Independents take advantage of recruitment 'protocol'

DEC 01, 2008
To attract disaffected wirehouse reps, more independent financial firms are signing on to the industry's recruitment protocol. More than 100 firms have signed the recruiting pact since Citigroup Inc., Merrill Lynch & Co. Inc. and UBS Financial Services Inc., all of New York, started it in 2004. Sixty-eight of the signatory firms have joined just this year. Wachovia Securities LLC of St. Louis and Morgan Stanley of New York came on board in 2006. "We signed [in September after] being approached by an existing [wirehouse] broker to smooth the transition ... in case he came," said Brian Roberts, a partner at Nelson Roberts Investment Advisors LLC in East Palo Alto, Calif. That rep has yet to come over, but Mr. Roberts said the advisory firm, which manages $200 million, is still interested in hiring some breakaway brokers. Adding another $50 million to $100 million in assets is "extremely profitable" for a firm such as Nelson Roberts, he said, since operating costs are already covered. Mr. Roberts isn't alone. Independent firms' looking to pick up wirehouse brokers is "a good part" of the reason so many smaller firms have signed on, said Patrick J. Burns Jr., a lawyer with an eponymous Beverly Hills, Calif., firm who works with brokers who are going independent. One notable signatory this year was HighTower Securities LLC of Chicago, which is targeting breakaway brokers (InvestmentNews, Nov. 16). The firm's backers include Philip J. Purcell, former chief executive of Morgan Stanley, and David S. Pottruck, former chief executive of The Charles Schwab Corp. of San Francisco. Independents have signed on to the recruitment pact "because it's easier for them to hire people if they're part of the protocol," said Susan Guerette, a Philadelphia-based attorney with Fisher & Phillips LLP of Atlanta. The signatory firms agree not to sue departing brokers who follow the protocol. Brokers and advisers moving from one protocol firm to another are able to take and use customer contact information. In another twist, breakaway brokers are also setting up their own firms and then signing the protocol. "We're seeing a lot of that," Ms. Guerette said. These new firms quietly set up their business under a "doing business as" name and often have their lawyer sign on to the protocol for them so their current firm doesn't get wind of their imminent departure. The process works for reps going to an independent-contractor firm or setting up their own registered in-vestment adviser firm, attorneys said. Prior to the protocol, startups "really had to have a nest egg to pay lawyers and any settlement" with their former firms, Ms. Guerette said. By contrast, wirehouses and independent-contractor firms often pick up settlement costs for new recruits. Ms. Guerette said she has started seeing more high-net-worth producers set up their own firms and take advantage of the protocol. "It started with smaller [advisers.] Now there are some with billions" of dollars under management, she said.

NO PUSH-BACK

So far, observers said, they have seen no push-back from the major industry players over reps who've left and taken advantage of the protocol. "That's been very surprising," Ms. Guerette said. "This isn't what [the big firms] had in mind" when they set up the protocol. If the big firms pulled or amended the protocol, it would "violate the spirit of the agreement," Mr. Burns said. The pact was intended to minimize the effect of employment litigation on clients, he said. Mr. Burns added that big insurance carriers and banks could join as well. "The protocol was not specifically written for a particular type of firm," he said. In order to mollify Merrill Lynch producers, Bank of America Corp. of Charlotte, N.C., which is acquiring Merrill, said this month that it will be joining. The first big bank or insurer to join would likely be worried about opening themselves up to poaching, Mr. Burns said. "Nobody wants to be first," he said. E-mail Dan Jamieson at [email protected].

Latest News

 Younger Americans fear AI's retirement impact, Thrivent finds
Younger Americans fear AI's retirement impact, Thrivent finds

AI-driven job fears are weighing on retirement confidence, especially among Gen Z and Millennials, Thrivent survey finds

FINRA spanks Centaurus with $1.1 million penalty over variable annuity switches
FINRA spanks Centaurus with $1.1 million penalty over variable annuity switches

It’s the second time in as many years regulators have penalized Centaurus Financial for lack of compliance with Reg BI.

Wells Fargo touts AI Teammate to streamline advisors’ workloads
Wells Fargo touts AI Teammate to streamline advisors’ workloads

AI Teammate is embedded within Wells Fargo’s Advisor Gateway desktop platform.

Advisor moves: &Partners reels in $524M RayJay team, Focus firm Eton Advisors welcomes Northern Trust alum
Advisor moves: &Partners reels in $524M RayJay team, Focus firm Eton Advisors welcomes Northern Trust alum

Elsewhere, Ameriprise added a $470 million Wells team in New York, while an ex-Morgan Stanley advisor bolsters UBS' Austin, Texas office.

The exit planning conversations advisors need to have with business owners
The exit planning conversations advisors need to have with business owners

Financial advisors play an essential role in helping small business owners navigate their transition out of the company — and into retirement.

SPONSORED Direct indexing webinar targets tax-loss harvesting amid market swings

Northern Trust’s Ken Lassner shows advisors how to convert volatility into after-tax portfolio gains

SPONSORED Who builds the income when the pension disappears?

Dan Biagini of American Equity says the steady decline of pensions, longer lifespans and a reset in interest rates are rewriting how advisors build retirement income