Move of the Month: Morgan Stanley Loses $12-Mln Team to FiNet

As a team generating $12 million in annual revenue, Alexander “Sandy” Fischman and Shalom Azar are precisely the type of productive talent that major firms fight hardest to retain.

But the duo saw the writing on the wall and packed their bags after only four years at the wirehouse to join the independent movement at FiNet (Wells Fargo Financial Network). As any advisor should, the due diligence process is always intense comparing the value of proposition of many differing platforms.

In a sign of how important this move was to them and their clients, the duo left while still on the hook for $2.5 million in recruiting bonuses from when they joined the firm. This was a small sum compared to the most lucrative transition bonuses from any independent platform we know. To add, leaving a brand such as Morgan Stanley for Wells is testimony of how FiNet competes head-to-head and how clients are now impervious to the old, tarnished reputation due to housing collapse, now well over 15 years ago.

They also left under threat of litigation, which ultimately materialized. Left with no recourse, Morgan Stanley filed a lawsuit attempting to restrain the team from contacting their clients, but the duo prevailed in court.

Let’s examine the lessons and potential motivations given the headlines that this move has generated in the trade press. Certainly, there was some push as several Morgan Stanley teams have been restless lately for a mix of varying concerns since James Gorman left the firm, cost cutting comp measures, and increased burdensome compliance overreach. This is evidenced by large teams shifting to competitors like Rockefeller Capital and for independence.

But the choice of FiNet shows that the duo had sought out a platform where they could start building equity in their practice while maintaining the wirehouse resources and bank access without the need to brand themselves independently and not as employees of a big bank. The value of selecting transition platforms that offer both independence and institutional support capabilities cannot be overstated for large, complex teams.

Every day they spent at Morgan Stanley was another sacrificing half of their revenue, at ordinary income tax rates, to the parent company while the firm owned their client list and thus the true value of their practice.

At FiNet, they own their practice (no one can ever call their clients) while receiving 1099 payouts of 94%. After subtracting real estate costs and operational expenses, many advisors of their caliber can retain 75% of their annual revenue. That, combined with the possibility to eventually sell a stake in their practice to a strategic acquirer, can ultimately be exponentially more valuable than waiting to cycle through wirehouse recruiting deals. FiNet is the only major bank that allows outside investors to take an equity position into private team practices. Merchant Investment Management is one of the fastest-growing venture capital firms, taking minority stake in some of the nation’s most successful practices.

More and more big teams have come to this realization, including a team managing $1.8 billion in assets that left Morgan Stanley for FiNet in Chicago in September . They also had about $10 million in revenue with decerning tastes for the best possible platform.

The other lesson here is to make sure you have proper planning and solid legal resources around your move. This is why we always recommend attorneys we know who have excellent track records. Winning the TRO battle against Morgan Stanley is testimony.
These moves will likely become more common as the trend toward independence and client-centric models accelerates. This transition demonstrates that even when friction exists, large moves can still succeed.