In 2004, Merrill Lynch, UBS PaineWebber and Smith Barney were the founding signatories of a document called the Protocol for Broker Recruiting. Prior to 2004, brokers who departed from the big firms found themselves subject to temporary restraining orders and lawsuits that attempted to prevent them from talking to their clients.
The protocol established a methodology for a broker to depart which, if followed, would no longer subject them to TROs or legal machinations. It also protected client privacy by forbidding brokers from copying their books ahead of time and providing the client data to their new firm without their clients' consent.
(More: How a weekend client raid blew up and a brokerage battle went public)
Eleven years later, the protocol remains intact. Broker movement, once covered only in industry trade publications, is now reported on by The Wall Street Journal. Successful moves from wirehouses prove again and again that clients are loyal to the broker, nee adviser, and not the brokerage firm or bank. Simultaneously, the big firms are struggling to find the magic formula both to train new recruits and retain their aging advisers and their clients.
One of the ways they are attempting to solve these problems is by “marrying” younger advisers to their older colleagues, thereby creating the basis for a future financial transaction in which junior buys senior's book. The promise of the lucrative payday without leaving the firm keeps the older adviser happy while the certainty of future business success keeps the younger adviser hungry and working hard to solidify those relationships.
However, if the firm is financing this transition and the original adviser who solicited and nurtured the relationships with a book of clients is no longer in the picture, can the firm argue that they “own” those relationships, having “bought” them from the now-retired senior adviser? Is that younger adviser so grateful for the opportunity that he will even think of himself as a “company man” servicing the relationships of clients that are now owned by the institution? I suspect that buried in the documents that govern the transfer of books of business from retiring adviser to successor is language that makes it clear that this transitioned business is NOT subject to the protocol. And if that language is not there today, I'm guessing that it will be sometime in the future.
Culturally, will this next generation of advisers be as willing to move? And when some inevitably do, will the losing firm be back in court shamelessly arguing that they somehow “own” this book of business? (How does ANYBODY actually own a business that is comprised of someone else's money?)
Some say that history repeats itself. I see a future where the attorney who is a TRO specialist once again is in demand, adjudicating one Friday after an adviser's departure that Company A owns the book, and the “rogue” former broker should be enjoined from stealing company secrets and going to Company B.
But the following Friday, the same attorney will be in the same court hypocritically defending Company A when they recruit FROM Company B.
