First of two parts

Raymond James Financial Corp., a well-known name in the Southeast for decades, got national exposure this year when players punted past its logo 17 times in Tampa’s Raymond James Stadium during the Super Bowl.

Chairman Thomas James says he is determined to keep that name in front of the public — by staying independent.

Like some of its main competitors among regional firms, the St. Petersburg, Fla., company caters largely to retail customers. Such pure-play independents are becoming a rarity.

“Often these companies become bureaucratic — it’s difficult to figure out what business they are in,” said Mr. James, who is also Raymond James’ chief executive officer, at its annual meeting in February. “I would still classify well over half as failures.”

Consolidation has gripped midsize brokers and regional firms. In recent years’ increasingly competitive environment they have been selling themselves to larger firms and banking companies.

Since 1997, 30 broker-dealers have disappeared from the membership rolls of the National Association of Securities Dealers, largely because of consolidation.

Companies that have resisted buyouts — and offers of four times book value are not unheard of — include 17,000-employee A.G. Edwards & Sons Inc. in St. Louis and private firms like Ferris, Baker & Watts Inc., a 670-employee Baltimore brokerage that recently broke off sale talks with BB&T Corp., the acquisitive Winston-Salem, N.C., banking company.

Many independent brokers sold during the bull market, when banking companies saw the need to be in the business and brokers saw the money a deal could bring. But the current market has created a whole new set of reasons.

Pinched by dwindling brokerage commissions and declining fees from investment banking, some companies have gone out looking for buyers with new zeal, and have found plenty of interest.

Last month Royal Bank of Canada announced a $625 million deal to buy one of the larger independent brokerages, Tucker Anthony Sutro & Co., after an aggressive expansion drive by the Boston brokerage failed to reap adequate returns before the bear market set in.

“Independence for the sake of being independent is not enough,” said Gary Shedlin, managing director and the head of the financial institutions practice at Lazard Freres & Co., an investment banking firm that has advised on many of the recent deals for independent regional brokerages. Lazard advised Tucker Anthony on its pending sale.

“What happens in long periods of prosperity — you build in costs that you stop paying attention to,” said Raymond A. “Chip” Mason, the chairman of Legg Mason & Co., in July during the firm’s quarterly earnings conference call.

In any market, a number of factors can drive an independent broker to throw in the towel and make a deal. These can include lack of capital as well as newly heightened competition, which has been blamed recently for pushing some firms into the arms of large banking companies and other brokers.

Even if the chief executives at all the independent firms do not feel pressure to sell, some may decide that a big company’s deeper pockets and larger distribution platform make it a good idea, experts say.

“Some firms just run out of gas,” Mr. Shedlin said. “But others believe when they go into a partnership that the deal will make the clients and employees better off.”

David Glatstein, the president and chief executive officer of Southwest Securities Group of Dallas, says there are some pluses in a sale, as long as it helps in “maximizing shareholder value.

“There are probably more advantages to being part of a larger organization than there are to being independent,” he said in an interview.

Since the 1,100-employee Southwest gets the largest part of its revenues from its securities clearing business, a nationally or internationally recognized name would help that business by giving it a better position to compete against more global firms, he said. Being part of a larger, more widely known firm would also help its other nonretail business lines, such as corporate and public finance, he added.

Last year capital needs prompted Southwest to hire Bear Stearns & Co. to advise it on “strategic alternatives,” including a sale or merger. When it failed to find an appropriate partner — and its capital problems dried up — it terminated the advisory relationship. Instead, “we told Bear Stearns we’d be delighted to talk with anyone,” on an informal basis, Mr. Glatstein said.

Observers say the tougher business environment will make it more challenging to stay independent. Still, the four biggest remaining brokerages say they have no intention to sell.

A.G. Edwards and Raymond James say they are sticking to their retail brokerage model, even though the capital markets downturn is currently eroding consumer business.

Legg Mason, which has been transforming itself into more of an asset manager than a brokerage, and the privately held St. Louis brokerage Edwards Jones & Co. both say they are adamant about their disinterest in a sale.

As the number of independent firms shrink “the remaining few certainly have some increased value,” Robert Bagby, A.G. Edwards’ chairman and chief executive, said in an interview last month.

An Edward Jones spokesman said: “We’ve consistently said that we will remain independent and are not interested in acquiring or being acquired. The business model that we’ve built is sufficiently different from everyone else in the industry that we don’t believe there would be a good fit.”

Tomorrow: A closer look at how some of the large independent firms are managing to remain independent.

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