Questions Arise on Broker Protocol Manager as Morgan Stanley Exits

Attorneys Brian Hamburger and Sharron Ash say there are conflicts with Bressler being charge of the agreement and having powerful clients who are members of it

Morgan Stanley building in New York. (Photo: AP) Morgan Stanley building in New York. (Photo: AP)

Earlier this week, Morgan Stanley said it was leaving the Broker Protocol, which stipulates what client information advisors can take when they switch firms. The pact has more than 1,700 signatories and is administered by the law firm Bressler, Amery & Ross, which counts Morgan Stanley, UBS, Wells Fargo and several other large firms among its clients.

On Wednesday, attorneys with the consultancy MarketCounsel and Hamburger Law Firm said it appeared that Bressler did not immediately release news about Morgan Stanley’s departure, which would have negatively affected some departing reps.

Protocol firms must give 10 days’ notice of plans to exit the agreement. This Monday, Morgan Stanley said its effective date of exit from the protocol would be Friday.

Industry watchers suspect Morgan Stanley shared its departure plan with Bressler last Tuesday, Oct. 24. Bressler shares updates to members of the protocol each week on Monday.

“It looks like the law firm was doing what was expected for them to do – prioritizing the interest of clients above all else, while administering the Broker Protocol list,” said Brian Hamburger, head of both MarketCounsel and Hamburger Law, on a conference call with the media. “There should be a [third] party that has a more neutral standing as the administrator.”

When Sharron Ash, chief litigation attorney at Hamburger Law, called Bressler on Monday to request a copy of Morgan Stanley’s withdrawal letter so she could pin down the effective start date of the 10-day notification period, “I was flatly told, ‘You will need to wait for the update, in prepared statement.’”

Requests for further information from Bressler were not returned.

“The problem was that [Morgan Stanley’s] notice was only given to a law firm – not to the Broker Protocol membership,” Ash said during the call, “… [and this] law firm … administers the protocol and has served as [legal counsel] for UBS and Morgan Stanley.”

“If Bressler kept the withdrawal [news to itself], this is seismic. If they kept it embargoed for seven of the 10 days, that really is making a mockery of the notice period,” she explained.

Withdrawing from the protocol, which potentially discourages advisors from leaving since it subjects them to the risk of litigation, is not an effective retention strategy, Ash says. “The transitions will continue to happen.”

“Client apathy [about an advisor’s broker-dealer arrangement] is lower than it once was,” she explained. “They are more attuned to the advisor situation and asking why are you working here.”

On Monday, Hamburger said on Twitter: “Today is a sad day in the securities industry as Morgan Stanley decides that erecting walls trumps consumer choice. Can’t stop independence.”

Morgan Stanley declined to comment on the matter.

--- Check out Why the Broker Recruiting Protocol Is Here to Stay on ThinkAdvisor.

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