Duran 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

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

Nov 13


Best Practices Workshop

For the sixth year, InvestmentNews will host the Best Practices Workshop & Awards, bringing together the industry’s top-performing and most influential firms in one room for a full-day. This exclusive workshop and awards program for the... Learn more

Featured video


Ron Carson: If you aren't growing you're dying

There are two group of advisers, according to Ron Carson: Those that are expanding and those that are just "hanging on." So, which group do you belong to?

Latest news & opinion

LPL rolls back recruiting policy aimed at driving more assets to its corporate RIA

LPL erases $50 million hurdle for new advisers to join so-called hybrid firms.

Don't be fooled by the numbers — the industry is in a dangerously vulnerable state

Last year's stock market gains helped advisers turn in solid growth in assets and revenue, but that growth could disappear in the next market downturn.

Divided we stand: How financial advisers view President Trump

InvestmentNews poll finds 49.2% approve of his performance, while 46.7% disapprove. How has that changed over the course of his presidency?

10 states with the most college student debt

Residents of these states have the most student debt when you consider their job opportunities.

Ex-Wells Fargo brokers sue for damages, claiming they lost business in wake of scandals

In a Finra arbitration complaint, two brokers allege that Wells Fargo's problems damaged their business.


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 investmentnews.com? It'll help us continue to serve you.

Yes, show me how to whitelist investmentnews.com

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


Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print