broker protocol

What Does The Withdrawal of The Broker Protocol Mean to You?

Since 2004, most broker-dealers and major wealth management firms have joined an agreement called the Broker Protocol, which allows financial advisors to switch firms or go independent without fear of legal action, and governs when and how they can contact their clients and invite them to continue to work with them at the new firm. The Broker Protocol created a relatively smooth, organized system for advisors to manage their careers without becoming entangled in lawsuits and restraining orders, and financial institutions were able to recruit with abandon.

But on October 30, times changed. Morgan Stanley, the brokerage behemoth, announced that it would withdraw from the Broker Protocol as of Friday, November 2 at 11:59 PM. If you are a Morgan Stanley broker, that means as of November 3 you will no longer be allowed to take client information with you should you leave the company. What’s more, you may find that you are looking at a restraining order against contacting clients that you’ll have to battle out in court. If you are staying at Morgan Stanley, you will be expected to honor a year-long non-solicit agreement. New recruits should expect a non-compete as well as a non-solicit. According to its statement, Morgan Stanley sees this withdrawal from the Broker Protocol as providing an opportunity to invest in its staff.

Golden Handcuffs

But there are bigger issues here. Is this the end of the Broker Protocol, and will advisor moves now be followed by lawsuits and restraining orders, the way they were before 2004? Advisors have become used to being free agents—it’s hard to imagine that they’ll willingly go back to belonging to their team. We’ll know more, though, in coming weeks, if another large firm, such as UBS or Merrill Lynch, withdraws.

Another major issue is, whose clients are they anyway? As an advisor, you prospect and win new clients, and then you retain them—are they yours or the firm’s? At Morgan Stanley, the philosophy seems to be that clients belong to the firm, not the advisor. This should give any skilled advisor pause.

At Live Oak Bank, we believe that every advisor should be able to make the decisions that will bring him or her the most satisfying career. In many cases, that means independence. We are ready to help you make that decision work—and you may want to think through that decision now, while you still can leave your firm without risking legal action.