UBS broker-protocol exit shows independent channel is bleeding wirehouses of advisers

Smaller shops have benefited from the broker protocol at the expense of larger firms like UBS, experts say
NOV 27, 2017

UBS Wealth Management America's decision to leave an industry agreement known as the protocol for broker recruiting is a clear indication that the large wirehouse firms are losing more brokers through attrition than they are gaining from recruiting, industry observers said. UBS on Monday told its almost 7,000 advisers it was leaving the protocol, which was established in 2004 by a handful of large firms and has made it easier for brokers to leave firms. UBS follows the lead of Morgan Stanley, which told its employees at the end of October it would no longer work under the protocol. Now, there are more than 1,500 members of the protocol, and the smaller shops benefit while larger firms like UBS lose out, attorneys and recruiters said. ONE-STOP SHOPS "When Merrill Lynch, Morgan Stanley and UBS were all members of the protocol, they all had thousands of brokers and one year you are going to gain and the next you will lose," said David A. Gehn, an attorney with Ellenoff Grossman & Schole. "But now, a majority of protocol members are one-stop shops that utilize the protocol membership to [help advisers] leave the existing broker-dealer and get a pass on being sued under the non-solicitation agreement." "There's been an increase in the RIA space, and some of the independent broker-dealers are doing quite well," he said. "That's eating away at the wirehouse market share. It's certainly substantially greater than it used to be." "By my estimation, this is the fourth year in a row that the wires have lost more advisers than they have brought in," said Danny Sarch, an industry recruiter. "Now fewer than half of those advisers who have departed the wires are going to one of those four firms," he said, meaning Morgan Stanley, UBS, Merrill Lynch and Wells Fargo Advisors. (More: UBS broker-protocol exit puts firm before clients.) Others expect other large firms to exit the agreement. "It will be an interesting development to see who is next," said James E. Heavey, a partner Barton LLP. "We haven't heard the last of it." EMAIL NOTICE UBS employees were informed of the change Monday morning in an email from Tom Naratil, president of Wealth Management Americas. "As our operating model is more focused on retaining our existing advisers than recruiting to grow our business, UBS will no longer be subject to the protocol effective Friday, December 1," according to the memo. "Our decision to exit the protocol is consistent with our organic growth strategy and the same belief that's driven all of our recent enhancements — that, while we will always look to selectively attract talent to UBS, you are the industry's best, most productive advisers." The change in policy at Morgan Stanley had left some of its brokers feeling the firm was turning its back on them, and some UBS advisers may feel the same. UBS said in 2016 it was pulling back on recruiting and focusing instead on the retention of advisers.

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