What Morgan Stanley’s Broker Protocol Exit Means for Advisors

The policy change could make it harder for Morgan Stanley advisors to leave, recruiter Mark Elzweig says

Morgan Stanley building in New York. Morgan Stanley building in New York.

Morgan Stanley, which saw its total advisor headcount drop slightly in the third quarter, says it will leave the Protocol for Broker Recruiting as part of its drive to make new investments in its advisors. It had 15,759 financial advisors as of Sept. 30 vs. 15,777 on June 30 and 15,856 a year ago.

“Obviously, there are more ‘outs’ than ‘ins’ at Morgan Stanley. That’s what’s likely behind this policy change,” said Mark Elzweig, who heads an executive-search consultancy, in an interview.

(Related: Why the Broker Recruiting Protocol Is Here to Stay)

Morgan Stanley and the other wirehouse firms agreed to the Broker Protocol in 2004 to facilitate the movement of registered representatives from one firm to another without violating non-solicitation clauses or Securities and Exchange Commission Regulation S-P, which is intended to protect client privacy.

“Advisors who want to leave non-protocol firms [like Morgan Stanley] need to be indemnified by their prospective employers,” Elzweig explained.

Though that’s not an issue for large producers joining other wirehouses or regional firms, it will be a problem for smaller producers, who may find that rival firms won’t want the expense of settling a potential lawsuit and will step away from hiring them, he says.

Plus, Morgan Stanley’s decision to leave the protocol will likely make it harder for its advisors to go independent.

“I’m sure that’s the idea,” said Elzweig. “Hopefully, the courts will rule on this issue soon.”

According to Morgan Stanley, the protocol is “replete with opportunities for gamesmanship and loopholes.”

As it is today, the protocol “is no longer sustainable,” the firm said in a statement. “Exiting the protocol will allow [Morgan Stanley] to invest more heavily in its world-class advisors and their teams, helping drive additional growth opportunities.”

“With rapid technological change and evolving client expectations, we must stay ahead of the curve as a firm, and we must help our financial advisors do the same,” said Shelley O’Connor and Andy Saperstein, co-heads of Wealth Management, in a joint statement. “This requires a meaningful investment in our existing, exceptional talent and delivery of additional resources, capabilities and intellectual capital that will enhance performance and deepen client relationships.”

Morgan Stanley says its investments are focused, for instance, on technology solutions, such as Goals Based Wealth Management tools and partnerships with fintech partners to boost efficiency and allow advisors to “deliver more personalized insights to clients at scale.” For clients, the wirehouse plans to host more events that let them learn about “complex and evolving issues, ranging from cybersecurity to estate planning.”

In the third quarter, Morgan Stanley’s 15,759 FAs had average client assets of $146 million; their yearly fees & commissions averaged $1.07 million. Total assets for the wealth unit were $2.31 trillion, 43% of which is fee-based. Loans to clients totaled $78 billion. 

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