Ten Years Ago The Bahnsen Group was Born

A story of our journey from Morgan Stanley to where we are today

Ten years ago today is the day that The Bahnsen Group officially left Morgan Stanley and became its own company. We existed as a group name at Morgan Stanley for many years before that, but our formation as our own firm began on April 2, 2015. Today I want to share this story with you, and why it became the greatest thing I ever did professionally.

I do not write today to make the claim that every practitioner should be starting their own business, largely because I actually do not believe any such thing. I also am not writing today to criticize the wirehouses, particularly the aforementioned firm (Morgan Stanley) that I left ten years ago. I became a Managing Director there and spent eight glorious years of my life and career at Morgan Stanley, most importantly through the paradigm-shifting period of the financial crisis. I simply don’t have anything negative to say about my journey because it was my journey. I also do not have opinions on what someone else is supposed to do or not do – in so much as each person’s specific goals, situation, partners, team members, contracts, client dynamics, economics, personality, giftedness, and a whole lot of other things that go into where and how one incubates their business all matter. Don’t get me wrong – I have very strong opinions about what I did, and why I did it, and what it has meant for me, our clients, my partners, and our whole business. But those are opinions about us, and not necessarily normative to any of you.

So just so we are clear: I am an evangelist for the RIA world of entrepreneurial wealth advisory practitioners, but to my core I am an evangelist for the wealth advisory profession, regardless of channel, company, or specific context. B2Bahnsen is for advisors of any stripe and size.

But today is a story about our journey at The Bahnsen Group, how, why, and what took place ten years ago today and in the years that followed. Let’s roll …

For purposes of this article today I am picking up my story in the midst of the financial crisis in 2008. I was well into my career at this point, had built a great practice at UBS, had left UBS to join Morgan Stanley, had fully transitioned my book, had brought my assistant with me, and was in the process of building out a team at Morgan Stanley. I had become a chairman’s club producer and was really happy with the state of my business. My conversion to being a dividend growth equity investor was fully complete, and that was a game-changer of its own in what it meant for our process and client experience. But as many of you know, the second half of 2007 and the entirety of 2008 represented an extraordinary period in terms of the issues advisors dealt with in holding client’s hands. This was a period that I am very proud of in my business history as despite having an entirely fee-based business, I grew substantially in 2007 over 2006 and again in 2008 over 2007. The math of this is very easy to explain: When market values are down and you are fee-based, the only way for revenue to grow is … wait for it … to have more clients and assets than you had before. Put differently, if asset levels drop by X, but new business grows by more than X, than you are net net better off than you were before (I promise you this checks out). My business grew in 2008 when the world was ending because I worked 18 hours per day talking to clients, communicating, writing, speaking, and explaining what the hell was going on. It was very tempting to hide under my desk on occasion, and certain events in September and October of 2008 were utterly gut-wrenching, but I leaned into everything with gusto and fearlessness, I went on a limb to defend my firm, and I lost no clients – and gained a lot of other people’s clients – and to this day, with $48 million more annual revenue than the $2mm or so I had then – I am more proud of that business preservation and growth than almost anything I can remember in my career.

But it came at a cost. My daughter was born in 2007 and I was really, really forced into business preservation mode in 2008. My oldest was only three years old. It was not an easy time, and I frequently had to choose business over family in this period, and my wife is a saint on loan from God for how she supported me in this period. It also was not just hard because “I worked hard” or because “I had to endure client anxiety and fear.” It was hard because the stress on me, personally, was unspeakably high. I am sure many of you relate. I did not actually know that my firm was going to make it, some of my dear friends at Bear Stearns and Merrill Lynch and so forth were not so lucky (either seeing their firms go under or switch to new bank owners), Morgan owed me large earn-out bonuses that I needed and didn’t know if I would receive if they went down, and of course, the actual balance sheet impact of MS stock, my own real estate and assets, etc. was hardly unaffected by everything, too (I received my deferred comp balance from UBS in the form of MS stock in early 2007 at $71/share – in Oct 2008 that stock was $9). So it was just a brutal period.

But you know what – it wasn’t that brutal. Because unlike many Americans, I had a job. And unlike almost every advisor in America, my income was not down 30% or 40% - it was up 20%. So two things can be true at once – it was a painful period, and one in which I had ample reason for gratitude for the good Lord’s provision.

So what does all this have to do with my journey towards a 2015 defection to independence and business ownership? In the aftermath of the financial crisis there was a significant angst towards the large Wall Street firms. They had not exactly crowned themselves in glory with their own stewardship of their balance sheets. Some were worse than others (Lehman, Bear, Citi), but all of it was an utterly mystifying display of hubris and idiocy. That said, a lot of the pile-on was misguided, class warfare driven, and somewhat confused. The firms levered up bad assets in a way no reasonable person can defend, but of course they only became bad assets because regular people stopped paying their bills, I couldn’t wrap my arms around the idea that this was all Wall Street’s fault, because it wasn’t. More on that later (it will become important to the story of our success as an independent firm).

2009 and the years that followed were no time to start an entrepreneurial journey. I felt a little bit like what I imagine it would feel to go through a war with someone (the analogy is awful, but it is all I got since I have never worn a uniform). My Morgan Stanley people were my people, they were who I went through the GFC of 2008 with, and that mattered to me. By 2010 I now had three children under the age of five, I was now a Managing Director at the firm, and I was growing, working hard, and taking clients hand over fist from other advisors who had not taken the same approach to the 2008 period that I had (in terms of client touch, robust engagement, portfolio philosophy, written and verbal communication, and tenacious prospecting). I was not thrilled with how Morgan Stanley behaved 2004-2007 to endanger their survival, but I was blown away by the steps Mack, Kelleher, and Gorman took to save the firm in 2008. I had branch managers I liked. I just wasn’t in a mindset of defection, and realty didn’t know anything about independence (yet).

2010-2013 were robust periods of growth, net new asset growth (amongst the tops in the country each year at least at that firm and certainly in my own complex), and there was finally a little branch stability in management (I had four managers from 2007 until 2009, but that fourth would last through the end of my time there). Life stabilized. Income stabilized. My balance sheet repaired. And I have no regrets whatsoever at NOT leaving to start my own firm in that period. In those years I also added Brian Szytel to my team as an additional advisor (junior partner role), and I became best friends with my local manager, who to this day is like a brother to me. By 2014 I had eight people on my team, including Kimberlee Davis and Robert Graham, who are partners at TBG today and would be a key part of our 2015 defection.

In 2014 a lot in my life and journey began to change. I was turning forty years old. I now was large enough in my team’s maturity to realize the advantages of a brand, team, and real practice, but to also see the limits of doing this in the context of being a W2 employee at someone else’s company. I couldn’t really hire or fire as I wanted; I couldn’t really spend money as I wanted; I couldn’t really say what I wanted. I had a lot of freedom as a corner office producer at a huge firm, but I didn’t really have the freedom I wanted. My deal at Morgan was wrapping up and I didn’t need another wirehouse check. I had some decisions to make.

The then president of the wealth management division at Morgan Stanley and I had dinner in October of 2014. I asked him that night what he said when recruits asked him what the real, unique value proposition of Morgan Stanley was. He said, and I will never forget it, “our intellectual capital.” I thought it was an intensely honest answer. He didn’t pretend that the advantage was a better bond trading desk, or syndicate allocation, or more money managers on the platform, or a higher payout, or any other BS where every single person in our business knows that all of the big firms are the exact same. He said something that I have no doubt he believed to be true, and yet all at once I knew that it was not material to me. We managed money in-house in our group, we used MS research but not heavily, but never believed the intellectual capital was the basis of our relationship with the firm. I valued the local relationships, but even the culture of the firm was now naturally and organically, well, non-cultural. All of the firms spent the years post-crisis re-liquifying their now-broke advisors by giving each other big checks to move everyone around the street. It was the right thing to do for the firms, but it now meant each firm (from senior management, to local management, to advisors), was now 1/4^th Merrill, 1/4^th Morgan/Smith Barney, 1/4^th UBS, and 1/4^th Wells. The cross pollination was needed to keep advisors and their books in all the firms, but culture could no longer be a selling point.

And I mentioned I was forty. I was facing an existential crisis. What did I want to do with the rest of my life in this business? I was making great income, and I felt like I was building wealth (deferred comp and all that – I had no idea how inferior that all was to the actuality of enterprise value in my own firm, but that awareness would come later), and I got along great with my local managers. But I could not really serve clients the way I wanted to, I could not run my team the way I wanted to, and something felt inadequate. It felt really inadequate. I began an extensive process into understanding the world of independence. I met with everyone you could imagine. The so-called aggregators were becoming a thing (Hightower, Focus, Dynasty). I met with the custodians. I met with friends who had done the trek to independence. I tried and tried to understand what that world was like.

I became enamored with the fiduciary standard, and my core belief that an advisor works for who pays them. I wanted to work for my clients, legally, not just ethically, and I wanted the freedom to serve them with an entrepreneurial freedom that would benefit them in every aspect of the relationship. It just made so much sense to me, not merely as a talking point but as a core belief. Now, I should say this now because it is very important to me and I have not said it enough over the years: I far prefer an ethical advisor in a large firm with a somewhat conflicted model to an unethical advisor in an independent firm with an unconflicted model. Good advisors find ways to be good advisors. Bad advisors find ways to be bad advisors. But the separation of advice and custody seemed right to me, and the elimination of any revenue that did not come from clients was absolutely right to me.

It was all coming together. I brought Brian Szytel over the wall first, I believe in November of 2014. We traveled to several of the key meetings together and spent hours upon hours whiteboarding what all of this would look like. By late January we knew we were going to use the up and coming wirehouse liftout aggregator, Hightower, to launch our new business. We then brought the rest of the team over the wall, meeting at my then house in Newport Heights at 6:30 in the morning to discuss and plan. All eight of us were on board, and now all we had to do was work through the myriad of variables and planning, secure the office, and prepare for the transition, and be ready to go by our planned date in May of 2015.

At some point a wholesaler decided to tell someone at Morgan Stanley that they heard we were leaving, and so that wholesaler has now cost himself a career’s worth of money (you know who you are, $&%^), and we had to go quicker than expected. The second half of March saw us really pull things together, and on April 1 I met up with the transition team from Fidelity (the primary custodian we chose) and a couple people from Hightower at the temp office we had created as our transition war room at 4675 MacArthur. I checked into the Le Meridien Hotel next door where I would stay for the next ten nights, and on the morning of April 2 at the crack of dawn I met my manager to hand in the resignation letters of me and my team. Within an hour we were on the phones talking to clients, and we would do that non-stop for hours upon hours an days upon days until we had completed the transition.

In the end, we brought over every single client we invited to join us, moved $560 million of client assets within six weeks (maybe less), and by the end of April our actual home at the office I had selected back in February was ready for our occupancy (at 520 Newport Center Drive). At that time we took 3,500 square feet on the fifth floor. Ten years later, we have 17,000 square feet (the entire third floor), and it has been our HOME. I mean, a HOME. No words for the memories we have made in this building.

But it is a weird story to go straight from April 2, 2015, one office, eight people, and $560 million, to ten years later and where we are today. A lot transpired along the way that represents the defining part of our story up until now. First of all, the initial months of independent life were hard. Expenses were greater than expected, we wanted and needed some additional hires, and we were still getting used to different technology, different tools, and different systems. In hindsight it was all small-ball stuff, but it felt like a big deal at the time.

We truly did have greater resources to serve clients. We told our story well, and I continued doing what I had always done in terms of client dinners, lots of speaking, and lots of writing. But now, instead of the weekly email blast to clients of 2008-2014 that I didn’t even run through compliance, we had incubated a Dividend Café brand, a website, a content portal, real social media properties, a video channel, and a podcast (I think a couple of these things came a tad after some of the others, but it was all in 2015 and then 2016). And then two other things happened that could never have happened had we not taken the plunge …

1. I got invited to do a TV hit, and after I did it, I got invited to do another, and another, and another. And much more importantly …

2. A publisher signed me for my book on the financial crisis

Now, as for #1, I will do another B2Bahnsen post some day about the misunderstandings of media when it comes to our business. I did television quite regularly for over a year before we ever heard a single word from someone reaching out to us, interested in our services. What the benefits of media are, and are not, for an advisor and their growth will be a future subject to tackle, but this became an early part of our story. But that #2 thing meant that I got to write my version of the financial crisis, the moral and cultural crisis that it was, and do so with freedom disconnected from the responsibilities I would have to my former employer. That book became a passion project for me, and unbeknownst to me at the time, would open up a lot of doors for how I think about content and platform (also a future B2Bahnsen post).

By 2017 and into 2018 we had several advisors doing business development, not just me and Brian. We had a real bench of talent across our advisory team, and we had grown our operations and other services (marginally). My book came out in early 2018, we had opened an office in New York City, I was doing a fair amount of television, and we had sailed through the $1 billion asset mark and felt that $2 billion was a good new goal to have.

And then in 2018 Hightower sold itself to new investors. This would become an equally key milestone in our future as a business. From 2015 through 2018 we had a particular contractual relationship with Hightower that served us well for our transition and served them well as a growing aggregator of wirehouse liftouts. But as they brought on new investors, a new business strategy, and shortly thereafter a new CEO, I took this moment to re-structure our relationship with Hightower. We brought all human resources, payroll, finance, facilities, benefits, branding, marketing, investment solutions, and so forth in house – and became the sole stakeholder in our own P&L. We also entered into a permanent affiliation with them that gave them the right visibility to long-term economics from us in exchange for the services we most wanted from them (technology, some back and middle office, and supervision/compliance). But it helped to solidly clarify in the marketplace are independence as a brand, business, and going concern. They were still our partners and friends, and still are to this day, and it has been an extremely positive relationship – but we right-sized the re-customized the arrangement to what we knew made the most sense for The Bahnsen Group in 2018. We maintain full ownership of our business and 100% control and autonomy, yet sit under their corporate ADV for supervision, and utilize much of their robust technology suite for our business operations. A true win-win borne out of the summer of 2018 that really catalyzed our business.

I am sure I have gone on too long already, but let me wrap all of this up. In the years that would follow The Bahnsen Group has meticulously focused on serving clients. Our touch points, our communication commitments, the breadth and depth of services we offer, and the very particular and bespoke investment philosophy we advocate and utilize – all gave us something special. For every $500,000 of new revenue we have generated (run rate) we have hired a new employee, and that ratio continues (more or less) to this day. The freedom of independence allowed us to create a platform of content that we believe in – from dividend growth (and the book that I put out on the subject in 2019) to economics to politics to culture to faith to so much more. Our partners have their own content platforms where so desired, and our people are all truly empowered to flourish in the organization. We felt we needed more robust planning so we built out a planning team (our advisors all have dedicated planners that are a cost center to the firm to help drive a massive planning experience for our clients). I don’t want to spoil future B2Bahnsen posts but we added a holistic family office in 2022 and a fully comprehensive tax division going into 2023. We began opening other offices around the country in 2021 to better serve clients on the ground where we had a client nucleus and where we could find or place like-minded advisor talent. The third office opened in the summer of 2021 in Minneapolis, and Nashville would follow six months later. The success stories those two expansions have been represent their own posts some day.

Contrary to popular belief, there is not a ton of operating leverage in this business. If we are to serve clients the way we want to serve them and continue to deliver the client experience we believe in, costs pretty much rise at the same pace that revenue does. We grow profits as we grow revenues, but margins don’t expand (though at least they do hold). That said, the pricing power has been robust, and while we serve a much larger end of the market than we did at Morgan Stanley, our ability to deliver value and offer competitive fee structures has been unimpaired.

I could talk about the ETF we launched in 2023 or the myriad of offices opened since the Minnesota and Tennessee experiments. I could talk about the Risk department we stood up a few years ago to better assess and serve client’s insurance needs, the Content department that curates unspeakable volume of digital content across all of our mediums, the growth of that audience for our content, the maturity of our leadership team to run a real organization, and the steadfast loyalty of our clients through it all, whom we love dearly.

But all I want to say today is to never despise the day of small beginnings (Zech. 4:10). We started ten years ago today utterly thrilled to embark on a new journey. It surpassed our wildest expectations. We sit here now still thrilled to be on this journey, and completely convinced our best days are ahead. Our core principles are in tact, and no matter what type of firm, practice, or structure you have, that is all I have to say to close this out. Hold on to your core principles, and wonderful anniversary events lie in wait for you, too.