Brokerage Raymond James Financial Inc is taking a rare swing for the fences with its move to acquire Southeast rival Morgan Keegan, yet investors worry the $1.2 billion takeover won't translate to big gains until markets rebound.

The Florida-based regional brokerage known for its conservatism landed its biggest ever deal on Wednesday, outlasting rivals and private equity firms in an auction that lasted nearly seven months. Raymond James , led by CEO Paul Reilly, also is set to create the largest investment bank and brokerage outside Wall Street.

With more than 6,100 brokers, the new Raymond James will leave regional rivals Stifel Financial and RBC Wealth Management behind and puts itself within striking distance of UBS , which saw its U.S. brokerage force shrink to less than 7,000 advisers after the financial crisis.

From our perspective, it really helps us to dominate market share in the south, said one Raymond James adviser, who was not authorized to speak publically about the firm.

Raymond James Executive Chairman Thomas James, as CEO between 1970 and May 2010, helped the firm expand from 165 brokers to more than 5,000 through hires and small acquisitions. He also developed the firm's reputation for conservative growth, which helped Raymond James avoid the pitfalls that forced some bigger Wall Street competitors out of business and prompted taxpayer funded rescues in 2008.

Firms like Raymond James and Morgan Keegan, a Memphis-based firm founded in 1969, are regional brokerages that promise better service for customers and more intimate surroundings for employees than at banking giants like Bank of America Merrill Lynch, Morgan Stanley Smith Barney and Wells Fargo.

By being the largest of the second-tier firms, Raymond James hopes to be a stronger draw for advisers, bankers and customers.

This acquisition is really going to help us win even more business from Wall Street, said another Raymond James adviser.

Purchasing Morgan Keegan from Regions Financial will help turn Raymond James, a non-player in muni bonds, to the nation's No. 8 underwriter, as an example.

Still, Raymond James pales next to the big Wall Street firms, said Tyler Cloherty, a senior analyst at Cerulli Associates. With more than $320 billion in combined client assets, Raymond James is not even in the same area code as Morgan Stanley and its $1.56 trillion.

That said, Raymond James has in recent years lured dozens of big firm brokers despite not paying the biggest recruiting bonuses. More recently, Merrill and Morgan Stanley have been stirring unrest among brokers by changing compensation plans, and that could drive even more people to regionals.

In the meantime, analysts said they liked the terms of the Morgan Keegan deal, but they also wondered if Raymond James was perhaps being overly conservative.

Raymond James is paying less than $1 for every dollar of 2011 revenue and 1.3 times Morgan Keegan book value. With no cost cuts or new revenue projected, Raymond James sees the deal breaking even this year and boosting profit 2 to 3 percent in 2013.

Justin Hughes of Philadelphia Financial Management said the firm set the bar low, so they're in a better position to beat expectations.

KBW analyst Joel Jeffrey said Raymond James shares are likely to come under pressure from investors who want more immediate gratification. They also are wary of plans to issue $300 million of new stock, or roughly 9 million shares.

The risk is that if markets stay where they are, the firm doesn't get the revenue lift and no savings, if they're not planning to cut costs, said Jeffrey, who rates Raymond James shares market perform.

Raymond James executives asked investors to consider the long-term potential for the expanded company when markets eventually take off, but some investors cautioned they have been waiting for a full recovery for four years.

It's a bull market bet. It is a reasonable bet, but one can't predict what the market is going to do, said Michael Lipper, whose Lipper Advisory in Summit, New Jersey, invests $2 billion on behalf of clients.

Shares of Raymond James fell $1.20, or 3.5 percent, to $32.98 in Thursday trade even as most analysts concluded that the firm paid a reasonable price.

FBR Capital Markets analyst Steve Stelmach, who deems Raymond James a top pick, told clients the Morgan deal could generate bigger gains, sooner, just with some small cost cuts.

For now, though, Raymond James is more focused on pleasing its future employees: the firm will pay as much as $215 million in cash and stock to retain Morgan Keegan brokers, on top of $200 million of stay money already in place at Morgan Keegan.

Reilly says he has no plans to cut branches and intends to maintain much of Morgan Keegan's business presence in Memphis. That means the real benefits must come from rising interest rates, a more robust stock market and a rebound in corporate deals.

It is clear, said Lipper, that this will be a big win only if the market goes up.

(Reporting By Joseph A. Giannone; Editing by Walden Siew)