Securities industry recruiters believe that Merrill Lynch will be the next wirehouse to drop the broker protocol for recruiting, as working under the agreement allows Merrill's Thundering Herd too much leeway to take off for greener pastures.
UBS Wealth Management Americas on Monday told its almost 7,000 advisers it was leaving the protocol at the end of this week. The protocol was established in 2004 by a handful of large firms but picked up by many smaller ones, and that has opened the floodgates for brokers to leave firms. UBS followed the lead of Morgan Stanley, which told its employees at the end of October it would no longer work under the protocol.
And industry recruiters, who work closely with the big four wirehouses, say that Merrill is more likely than Wells Fargo Advisors, the only other wirehouse left, to dump the protocol. A key reason is that Merrill's move in May to step away from the traditional recruitment model was similar to the decisions made around the same time by Morgan Stanley and a year earlier by UBS. Merrill is likely to behave in a similar manner regarding the protocol, they said. And Wells Fargo Advisors needs to continue to recruit; this year, it has seen brokers leave the firm after scandals at the parent bank proved embarrassing.
Hanging over brokers looking to change firms before the end of the year is an industry deadline of December 26, which is the last day of the year brokers have to submit registration information for the new year to the Financial Industry Regulatory Authority Inc.
"I think Merrill Lynch will leave before the Finra black out," said Casey Knight, executive vice president, ESP Financial Search. "Wells Fargo will stick with protocol for well into next year and suffer greatly from attrition while doing their best to recruit."
"I think Merrill will be the next to leave the protocol," agreed Michael King, an industry recruiter. "Wells Fargo needs to recruit.
A Merrill Lynch spokeswoman, Susan McCabe, said she had no comment. A Wells Fargo spokeswoman, Emily Acquisto, also had no comment.
Paying advisers' bonuses is expensive, and many in the industry think that the large wirehouse firms are losing more brokers to RIAs and independent broker-dealers through attrition than they are gaining from recruiting.
While none of the recruiters said they had firsthand knowledge of such a change at Merrill, they said it could happen within the next week or two.
"Merrill will be the next shoe to drop in the next days or weeks," said Louis Diamond, vice president at Diamond Consultants. "Along with UBS and Morgan Stanley, Merrill has said that they would focus more on organic growth, and bringing in young people and trainees. Merrill stands to lose by far the most for staying in the protocol, particularly as their biggest rivals, Morgan Stanley and UBS, are no longer in it."
It strikes me that Merrill is the one that has a minor league team, with advisers working on its Merrill Edge online platform," said Danny Sarch, an industry recruiter. "Merrill has the bodies to grow without recruiting, so they are most likely to leave because they can grow from training."
The protocol allows brokers who leave firms to carry a limited amount of client information to a new firm without the fear of being sued. Dropping the protocol means brokers leave themselves open to lawsuits when changing firms as the former employer fights for advisers' client accounts.
"I think there is little doubt we are seeing the end of the protocol," said Joe Duran, CEO of United Capital. "There is very little incentive to stay in it if you are a net loser of advisers."
"The agreement was originally established to end legal fees but has morphed into something different, a way for thousands of independent broker-dealers and RIAs to poach advisers form wirehouses," he said. "There is no big incentive for Wells Fargo or Merrill to stay in it."