Has Bank of America Corp. upped the ante in the battle between the wirehouses and the independent advisory firms gunning for their top producers?
A document obtained by Bloomberg News last week suggested that a new employee agreement at the bank's U.S. Trust division will dramatically change the rules under which advisers can leave the firm and solicit clients to join them.
U.S. Trust was purchased by Bank of America in 2006 and is one part of the wealth management division run by Sallie Krawcheck. The division also includes Merrill Lynch purchased in 2008.
The new policy requires departing advisers to take a “garden leave” from the firm of up to 60 days, during which time the firm can assign (or not assign) them any duties.
They would forfeit any bonuses due to them and would have to wait six months before soliciting their former clients.
Employees also must agree that they aren't subject to the so-called broker protocol, a voluntary recruiting agreement that allows departing advisers to solicit clients without getting sued.
“Your employment is further conditioned upon your agreeing” to the terms of the letter, Bank of America wrote last week. “Should you not comply with these terms, you agree that the company shall have the right to enforce them” through court-ordered actions.
Such restrictions are highly unusual for financial advisers, said Andy Tasnady, president of the compensation consultant firm Tasnady & Associates.
The new rules come three months after Michael Brown, a U.S. Trust adviser reportedly managing $5.9 billion in client assets, left the firm for Dynasty Financial Partners — one of the more aggressive independent advisory firms targeting high-end producers.
Whether U.S. Trust advisers were part of the protocol was disputed in the lawsuit Bank of America filed against Mr. Brown and three of his colleagues in December.
The bank settled the case in January for undisclosed terms.
“They're sending the message, "Make no mistake, you will incur our wrath, this is not a place you want to leave,'” said Mindy Diamond, president of Diamond Consultants LLC, an executive search firm. “It's very rare that a company would have garden leave provisions for producers, and I think this could backfire if people view it as Draconian.”
Indeed, the new U.S. Trust policy “could hobble their efforts in recruiting,” said Jonathan Henschen, a broker recruiter. “If you have to wait eight months before you can approach your old clients, it will drastically affect your client-retention rate in the first year. People will look at that and say, "I'm not going there.'”
The new policy pertains to workers including private client advisers, portfolio managers and trust officers, according to the document. Garden leave is typically part of employment contracts for senior executives, not employees who deal with clients face to face, Ms. Diamond said.
ENTICEMENTS HIGH
Enticements to depart a firm are at “an all-time high” with compensation packages at the biggest brokerages worth as much as 350% of an adviser's trailing 12-month revenue, Ms. Diamond said.
The Bloomberg report exaggerates the significance of the new agreement, said Susan Thomson, a spokeswoman for U.S. Trust.
“This was simply a streamlining of two existing policies at U.S. Trust that now cover more employees,” Ms. Thomson said.
She noted that the agreement does not apply to Bank of America Merrill Lynch, which along with Smith Barney and UBS Financial Services drafted the so-called broker-recruiting protocol in 2004.
The protocol stipulated that as long as departing brokers or advisers follow certain rules, they won't get sued.
The most significant rule bars departing adviser from disclosing client information to the new firm before the client agrees to move his or her assets. For the most part, the protocol has worked well since then.
However, U.S. Trust has never followed the broker protocol.
“The firm has a team-based approach to client service,” Ms. Thomson said. “An adviser only services a small piece of a client's assets here.”
The tough policies at U.S. Trust don't sit well with some recruiters.
“For U.S. Trust to say they own a client account is ridiculous,” said Danny Sarch, president of Leitner Sarch Consultants. “They have to compete for the client's business.”
As for the new policies' signaling a more combative approach by Bank of America with poaching independents, that's not the case, said Ms. Thomson.
“We lost a total of 36 advisers across the whole bank to independent firms last year,” she said.
This story was supplemented with reporting from Bloomberg News.
E-mail Andrew Osterland at [email protected].
