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December 07, 2015 at 07:51 AM
Lately, there’s been much speculation among advisors that the wirehouse firms are mulling a pullout from the broker recruiting protocol, which they adopted in 2004. With a continued exodus from the wirehouses, some advisors and other industry players speculate that these firms may either withdraw from the recruiting protocol or actively employ underhanded tactics to circumvent it.
A branch manager at one regional firm told me he’s planning for the return of the bad old days when temporary restraining orders were routinely deployed against departing wirehouse advisors.
My view is that while some of the wirehouses may be experiencing buyer’s remorse, they’ll stay the course with the protocol. That’s because it’s in their best interest to do so.
It’s worth remembering what prompted the major brokerage firms to adopt the protocol in the first place: The original impetus was the passage of the Graham Leach Bliley Act.
The act prohibited financial institutions from sharing private information with other financial institutions without client consent. Hiring firms could no longer prepare account-transfer paperwork that included data on client holdings, Social Security and account numbers in advance of a broker’s move.
The other catalyst for the protocol’s formulation was, in my view, the steady stream of embarrassing newspaper articles detailing the ugly disputes that arose when advisors changed firms. Departing brokers were routinely slapped with temporary restraining orders (TROs) by their old firms, while both firms bickered over whether clients were free to follow their advisor to the new firm or not.
The subtext of the dispute to investors was clear: Major brokerage firms cared more about their own interests than those of their clients. They acted as if they viewed client assets as their own personal property. Investors who chose to do business with these firms could count on being caught in the middle of a contentious legal dispute should their advisor elect to switch firms.
Understandably, this was not the image that senior management at the wirehouses wanted to project to well-heeled investors.
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