Morgan Stanley Smith Barney is trying to send a message to brokers looking for the exits: Morgan Stanley Smith Barney is trying to send a message to brokers looking for the exits: You can leave, but you can’t take your rolodex with you.
The Morgan Stanley, Citigroup joint venture sued five prominent wealth managers this week who had recently bolted for HighTower Advisors, an upstart Chicago firm that has lured top talent away from the big banks. The lawsuit, filed in New York state court in Manhattan, is the first time a big Wall Street firm has sued investment managers headed to HighTower.
“This is a failed intimidation tactic,” Elliot Weissbluth, HighTower’s chief executive, told me. “All it does is confirm that the big brokerage firms realize we are a legitimate force that has to be reckoned with. This is an attempt to deter us, which will fail, an attempt to deter advisors who are leaving.”
Tough talk from a man who has made life difficult for big Wall Street firms that survived the financial crisis. In this excellent article, my colleague Matthew Schifrin gives a sense of what is going on. Weissbluth co-founded Hightower in 2008 with the backing of big shots like David Pottruck and Philip Purcell, offering advisors equity stakes and freedom from conflicts of interest. HighTower has already attracted $16 billion of assets.
But the big firms don’t like seeing big producers walk out the door with rich clients. Steven Ayer, Roman Ciosek, John Lang and Jeffrey Sullivan, left Morgan Stanley Smith Barney on the Friday before the February long weekend. They took their entire Strata Wealth Management Group, which handled $500 million in Rye, N.Y. Morgan Stanley says they had been plotting this exit for some time and solicited customers to follow them to HighTower while they were still working for Morgan Stanley Smith Barney.
Morgan Stanley Smith Barney wanted a temporary restraining order and preliminary injunction to stop them from “continuing the wrongful conduct.” Specifically, Morgan Stanley claims that in the days leading up to their resignation the advisors had solicited forty households they serviced to liquidate funds held at Morgan Stanley Smith Barney, making it easier to later transfer accounts away. In addition, the lawsuit says the advisors had printed “a significant amount of customer account information,” including performance reports and other account data.
HighTower’s Weissbluth says the Strata Group advisors did nothing wrong. Morgan Stanley declined to comment, but already its case is looking weak. Judge Lucy Billings has denied Morgan Stanley’s attempt to stop the advisors from soliciting customers, limiting them only from using or disclosing confidential information.