As firms pull out of protocol agreement, wirehouse brokers show more interest in breaking away: execs

Firms such as Dynasty Financial Partners and Raymond James have seen an uptick in engagement among wirehouse brokers

Dec 8, 2017 @ 12:00 pm

By Greg Iacurci

As the broker protocol recruiting agreement increasingly becomes endangered, more wirehouse brokers are making inquiries about becoming independent advisers, according to industry executives with knowledge of such activity.

Firms such as Dynasty Financial Partners and HighTower, which provide services to help brokers at wirehouses become independent registered investment advisers, have seen an upward trend in internal metrics measuring adviser activity after Morgan Stanley and UBS announced in recent weeks that they were pulling out of the broker protocol.

"In the last 60 days, we had 75 leads, direct call-ins and inquiries to our website, said Shirl Penney, president and CEO of Dynasty, which provides a service platform for independent advisers and offers transition financing. "That's an uptick of about 50% from the previous 60 days."

Nearly all of the advisers hail from the wirehouses — the wealth management divisions of Morgan Stanley, UBS, Merrill Lynch and Wells Fargo — according to Mr. Penney, who said the advisers are seeking to make a move or understand what the protocol is and how it affects them.

"It's been a catalyst for engagement," Mr. Penney said. "Before someone breaks away, they call in to get educated."

Kimberly Papedis, head of national sales and platform strategy at HighTower, also said their volume of adviser activity had elevated beyond average metrics, but couldn't immediately quantify that volume.

The protocol, known formally as the Protocol for Broker Recruiting, is a voluntary agreement among brokerage houses that provides guidelines for advisers to leave for a competitor without getting into legal trouble for contacting their old clients. More than 1,500 firms currently participate.

At the heart of issue is the question of who legally owns the client — is it the adviser or the brokerage?

Leaving the protocol now makes it more likely Morgan Stanley and UBS will sue departing advisers in an attempt to prevent the advisers from taking their clients with them. And that makes some adviser skittish — even at firms such as Merrill Lynch, which said it would not be leaving the protocol, and Wells Fargo Advisors, which experts believe is likely to remain, at least in the near term.

"Merrill has said they're not leaving it," said Joe Duran, CEO of United Capital, which acquires investment advisory firms. "But certainly I suspect any adviser joining Merrill is asking themselves the question, 'will it remain this way?' "

Tash Elwyn, president of the private client group at Raymond James & Associates, said anxiety among wirehouse brokers has been beneficial to his firm from a recruiting standpoint. Raymond James, unlike the wirehouses, provides in contractual agreements that the adviser, not the firm, owns the client relationship.

"There's no doubt this is creating concern, and concern is creating interest, and the interest is creating movement to Raymond James," Mr. Elwyn said, though he declined to quantify that movement.

Industry observers also noted that the Morgan Stanley and UBS announcements, made on Oct. 30 and Nov. 27, respectively, sped up deals currently being negotiated, so advisers could leave before Morgan and UBS officially exited the protocol.

"People moving would be those who've done 90% of the work and were ready to hand in their resignation," Mr. Duran said.

J.P. Morgan Securities, for example, has picked up eight adviser teams from Morgan Stanley with about$7.5 billion in combined assets since October. Three UBS teams with at least $1.3 billion in combined assets have also joined in that period.

A spokeswoman declined to quantify on how this activity compared with the months pre-protocol-announcement.

"In-transition advisers certainly accelerated their move to do so under protocol," Ms. Papedis said. "For those advisers who never thought of it before, it raises many questions."

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