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Practice Management > Building Your Business > Recruiting

Some Big Names Stay, Some Go: Broker Protocol

By Janet Levaux

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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.”

Different Take

Others, though, don’t see significant change tied to the departure of a second wirehouse firm from the recruiting arrangement. “The exit from the protocol by UBS won’t have much of an impact on the recruiting landscape,” said Elzweig, in an interview.

“They are where they want to be with a salesforce of almost 7,000 advisors and only make sporadic hires. Leaving the protocol won’t hurt them much,” he explained. Still, the recruiter adds that rival firms will “view this [move by UBS] as an opportunity.”

As of Sept. 30, UBS Wealth Management Americas had 6,861 advisors — down from 6,915 in the earlier quarter and 7,087 a year ago. The level of recruitment loans to financial advisors weakened to $2.68 billion in the third quarter of 2017 vs. $2.75 billion in Q2’17 and $3.18 billion in Q3’16.

In a recent interview before the UBS departure, Morgan Stanley veteran Phil Shaffer predicted more large firms would abandon the protocol. This is because the wirehouse firms — Merrill Lynch, Morgan Stanley, UBS and Wells Fargo — want to protect the roughly one-third of the wealth industry’s client assets they now manage.

Sources like Cerulli Associates “say that share continues to shrink,” said Shaffer, CEO and founder of Halite Partners, an RIA in Columbus, Ohio, in an interview. Other industry insiders, such as David Canter — head of Fidelity Clearing & Custody Solutions’ RIA segment — agree.

“We’ve been seeing a secular shift toward independence, and we expect that these moves by the brokerages [to leave the protocol] will likely cause both a short-term acceleration as well as a long-term steady increase in the number of advisors moving to independent models,” Canter said.

Online Move

In other wirehouse news, Morgan Stanley has launched its online platform, Access Investing, with an annual fee below those of its wirehouse rivals. At 0.35% of assets under management per year, the program fee comes in below the Merrill Edge Guided Investing robo service, which charges 0.45%, and Wells Fargo’s Intuitive Investor offering, which has a 0.50% fee.

Like Merrill’s robo, Morgan Stanley’s has a $5,000 account minimum. The competing Wells Fargo service can be accessed with $10,000 or more of client assets.

“Morgan Stanley Access Investing leverages the firm’s intellectual capital to reach a broader audience of investors who are looking to achieve their financial goals,” said Morgan Stanley Chief Digital Officer Naureen Hassan, in a statement.

“Morgan Stanley Access Investing is an opportunity for financial advisors to grow their book of business by making connections with prospects earlier and eventually establishing full-service relationships when clients are ready,” explained Hassan.

The robo portfolios include mutual funds and ETFs with both active and passive strategies. They also feature automated rebalancing and tax-loss harvesting at no additional charge, according to the firm.

Though the set service fee is 0.35% per account, clients “will incur fees and expenses related to owning shares of a [specific] fund,” which are not included in the advisory fee, says Morgan Stanley.

Rival Programs

Morgan Stanley’s robo offering comes one month after Wells Fargo introduced Intuitive Investor and 10 months after the Merrill Edge Guided Investing platform was introduced. Over the past seven years, the broader Merrill Edge do-it-yourself offering has amassed over $165 billion in assets and 2.3 million accounts.

Merrill Edge clients with $20,000 or more in an account have access to a separate group of 2,100 advisors with whom they can work in person and roughly 1,000 they can interact with via call centers.

Wells Fargo’s Intuitive Investor hybrid product combines digital access to strategies from the Wells Fargo Investment Institute with the option of also consulting by phone with advisors from its financial services division. Clients with $10,000 can access the service for a fee of 50 basis points, but existing clients with $25,000 in deposits or $50,000 in combined banking, brokerage and credit assets at the bank can utilize it for 40 basis points.

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