So are all wirehouses really the same these days? Similar, but not exactly the same, according to Todd Forman and Evan Steinberg, advisors at Morgan Stanley Smith Barney.
The two sat down with recruiters Mindy Diamond and Howard Diamond of Diamond Consultants to talk about their career paths and their move to MSSB, which happened on a Friday, the 13th. But, it's been good luck ever since. Steinberg and Forman are lawyers by training, and the decisions that led them on a path that culminated in their billion-dollar team moving have been varied and complex. Some decisions were years in the making, while some were as sudden as the financial meltdown in 2008. They lay it all out in this month's cover story: from the hardest part about moving, to the ever-present fear that some good accounts won't make the move, to those accounts that they would just as soon leave behind. They try to assess their current situation with the benefit of hindsight. In this no-holds-barred interview with the recruiters who helped them move, Forman and Steinberg discuss the ways they gauged potential new firms, and how they conveyed the value of the change to their clients.
MINDY DIAMOND: How long have you been here, and where were you before this stint as a financial advisor. Evan?
EVAN STEINBERG: We've been at Morgan Stanley for just under two years. We joined in February of 2009. We were at UBS for 10 years prior to that.
MINDY: Tell us about your background before UBS.
STEINBERG: I was a practicing attorney for 14 years. I left law in 1995, and came into the securities business as a financial advisor. I first went to Oppenheimer and spent four years there, then spent about nine to 10 years at UBS. I'm also a CIMA [Certified Investment Management Analyst]. We have a process-driven, consultive, holistic growth advisory business, mainly managing portfolios, assets and relationships for high-net-worth and ultra-high-net-worth individuals. We have a small institutional element to our practice as well.
MINDY: And Todd?
TODD FORMAN: By way of background, I went to University of Wisconsin and then Seton Hall Law School. I also practiced law for just about three years in New York City, then transitioned to join Evan at UBS and moved over with him two years ago. My concentration is on financial planning, and obviously asset management.
MINDY: Tell us about the decision to leave law to become a financial advisor. What drove that?
STEINBERG: I had a long-time interest in capital markets and wealth planning and decided at the end of 1995 that I was going to make the move.
FORMAN: And I had a great job out of law school at a big New York firm. And then as Evan's business began to grow, it seemed like a good opportunity.
HOWARD DIAMOND: How did you guys know each other?
STEINBERG: I've known Todd since he was 15-years-old. His father and I were law partners at my old firm.
MINDY: How has the practice evolved over time?
STEINBERG: When I decided to join my father's business in 1995, we had about $85 million to $90 million under management. All of it was typical brokerage business. But I had no interest in being a traditional stockbroker. I didn't have any background in stock-picking. But I had a pretty healthy background as a lawyer in trusts, estates, insurance and taxes. So I wanted to build a process-oriented-not a product-oriented-consultative practice where we would work with our clients, their attorneys and their accountants and make sure that their planning was in place. My second thought was that I would be able to take the base of business that my father had and transition it over from a traditional brokerage business to a more advisory type of practice. And I was brutally unsuccessful with that. His clients were his contemporaries, and he was 70 at the time. They liked having a broker who would call them with stock and bond ideas. So I realized very quickly that I was going to have to go out and raise assets and build a business. So that's what I did. And today, we manage a little over a billion dollars in total.
HOWARD: How would you characterize the difficulties of the markets over the past couple years, and how did you deal with your clients in that time?
STEINBERG: I think we fared really well. At the end of 2007, beginning of 2008, we cut back on our equity exposure and increased our bond exposure. I wish we had done it even more so in hindsight. But our clients stayed engaged. With very few exceptions, they really followed our advice. And I would say the overwhelming majority of our clients are back to where they were [at] the end of 2007, which I'm kind of proud of. On that point, there was a lot of chatter in 2008 and 2009 about whether modern portfolio theory was dead. The argument was that everything had become so highly correlated that asset allocation really didn't work anymore. I would argue that it did work. Yes, equities were highly correlated, and they all dropped. A lot. But if you also had a healthy exposure to fixed income and to alternatives, asset allocation did work. Alternatives dropped about half the amount that equities dropped. And fixed income dropped a little, or even gained a little. As a result, our clients recovered more quickly.
FORMAN: If you look at our client retention during that period, we lost almost no clients. In fact we were getting referrals and continued to grow our business.
MINDY: Evan, you moved from Oppenheimer to UBS, obviously two different cultures. And then you moved from UBS to Morgan Stanley. What went into those decisions?
STEINBERG: My father had been at Oppenheimer since he started his career back in the mid-1960s. But [after] four years, I felt like I needed a bigger, stronger platform to continue to service our existing clients and to attract new clients. When we came over to Morgan Stanley, we were looking for a firm that had a really solid platform. We really liked the mix between their investment banking part of the business and the wealth management part of the business.
MINDY: What were the metrics that you used to evaluate the move?
FORMAN: The first one had to be curb appeal-for lack of a better word-and the financial meltdown was a consideration. We needed a place where our clients would feel comfortable. And they were receptive to Morgan Stanley, they were very happy when we spoke to them about moving assets over here. After that, it was really more things for us: Did they have the products and services here so it would be a seamless move for our clients?
STEINBERG: We also wanted a firm that had an open architecture platform that was not going to put any pressure on us to be proprietary because the overwhelming majority of our practice is non-proprietary.
MINDY: Evan, you've said before that you had one move in you, leaving UBS at some point. What was it that changed for you?
STEINBERG: Well, I always knew a move was possible, I just didn't necessarily think it was a certainty. For a long time, we were happy where we were, and had no intention of leaving. Moving's not fun, it's not a pleasant process, and you don't want to do it unless you really feel you have to. My thought was to wait several years until our business had the critical mass, both in terms of assets and revenues, to make the move rewarding financially. Anybody who says that financial considerations aren't part of the equation when they move is being dishonest. Then, at the end of 2007 into 2008, there was definitely more of an immediacy for us to think about.
MINDY: You felt your clients would be better elsewhere?
STEINBERG: Yeah. We just felt that it was in our clients' best interests for us to make a move to a company that had a really solid platform and solid management, and we just thought that on a going-forward basis that Morgan Stanley was going to be a great home for us and for our clients.
MINDY: Fast-forward two years. Looking back at this move from your clients' perspective and your own quality of life, was this a good move?
FORMAN: Yeah, and I would say it's been everything we had hoped for and then some. Over 90% of our client base came with us to Morgan Stanley. So we lost very few clients, which we were thrilled about, because that just showed us we had a really loyal client base.
HOWARD: Did you see the move as an opportunity to get rid of some clients you didn't necessarily want to have?
FORMAN: Yeah, absolutely. Everyone's portfolio is important, but it was an opportunity for us to move some of the lower end of our book behind. So we had some of these conversations with clients.
MINDY: In considering the move, how afraid were you that some of the important accounts wouldn't make the move with you?
STEINBERG: It was obviously an important part of the equation. We sat down and tried to handicap each relationship about whether they would come with us. We were really confident that the vast majority of our clients would want to stay with us. We felt that we had served them well and had great relationships with them, but yeah, it was certainly a concern. Another tough part of the transition involved our lending book at UBS. Transitioning loans back to Morgan Stanley was a big issue, it was definitely time consuming and difficult.
HOWARD: How did you deal with the new technology, new office procedures, and new management?
FORMAN: At first, it was frustrating, truthfully, because you just want to get everything up and running. But if we look at the six-month mark, when we started to do business as usual, we found the systems really solid, and able to do a lot of things we didn't have before.
MINDY: So how has business been in the two years you've been here?
STEINBERG: In calendar year 2010, we had the biggest year we ever had in the business.
MINDY: Can you point to anything in particular that accounts for that?
STEINBERG: We continue to do what we always did, which is try to represent our clients in the most straightforward, transparent way that we possibly can and always do what's in their interest first. We feel like we've found a good home for us to run our business.
MINDY: You came from the smallest of the wirehouses to an 18,000-advisor firm. Have you found it to be any more bureaucratic or less efficient?
FORMAN: I don't think so. You know, for us, going from wirehouse to wirehouse was absolutely necessary. There were investment banking needs that went just beyond the wealth management platform that an independent couldn't handle, lending needs that an independent couldn't handle. As far as bureaucracy, as long as you've got a good management team and the right people around you, it's not hard to navigate these big firms and get to the right people.
MINDY: A lot of advisors say the wirehouses are all the same these days, that they can all do the same things. How would you respond to that?
STEINBERG: I would agree there are substantial similarities, but there are differences too. I think an advisor has to look at the type of business he runs and then find the most appropriate firm or large bank for them to service their clients. The thing that I like about working for a large company is that I think our clients get the best of size, depth, research, the analysis of a Morgan Stanley Smith Barney. But they also get a boutique group, the Steinberg-Forman group.
MINDY: After having deep relationships with your clients, how did you leverage those trusted relationships?
STEINBERG: We were just totally transparent with them. We were totally honest with them. We told them all of the reasons that we thought it was in their best interest to move with us.
MINDY: How did you articulate a value-add for them?
STEINBERG: We told them that their fees would be the same. We told them that their interest rates on their loans would be the same, because we had secured those promises from Morgan Stanley. We told them that we analyzed this move for them and for us the same way we analyzed their portfolios, and their planning issues.
MINDY: So two years later, obviously, it's been a win for the two of you. Do you feel like it's been a win for your clients?
FORMAN: Absolutely. I think people are very happy here. People want to know that the basics typically get done, that if they're going to get a wire, that they're going to get the wire every month, or that they're going to get checks on time or that their statements are easy to follow.
HOWARD: What advice would you give an advisor who's thinking of moving?
STEINBERG: Do your homework. Do your due diligence. You know, there's no replacement for doing your homework.
HOWARD: Anything to add, Todd?
FORMAN: I would just reiterate the do-your-homework advice, because there are so many moving parts to this business.
STEINBERG: I would add one more thing, and this was a good lesson for us. You have to put down on paper the things that are absolutely critically important to you, and you should have little or no flexibility on those things, and on the other things you have to have some flexibility on.