“What’s all this noise about the Protocol for Broker Recruiting?” I asked my partner and protocol expert Brian Carlis. He advised me that effective Dec. 1, 2017, UBS joined Morgan Stanley in withdrawing from the protocol. Morgan Stanley’s withdrawal was effective late October.
The move sparked widespread speculation that other wirehouses, Merrill Lynch and Wells Fargo, would soon withdraw, effectively ending the protocol agreement. On Dec. 4, 2017, though, Merrill Lynch announced that it would remain in the protocol. Although Wells Fargo has not yet officially made its intentions known, recent news reports appear to indicate that it will stay in the protocol, too. Citigroup, however, has announced that it joined Morgan Stanley and left.
It also is believed that the withdrawing firms viewed the protocol as unfair, insofar as the quest for independence is concerned. Reps departing to form their own independent registered investment advisor use the protocol to depart, but are then free from the fear that the protocol could be used against them.
Morgan Stanley recently obtained a temporary restraining order in a federal court in New Jersey against a departing broker. The broker was going independent and had formed his own RIA. It will be interesting to see if Morgan goes after reps who leave for traditional wirehouses, in addition to those going independent. In other words, will an “unofficial protocol” develop?
The protocol was established in 2004. The original signatories to the agreement were Morgan Stanley (Citigroup/Smith Barney), Merrill Lynch and UBS. Since that time, more than 1,600 broker-dealers and registered investment advisory firms have signed on to it.
The protocol lets representatives of member firms take a limited amount of client information when leaving one protocol member firm for another. Strict compliance with the terms of the protocol also relieves the departing representative from certain (sometimes all) non-solicitation provisions in their employment agreements.
Establishment of the protocol essentially opened the floodgates for representatives to move from firm to firm. Often, these moves were driven by large signing bonuses. A proper protocol transition effectively eliminates lawsuits and restraining orders that often harm clients, as well as representatives.