentives they offered. They tried to paint a picture of what the future firm would look like and what our role in that firm could be and the leadership role we could have in one of the largest brokerage firms in the country. It was all very, very positive, sort of "carrot" kind of incentives.
But the issue overriding it all was our families wanted to stay here, and they were extraordinarily happy here, and two, we'd been through an awful lot of merger integrations, and every time the firm got a whole lot bigger, it didn't necessarily get more fun. A lot of times, it got a lot less fun. And in this merger, boy, the firm almost doubled in size.
There are some people who are extremely motivated and extremely proud to be part of a very large and very powerful organization. You get a real charge out of being part of an organization that really moves financial markets and is tremendously influential, and that's what Wachovia is. And then there are people who would rather have a smaller team, where we all are sort of a band of brothers and sisters.
We might not be as big, we might not have as much influence, everyone might not have heard of us, but we have a lot more control over our environment, and therefore, we have a lot more fun. And sometimes it was kind of hard to convey to my boss and the folks at Wachovia that they're painting a very exciting picture, but it's a very exciting picture only if you want to be part of a very large, powerful organization. And I think we had reached that point where we wanted to be part of a smaller, more collegial, more controllable organization.
Q: Were there any times when their deal started to sound good? A: There's a social network that you're unplugging from, and there's the risk of going out and trying to start something. And you're asking yourself, "Will anybody like what you do? And will you be able to convince people at Merrill Lynch and Morgan Stanley and all these other firms that you're a good enough money manager for them to let you sell your products in their system?"
Those are all things you don't know as you're trying to set things up. You saw all these positive things being offered on the one side, and all the risks and potential downsides on the other. There were some times when I really did say, "Am I making the right decision?" But I think the thing that I kept coming back to is how exciting the opportunity kept feeling, and maybe it was time to try something entrepreneurial and fun.
When I arrived in 1985, Richmond was a huge financial center, and there were tons of money-management firms and banks. It was a very vibrant financial community, and in the years since, it's gotten smaller and smaller. We still have Genworth and Capital One here, and we have lots of money-management firms, but it's not nearly as much as it was. And the departure of Wachovia was another big setback in terms of the financial community.
I really think we felt a sense of mission that if we could build Riverfront, if we could make it successful and exciting — we would never be employing 3,000 people the way Wachovia did, but in some little way, we could contribute back to the city that meant so much to us.
Wachovia asked me and my two partners to stay; it finally became clear around October 2007 that we're at an impasse. They put one final offer on the table. We came to an agreement that we were leaving and how we could make our departure work within Wachovia, to make this as smooth as possible.
And they said, "We need you to wait until April."
We said, "OK, we'd like some things from you. We'd like our track record — the money-management track record that's so important to building a small business. We'd like the ability to at least ask our key people if they'd like to join Riverfront, and you, of course, can try to induce them to stay at Wachovia. But we'd like that opportunity without getting sued. And we'd like the ability to sell our products to Wachovia financial advisers." They ultimately agreed to the first two; they didn't agree to the last one.
We are still not allowed to sell to Wachovia financial advisers, but we were embraced fairly early on by one of our capital partners, which is a Midwestern brokerage firm called Robert W. Baird & Co., and suddenly Raymond James became excited about what we did, and the next thing you know, we were approved by Morgan Stanley and Janney Montgomery Scott, and we were approved for Merrill Lynch.
The nation's financial meltdown may be one of the greatest blessings that's ever happened to us, perversely enough. Obviously the market's very, very volatile and very, very difficult. We've managed to perform pretty well relative to most other money managers in this difficult environment, and clients never appreciate you more than if you do well in difficult environments.
Second, there's a lot of money managers people are mad at, and if they're mad at their existing money manager, they may be willing to think about a new money manager — particularly one that does things a little differently, as we do. One of the things we developed at Wachovia that seemed just like a natural part of being at a brokerage firm is we're an asset manager with glass walls.
What that means is we wanted to bring the financial adviser into the portfolio-management process, so that they understood everything we were doing with their clients' portfolios. So we published a series of weekly strategy pieces — here's what's going on in the market, and here's what we're going to do with the portfolio to capture some opportunities and manage some risks. Every time we did a trade, we sent advisers an e-mail — "Oh, by the way, we bought this and sold this, and here's why, in case your client wonders."
And what that turned out to do is it allowed the financial adviser to do a much better job of serving their client, kind of calming their fears, managing their expectations, you know, showing their client that they're a real guardian and steward of their benefits, because they know everything that's going on in their portfolio — they're really informed and engaged.
Having your financial adviser informed and engaged in a very difficult market is a real advantage, because if the client calls and is scared and worried, the adviser can say immediately, "You know what, I understand why you're concerned. That's one of the reasons we sold this just a few days ago, because we were worried about that risk, and we wanted to make sure your portfolio was protected from it. Oh, and by the way, we bought this, and the reason we bought this is in this kind of environment, these kinds of companies are being beat down more than they should."
Instead of saying to the client, "Yeah, the market is crazy. I'm sorry," they've got very specific strategies. What we've found is that information is the only antidote to fear. No other money manager seems to be doing that.
Q: What do you hear from your friends in St. Louis with Wachovia? A: It's clearly been a roller-coaster ride for many of them with the acquisition of the company by Wells Fargo in October. I think they're at the end of the roller coaster — you pull into the station, and things are safe, and the bar goes up, and you can get off. Wells Fargo is the most solid financial institution going. Their boss, Danny Ludeman, is still keeping his position, which means they're likely to keep their positions, so, it's sort of like a tough journey but a good ending. The combination of Wachovia and Wells Fargo, I have no doubt, is going to be the leading financial firm in the nation in the next five to 10 years. If you want to be part of something big, powerful and influential, that is Wachovia and Wells Fargo combined.
You know the 16 people that joined [Riverfront] from Wachovia? So many of them are so committed to this city — even if I had wanted to go to St. Louis, if I were totally passionate about going out there — the team would not have followed, not all of them. And one of the real motivations is how can we create an organization that will keep this team together, because this team is special; it's magic, and you don't get that often in a working environment. And the one thing that definitely unites this team and holds it together cohesively is where we live.