Move of the Month: Morgan Stanley Loses $12-MIn 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 with any move, the two conducted intense due diligence comparing the value propositions of many different 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 independent platforms, but it speaks to the importance of their shift.

In addition, 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 nearly decade-old reputational concerns.

Fischman and Azar 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. Certainly, there was some push as several Morgan Stanley teams have been restless lately due to varying concerns since James Gorman left the firm. They’ve faced cost-cutting compensation measures and increasingly burdensome compliance overreach.

This is evidenced by large teams shifting to competitors like Rockefeller Capital and toward independence.

At FiNet, the duo is able to start building equity in their practice while maintaining the wirehouse resources and bank access. They can operate under their own brand 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 day 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 in private team practices. Merchant Investment Management, one of the fastest-growing venture capital firms, is one of the names taking a minority stake in some of the nation’s most successful practices.

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 generated about $10 million in revenue with discerning tastes for the best possible platform.

The other lesson here is to ensure 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 proof of this approach.

These moves will likely become more common as the trend toward independence and client-centric models accelerates, but even when friction exists, large moves can still succeed.