Jerry Seinfeld has a routine, a "bit", where he makes fun of fans of professional sports. When a player is part of the team you root for, you cheer him on. When he departs, you scream that he's a bum. In fact, he says, you actually are just rooting for the laundry, not the people.
Well, with UBS' exit from the broker protocol, it looks like the wealth management industry is becoming Seinfeldian. According to the UBS and Morgan Stanley announcements, these firms believe that their advisers are the "best" and "world class."
The clients of Morgan Stanley and UBS were most likely brought into their respective firms by the efforts of their advisers. The clients were presumably serviced and nurtured in a "world class" way by those same advisers. But the implicit threat in leaving the protocol is that if you choose to "change uniforms" you will be enjoined from talking to those clients again.
Anyone else wearing that same "old uniform" is presumably just as capable of servicing that same client. The hypocrisy is overwhelming: While the adviser is "playing" for his old firm, nothing is as important as the relationship that the adviser has with the client. "Know your client" is the industry mantra.
But if that same adviser decides to leave, the old firm will sell to the client that any old adviser from the old firm is just as capable as the adviser who has departed – and take legal action that prevents the old adviser from explaining his or her decision to leave.
Let's ask the wirehouses how they actually decide who gets the clients of a departed adviser. Are the needs of the client truly considered? The reality is that the accounts are distributed in a way that is considered equitable to all of the advisers at the old firm, and what is best for the client is not even part of the criteria.
It is true that before the protocol was instituted, advisers did move from firm to firm. Those days, however, also predated the current privacy laws. In 2003, when an adviser departed, he or she copied every one of their clients' statements and gave them to their new firm prior to their joining the new firm. Virtually nobody does that today.
The protocol was designed to protect the privacy of client data while also keeping firms out of litigation. In today's world, without a protocol and with strict client privacy protection, advisers who choose to change firms presumably will be enjoined from taking even the names and contact information of their clients.
So, what happens next? Even the most cynical, anti-recruiting, wealth management executive will acknowledge that the intense recruiting environment of recent years has made firms better. Competition breeds improvement.
Wealth management services to clients are infinitely better than they were even 10 years ago. With diminished competition, innovation that benefits clients will slow. And, in a world where fewer advisers move, where firms are saying that the "brand" is bigger than the adviser, adviser compensation will come down.
To those firms who have left the protocol or who are considering doing so: You are making a few giant bets.
First, you are expecting (hoping?) that your aging advisers will successfully transition their practices to younger advisers at your current firm. Second, you assume you can still recruit both rookies and experienced advisers to your firm. Third, you think that your culture of entrepreneurialism will survive payout cuts and litigation publicity.
Finally, you are betting that when regulators question you on how legally preventing a client from talking to his or her trusted adviser is good for that client, that you will have a plausible explanation.
Just show them the Seinfeld clip: "It's not about the adviser, Mr. Regulator. It's about the laundry."
Danny Sarch is the founder and owner of Leitner Sarch Consultants, a wealth management recruiting firm based in White Plains, N.Y.