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Tuesday, October 31, 2017

Are Your FA Allies About to Get Less Mobile?

News summary by MFWire's editors

The world is about to change dramatically for nearly 16,000 FAs, and it's a good bet that tens of thousands more advisors will soon see the same tide hit them, too. Fundsters in the field should be aware that many of their FA contacts may soon have a harder time switching firms.

Yesterday Shelley O'Connor and Andy Saperstein, co-heads of wealth management at Morgan Stanley, confirmed that the New York City-based wirehouse is exiting from the Protocol for Broker Recruiting that broker-dealers instituted back in 2004 to create a less-litigious environment for advisors to move between firms. It's a good bet that the other wirehouses and other B-Ds big and small may back out of the protocol, too, now that Morgan Stanley and its 15,759 FAs (per its Q3 earnings report, issued earlier this month) won't be playing by the same rules.

Officially, Morgan Stanley is leaving the protocol because they think the game is rigged and because they want to refocus on training without fear that all the freshly-trained FAs can easily up and leave. The company's statement reads:

... over time the Protocol has become replete with opportunities for gamesmanship and loopholes: firms have opportunistically joined the Protocol to make a strategic hire and then dropped out; firms have invoked the benefits of the Protocol when hiring while using non-Protocol affiliates to circumvent the Protocol when they lose talent; and firms have unilaterally made exceptions to the scope of the Protocol, undermining the objective of a universal set of rules. In its current state the Protocol is no longer sustainable. Exiting the Protocol will allow the Firm to invest more heavily in its world-class advisors and their teams, helping drive additional growth opportunities.


Another piece of the puzzle is a new Morgan Stanley effort to keep freshly-departed FAs away from their old clients. Yesterday morning the wirehouse told managers "that new employment agreements may include a one-year non-solicit agreement," InvestmentNews reports. Morgan Stanley also emailed its FAs.

"With our exit from the protocol, advisers are subject to the terms of any applicable client non-solicitation restrictions and/or confidentiality obligations, including restrictions on removing client-related information," the email reads, according to InvestmentNews. "The provisions of the protocol that permit advisers to take certain client data and solicit clients when transitioning from one protocol firm to another will no longer apply."

Clients can still reach out to the FAs, but many FAs considering moving may balk at facing up to a year of slow client uptake.

"What's Morgan Stanley's strategy now? It's like the Hotel California," Danny Sarch, a recruiter with Leitner Sarch, tells InvestmentNews. "You can check in but you can never leave."

Meanwhile, RIABiz blames Morgan Stanley's move on the wirehouse feeling the effects of many FAs' shifts to RIA-only business models. That movement, the trade pub notes, had a much smaller impact back in 2004 when the protocol first took effect.

O'Connor and Saperstein made the big reveal yesterday as part of a push around the wirehouse's "new talent investment strategy" that will emphasize "investment in existing talent." 

Edited by: Neil Anderson, Managing Editor


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