October 30, 2017
Jed Horowitz and Mason Braswell
Morgan Stanley said Monday that it is dropping out of the Protocol for Broker Recruiting that large firms signed more than a decade ago, underscoring what it calls its commitment to spend money on retaining experienced brokers and training new ones rather than hiring them from rivals.
The Protocol was a revolutionary attempt by Morgan Stanley and its biggest competitors in 2004 to reduce litigation costs created by lawsuits they were bringing against one another to prevent brokers from jumping with their clients to new firms. It allows brokers to move with five rudimentary pieces of client contact information after giving notice to their managers.
The Protocol has lost its protective punch for the big in recent years as more than 1,000 small broker-dealers and registered investment advisory firms joined the Protocol, allowing them to recruit from the bigger firms without fear of reprisal.
“[O]ver time the Protocol has become replete with opportunities for gamesmanship and loopholes,” the company said in a news release.
“[F]irms 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.”
It said that the exit “will allow the Firm to invest more heavily in its world-class advisors and their teams, helping drive additional growth opportunities.”
Morgan Stanley told managers on a conference call on Monday that the exit will become effective at the end of the day this Friday. Thereafter, any advisor jumping to another firm will be subject to a one-year non-solicitation ban.
“Morgan is taking the view that there is nowhere to go, and that’s not true,” said a 30-year veteran of the firm and its predecessors who spoke on condition of anonymity. “I think if it takes effect on Friday, you’ll see a lot of people leave on Friday.”