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What Advisors Think About the Broker Protocol

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Fidelity recently surveyed a group of financial advisors across different segments of the business about the impact of major firms leaving the Protocol for Broker Recruiting.

“We’re now four months past the initial news — and Fidelity has some data indicating how advisors are feeling,” said David Canter, executive vice president and head of the Registered Investment Advisor Segment for Fidelity Clearing & Custody Solutions, in a LinkedIn post this week.

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The results paint a somewhat confusing picture of what increasingly is becoming a more complex recruiting and breakaway-broker landscape. What is clear is that a large number of advisors are feeling negatively about the departure of major firms — such as Morgan Stanley and UBS — from the deal.

“Have these changes put a chill on advisors considering independence or switching firms?” Canter asked. “As we had originally suspected, not completely, though there are different concerns.”

For instance, 44% of those surveyed by Fidelity say departures from the protocol would affect their ability to bring clients with them to their new firm.

This concern is prompting 38% of advisors polled to carefully vet firms that will protect them through their transition. And 30% expect lower recruitment bonuses, as new firms are moving to offset any legal costs tied to the latest developments affecting the protocol.

Overall, more than one-third of those surveyed say the firms leaving the protocol — such as Morgan Stanley, Citi and UBS — are likely to experience detrimental effects, while nearly half of advisors believe that firms staying in the protocol will be more attractive to advisors aiming to make a move.

“These departures could have a big impact on recruiting. Advisors who are switching from brokerages that recently left the Protocol have unique needs,” Canter explained in a statement. “Firms should think about what they can do to support those advisors – whether it be alleviating concerns around legal costs or helping to establish clients at the new firm.”

The Fidelity poll included the views of 455 advisors.

Protocol History

“For over 10 years, the Broker Protocol agreement was a fact of life for those in the financial advice profession. But back in October, the long-standing agreement between advisors and the brokerages they worked under began to unwind as two major players left the Broker Protocol,” according to Canter.

“These changes resulted in some uncertainty for advisors who were considering switching firms,” he added.

Morgan Stanley left the Protocol in October, followed by UBS in December and Citigroup in January. Merrill Lynch says it plans to remain in it.

In October, Canter spoke with Dynasty Financial Partners President & CEO Shirl Penney about the significance of Morgan Stanley’s departure. Penney remarked: “This move is a signal that the industry is moving toward independence. There are more advisors going independent now than ever, and with some of the biggest teams in the industry. …  The road to independence for the investor and for advisors will only get broader from here.”

More than 1,600 broker-dealers and RIA firms have signed on to the Protocol, set up in 2004, as it lets advisors take a limited amount of client information with them when they leave one Protocol member firm and join another — without subjecting them to litigation and temporary restraining orders, if they remain in full compliance with the pact.

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