Wirehouses Morgan Stanley and UBS may have left the Protocol for Broker Recruiting, but Merrill Lynch says it is staying put. Meanwhile, Wells Fargo says it remains undecided about whether it will stay or go.
“While other firms are focused on leaving the Broker Protocol as a way of retaining advisors and clients, we’re staying focused on making sure that our advisors have everything they need to serve their clients and grow their businesses,” Andy Sieg, head of Merrill Lynch Wealth Management, told other executives recently.
“We continuously evaluate the competitive landscape, but we are not making plans to leave the protocol,” explained Sieg, who leads about 15,000 advisors.
A Wells Fargo Advisors spokesperson said: “We’re watching and have not made a decision.”
The news comes about a month since Morgan Stanley, which has about 15,800 reps, made headlines with its decision to abandon the protocol. Along with the other wirehouse firms, it agreed to the pact in 2004 to facilitate the movement of registered representatives without violating non-solicitation clauses or Securities and Exchange Commission Regulation S-P, which aims to protect client privacy.
The protocol has since been signed by more than 1,600 firms seeking to avoid legal entanglements tied to recruiting. UBS announced plans to exit the protocol in late November. Its wealth management unit in the Americas has about 6,900 advisors.
Recruiter Danny Sarch says he is “pleasantly surprised” Merrill is staying in the protocol. The announcement could mean “that news of the death of the protocol is greatly exaggerated,” he quipped.
Merrill Lynch was and is “best-positioned” to add advisors in a post-protocol world, the head of Leitner Sarch consultants says, because of its other business lines and operations. “Thus, I’m surprised. My instincts tell me there is more to the story than the benevolence of Mother Merrill. But I’m not sure,” he added, in an interview.
“They can train advisors and have Merrill Edge and other connectivity — so they have a competitive advantage when it comes to profitably training next-generation advisors. That’s why I am suspicious,” Sarch said. “Why stay in while others have left?”
Overall, staying in the protocol — rather than turning to temporary restraining orders and other legal steps — “sits better with regulators,” Sarch says. It also sits better with advisors and clients.
Others agree. “It’s a great move on the chessboard for Merrill,” said executive search consultant Mark Elzweig. “More exits from the broker protocol will now come to a screeching halt. They and Wells Fargo will be the firms on the rise. Morgan Stanley and UBS will be disadvantaged in attracting and retaining talent and will be the firms on the way down.”
What Lies Ahead
There is great uncertainty now, though, for Merrill. “They mainly recruit [from] Morgan Stanley and UBS. So, what rules do they follow? It is confusing now,” the recruiter explained. Likewise, if UBS recruits a Merrill rep, does Merrill sue UBS? “There are lots of questions to be asked,” Sarch said.
Morgan Stanley left the protocol in late October, while UBS did so about four weeks later. “As our operating model is more focused on retaining our existing advisors than recruiting to grow our business, UBS will no longer be subject to the Protocol effective Friday, Dec. 1, 2017,” said Tom Naratil, head of the firm’s Wealth Management Americas unit, in a memo obtained by ThinkAdvisor.
When UBS made its decision, Sarch said: “It’s a new world” for advisors and clients. “We could see a wave of UBS departures,” he explained — adding that this is generally what happened a few weeks earlier at Morgan Stanley. “Those [advisors] planning to go before the end of the year are going to make a strong effort to leave soon — before [Dec. 1].”
Will more firms leave the protocol? “If you think you will be a net hirer and not a [net] loser, you would stay in [it],” Sarch said.
The recruiter says that while UBS’ departure creates headaches for advisors, it really hurts clients—who could have a hard time contacting advisors after they have left firms no longer in the protocol. “Ultimately, issues will end up in courts or in arbitration,” he explained. “But we are not in 2004. Advisors text clients and keep client contact information on their phones … It’s all new.”