Joe Duran

Duran Duranblog

Joe Duran

Three big effects of the shifting broker protocol

More firms will exit the protocol as technology changes the game, and clients will reap the rewards

Dec 13, 2017 @ 10:00 am

By Joe Duran

About a month ago, Morgan Stanley announced it was leaving the protocol. A few weeks later, UBS followed suit. The protocol is the mutual agreement that lays the ground rules for advisers to leave their existing brokerage firm and take specified client data with them.

Launched in 2004 between Smith Barney, Merrill Lynch and UBS (Morgan Stanley joined a couple of years later), the protocol was intended to reduce litigation among member firms and to protect client information privacy. The list of participants has mushroomed to over 1,500 firms today.


The official line by Morgan Stanley is that they left the agreement to invest more in their existing advisers (and escape the other participants that are gaming the system). However, many in the industry suspect this was really about stemming the tide of departing advisers.

The original intent was for the big three (later the big four) firms to reduce internal frictional costs and legal fees for their recruiting efforts among each other. A lot has changed over that time. The protocol accelerated the overall trend of advisers transitioning to independence and has been a boon to an entire industry built to support them.

(More: Morgan Stanley will boost savings with broker-protocol exit, UBS analysts say.)

In addition, this flood of clients has also led to a revolution in pricing and transparency. The major brokerage firms still control over 30% of the available wealth management assets — $6.5 trillion of $28 trillion, according to Cerulli Associates. What they do has massive trickle effects.


As someone who has a vested interest in what happens and as a student of the industry, my impression is that there will be three likely outcomes of these initial departures from the protocol:

1. They are the first dominos to fall and others will eventually join. Those firms that do not have a high payout, independent solution to provide advisers will have every incentive to pull up the drawbridge and protect their distribution channels. That includes Merrill Lynch, even though it currently denies plans to leave. Other large participants like Raymond James could stay for the time being because they can compete and take full service firms into their independent channel or their custodian.

Firms like Wells Fargo, Stifel and RBC have to make a tough choice. It's an economic calculation: Are we net winners or losers if we stay? Initially staying in the protocol might make it easier to recruit for some, but eventually we hit a tipping point. The more firms that leave, the more the remaining participants become targets and net losers — and ultimately depart.

2. The trend won't change but the landscape will. For over a decade, the breakaway flow has been quite one-sided, and that flow of assets has spawned remarkable advancements in the solutions available. Independent advisers can now deliver a full-service modern experience at competitive prices and yet make more money than they did at the bulge bracket firms.

There is an entire industry of solutions built to support the independent adviser: from full-service brokerage platforms like Dynasty and HighTower, to investment specialized platforms like Envestnet and Orion, to the sophisticated planning and reporting solutions from eMoney and MoneyGuidePro, to Black Diamond and Morningstar.

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

Office operational systems like Salesforce drive efficiency and take back office modernization beyond where most brokerage firms exist today. Departing from the protocol might make moving more cumbersome for advisers and clients, but technology keeps reducing switching costs and making it easier than ever to be independent. Many of the most interesting innovations can be more easily implemented in nimble, independent firms.

3. The consumer will continue to win. We are never going back to the old days of reduced transparency and higher fees. Mega brands like Vanguard, Blackrock, Schwab and Fidelity have the reach, scale and brand recognition to offer wealth management at competitive pricing direct to consumers. They are shaping the future of the industry.

There is also a rising breed of large independent RIA firms taking the client relationship to new places. None are encumbered by an expensive existing legacy distribution model. Everyone is subject to the ever-pressing consumerization of our industry. The trend toward lower costs, a memorable and scalable client experience and the ever-increasing power of the client will continue.


Obviously, as a CEO of a national RIA and a wealth management platform, I'm hardly an objective participant in the debate. Nonetheless, unlike many of the voices in the industry, I don't think of the move to leave the protocol as an effort by the large wirehouses to fight change by going backwards.

Departing the protocol is an opportunity for those firms to protect their business while they redefine themselves and retool to become better competitors in the future. They have plenty of smart people and lots of money. Don't bet against them.

Joe Duran is founder and chief executive of United Capital. Follow him @DuranMoney.


What do you think?

View comments

Recommended for you

Sponsored financial news

B-D Data Center

Use InvestmentNews' B-D Data Center to find exclusive information and intelligence about the independent broker-dealer industry.

Rank Broker-dealers by

Upcoming Event

Apr 30


Retirement Income Summit

Join InvestmentNews at the 12th annual Retirement Income Summit - the industry's premier retirement planning conference.Much has changed - and much remains to be learned. Attend and discuss how the future is full of opportunity for ... Learn more

Featured video


The power of data

Your clients have financial news and data at their fingertips, but donít know how to interpret it. Katy Gibson of Envestnet|Yodlee and Blake Kannady of Envestnet discuss the power of leveraging aggregated data.

Recommended Video

Path to growth

Latest news & opinion

Morgan Stanley's wealth management fees climb to all-time high

Improvement reflect firm's shift of more clients into fee-based accounts priced on asset levels, which boosts results as markets rise.

Legislation would make it harder for investors to sue mutual funds over high fees

A plaintiff would have to state in their initial complaint why fiduciary duty was breached, and then prove the violation with 'clear and convincing evidence.'

Relying on trainees, Merrill Lynch boosts adviser headcount in 2017

Questions remain about long-term effectiveness of wirehouse's move away from recruiting experienced brokers.

Supreme Court review of SEC judges could roil pending cases

But long-term, the agency may get around questions of constitutionality by changing the way it brings on administrative law judges.

Lightyear Capital takes 50% stake in $9 billion HPM Partners

Private equity backing could fuel acquisitions by the large RIA.


Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting It'll help us continue to serve you.

Yes, show me how to whitelist

Ad blocker detected. Please whitelist us or give premium a try.


Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print