Welcome to the Post-Protocol Era

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Almost exactly one year removed from the “Department of Labor’s FAQ Day” on October 27, 2016, here we are at another one of those, “you’ll remember where you were” moments.

October 30, 2017, the day Morgan Stanley said it was leaving the Protocol for Advisor Recruiting.

What does it all mean? Well, it clearly and definitively ushers in a new era in recruiting. Protocol has been dying a death by a thousand cuts.

Advisor Protocol was birthed in 2004 as an agreement between UBS, Merrill Lynch and Smith Barney as a sort of Geneva Convention to bring rules of engagement to the blood sport of recruiting.

The Protocol worked as designed for about 5 or 6 years, lowering legal costs and keeping clients removed from the ugly tug-of-war (for the most part), but as hundreds of other legal entities signed onto the Protocol, it started to drift away from its intended purpose. More and more small broker-dealers and registered investment advisors were signing on for the sole intent of being able to feed off the original signatories’ advisors.

HighTower, founded in 2007, upended the traditional recruiting war by providing an entirely new “hybrid” channel; soon enough the term “breakaway broker” became ubiquitous in the wealth management nomenclature.  Yes, of course, HighTower signed the Protocol. Suddenly the wirehouses were facing an adversary who literally had nothing to lose. The Protocol was designed as guard rails for recruiting’s two-way street.  HighTower and mega roll-up firm Focus Financial Partners represented one-way streets.  Breakaway brokers were going TO these new-channel firms, never FROM.

Compliance consulting firms like MarketCounsel created a cottage industry of structuring protocol-compliant RIAs for these breakaway advisors to land in when they jumped ship.  Now with 1,600-member entities, Protocol has become a Get-Out-Of-Jail Free card for wirehouse advisors looking to join an RIA or start their own.

“Over time the Protocol has become replete with opportunities for gamesmanship and loopholes: firms have opportunistically joined the Protocol to make a strategic hire and then dropped out,” Morgan Stanley said in announcing its decision on Monday.

Frankly I’m surprised that the original signatories (now including Morgan Stanley) had stayed in the protocol this long. And with Morgan Stanley being the first mover, I am sure that all others are watching and calculating whether they are better off without the advisor protocol (if they weren’t already on the same path).

What is the near-term effect on recruiting? To quote a branch manager friend of mine, “This definitely slows traffic in and out of Morgan Stanley.” The long-term impact depends on whether the other firms are also willing to slow their traffic and acknowledge there’s more to gain by staying out of the recruiting wars. If you’re wondering whether that’s likely, look how quickly they all moved to cut recruiting deals after the DOL FAQ guidance last year.

Free Agency may have taken a body blow today, but you can rest assured that top advisors and teams will always have BIG offers being shown to them. And just like pre-2004, big advisors are always free to work wherever they want to work, and bring their clients with them. Advisors leave Edward Jones, J.P. Morgan’s private bank, Goldman Sachs (Goldman Sachs Wealth Rainmaker Frank Ghali Resigns, Forms RIA), and other firms all the time without Protocol protections.

Will advisors leaving or going to Morgan Stanley today need a bit more legal advice before moving? Yes. Will some firms have to set aside extra monies to cover legal costs when hiring advisors from Morgan Stanley? Also, likely.

What everyone will need to figure out is how an advisor/team can leave their current firm and have their clients DECIDE to follow them.

Welcome to the post-Protocol era. Free Agency has a new look, but the Free Market is alive and well.

Jeffrey Bischoff, President and Founder of , has more than 25 years of experience in executive recruitment in the financial services industry. He was previously Head of Recruiting for Private Wealth Management at UBS Wealth Management Americas and prior to that held senior recruiting roles at Smith Barney and Oppenheimer & Co. Connect with him via e-mail at jeff@oldgreenwichconsultants.com

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Comments (3)
  • maybe this is good. It will take a nasty lawsuit that actually prevents a client from having the ability to have free will to create a massive ruckus. Then some opportunist politician will bring the big wires in front of congress to grill them and the practice of the wires thinking joe client belongs to them will end. If the clients knew that MS claimed that they belonged to MS…wouldnt be good.

    • This is just a ploy to try to gain ownership of the Wirehouse clients. UBS Salary for IRAs. Endless pressure to sell high margin lending products. My ex manager demanded that I call an 86 year old in a nursing home to sell him a credit line!!!! The wires are bleeding FAs and assets and can not figure out why. I worked for a Wire for 17 years before I made a move. For those reading this there are firms with honest client centric cultures. Put down the cool aide.

  • The biggest advisors will still be able to move their book almost as easily if they were part of protocol. Why are they big? They are big because they have great relationships with THEIR clients. Also, they probably have 100 to 200 households of high net-worth individuals versus the 300K producer still running and gunning, taking every client that comes to them and with very few deep-rooted relationships developed–yet.
    Most advisors give their cell phone number to their best clients. What do you think happens when that client gets a call from some knucklehead at Morgan Stanley begging them to stay because their advisor “was asked to leave but I don’t know why” calls them on a Friday afternoon. That client is going to be calling the advisor immediately to ask what is going on. Guess what, the advisor has now not solicited the client. The advisor can say “I left and went to XYZ”. The client will ask “Can I go as well?”. The minute that client calls the advisor and asks them where he is going, it is not a solicitation.
    Lastly, this will lead to many more lawsuits AGAINST Morgan Stanley by the advisor that has left. We all know the advisors that inherit these accounts on Friday always act ambiguous about why the advisor left in order to make it seem like the advisor might be in trouble. If I am an advisor that leaves and I find out that my old “friends” from MS are passively aggressively bad-mouthing me to my clients, I am filing a defamation of character lawsuit.
    I don’t know how many more times MS advisors (and other wirehouse advisors) need to be beaten over the head by their “mother ship” before they realize that no one at your firm gives a crap about you. Its a scary step with many potholes but take the plunge and look for another model. 5 years from now you will look back and say “I should have done that 15 years ago.

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