Some Morgan Stanley reps and advisers feel the firm has turned its back on them by dumping an industry agreement known as the protocol for broker recruiting.
On one hand, a portion of Morgan Stanley's 15,759 advisers are indifferent to
the decision and focused on business as usual during an era of record stock market highs, industry observers said. On the other, many of the firm's advisers are clearly unhappy with the decision, which was announced Monday, and feel it hampers their business prospects in the future, those people said.
Meanwhile, the broader industry continues to watch whether any of the three remaining wirehouses — Merrill Lynch,
UBS Financial Services Inc. and
Wells Fargo Advisor — follows Morgan Stanley's lead. Spokespeople from those companies said they had no comment about potentially leaving the protocol.
UNHAPPY ADVISERS
Conversations this week with a dozen Morgan Stanley advisers revealed unhappiness with the firm's decision, said Mark Albers, an industry consultant for moving advisers and a former Morgan Stanley adviser who eventually became an associate regional director.
"They were angry at the firm," Mr. Albers said. "A couple we had been speaking to, and they were already thinking about leaving. They didn't like the veiled threat."
"A bunch of Morgan Stanley people are furious," said Danny Sarch, an industry recruiter. "It means that Morgan Stanley could go to court and get a [temporary restraining order] against any adviser who leaves. What's Morgan Stanley's strategy now? It's like the Hotel California," he said, referring to the classic song by the Eagles. "You can check in but you can never leave."
A spokeswoman for Morgan Stanley, Margaret Draper, declined to comment.
(More: Morgan Stanley's broker protocol exit: How did we get here?)
Morgan Stanley told advisers and managers Monday it intended to withdraw from the protocol today. At the time, the firm said that as part of its effort to reduce recruiting and emphasize training it was pulling out of the agreement.
In an email, Morgan Stanley brokers were told that the firm would enforce client confidentiality and a one-year non-solicitation agreements.
Firms have not been following the spirit of the agreement, according to Morgan Stanley.
"Firms have opportunistically joined the protocol to make a strategic hire and then dropped out," according to the company statement. "Firms have invoked the benefits of the protocol when hiring while using non-protocol affiliates to circumvent the protocol when they lose talent."
The announcement was part of a wider statement about Morgan Stanley's efforts to support existing advisers. In May, Morgan Stanley said it was joining competitors like Merrill Lynch and UBS by reducing its reliance on recruiting advisers with big upfront bonuses and instead making changes that would emphasize building in-house staff.
BOTTOM LINE
The advisers Mr. Albers spoke to did not give Morgan Stanley's statements about bolstering their businesses much credence, he said. "They didn't believe the firm would do anything to help them. The belief is that the bottom line is the most important thing," he said.
"From our feedback, Morgan Stanley's message was one of intimidation," Mr. Albers said. "If it wasn't meant that way, that's the way it was taken. And I have nothing against Morgan Stanley."
Andrew Mies, a former Morgan Stanley adviser who left last year to start an RIA, said he suspected one of the large firms would leave the broker protocol agreement, thus making it much more difficult for an adviser to leave because of the threat of a lawsuit.
(More: Did Morgan Stanley just kill the broker protocol agreement?)
"One of the reasons we decided to go in 2016 was because we were afraid one of the big guys would decide to leave the protocol," said Mr. Mies, chief investment officer and partner a 6 Meridian, an RIA with $2.2 billion in client assets. He was registered with Morgan Stanley from 2009 to 2016.
He expected the change because the numbers behind advisers moving simply does not add up for large firms like Morgan Stanley anymore.
Ten or 15 years ago, advisers would take a signing bonus to leave one large firm and move to another, and it pretty much evened out, he said. Now, a greater amount of advisers are moving to independent RIAs or broker-dealers, and the cost of replacing experienced advisers is becoming a burden.
"We looked at the math and saw how [Morgan Stanley was] losing great people and didn't get much in return," Mr. Mies said. "When they lost people to the independent channel they got nothing, and to bring in great people costs a lot. I can see from the firm's perspective that they get a lot of downside and not upside from staying in this agreement."
