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What’s the Protocol for Non-Protocol Advisors?

April 14, 2016

The Protocol for Broker Recruiting was a game changer. It was created in 2004 by three of the then five wirehouses (Smith Barney, UBS and Merrill Lynch, with the two remaining wires – Morgan Stanley and Wachovia [now Wells Fargo] – joining in 2006) as a way to simplify the recruiting process and protect transitioning advisors from restraining orders, protracted legal battles and time out of the business.

More than 12 years later, it’s the seminal document that has in excess of 1,400 signatories. Advisors moving from UBS to Morgan Stanley, from Ameriprise to HighTower, or from JPMorgan Securities to Raymond James, in all 50 states, are guided by attorneys well familiar with the document’s directives.

But what of the advisors that work for non-Protocol firms – the firms that chose not to sign the agreement, likely because they don’t expect to do a lot of recruiting and/or because they worry about attrition and expect to go after departing employees with gusto?

While the majority of the industry’s advisors today work for Protocol firms, those at places like Neuberger Berman, Bernstein, Goldman Sachs, Hilliard Lyons and many others from the nation’s leading RIAs are among the unlucky minority who are not protected by the same rights as their Protocol colleagues.

By way of example, “Sam” (name changed to protect anonymity) is a very successful advisor working for “non-Protocol firm.” Managing more than $1 billion in assets for 70 affluent clients and generating approximately $7 million in annual revenue, he has been relatively content with his firm for the past two decades. But fast-forward to six months ago and Sam is realizing that the technology and systems at his firm are antiquated, the platform is not open architecture and senior leadership seems to be less interested in investing in the infrastructure that would be required to make this firm’s wealth management unit competitive.

And, on top of his list of frustrations, he knows that transition packages being offered by Protocol firms large and small are at high water marks – so the opportunity to take some chips off the table and still essentially own his business was an opportunity he might like to afford himself. At the very least, it was time to explore his options.

Here’s what Sam may have learned:

As far as W-2 options, it’s really only the wirehouses that have the willingness to recruit advisors from non-Protocol firms – and the deep pockets to defend a legal action brought about by the advisor’s previous firm.

While the wirehouses and some regionals will consider recruiting non-Protocol folks, the transition packages these firms will offer them will be majority back-end loaded and, in many cases, a small multiple of previous year’s W-2 income as opposed to a multiple of trailing 12 months revenue.

Independent firms will express interest in an advisor like Sam – someone who’s smart, talented, a top producer, compliant and growing – yet in the end they aren’t likely to foot the legal bill that will be incurred on his behalf. So, unless Sam was willing to take personal responsibility for said legal expenses he would be wasting his time to even begin a conversation.

While going independent or joining a multi-family office may have been his ideal move, Sam’s non-Protocol status would likely make reaching that goal highly unlikely now.

The best course of action, it would seem, would be to join a wirehouse firm, spend the next nine years there (the length of the note attached to a transition package) and then finally move to the independent space. At that time, all of the issues around being recruited as a non-Protocol hire will have disappeared.

If these were Sam’s takeaways, they would be pretty accurate. While the majority of advisors working at the likes of top-tier boutique non-Protocol firms would love to move to the RIA/multi-family office space if they were to change jerseys, in the end, most advisors like Sam wind up at a major brokerage firm. And, truth be told, it would be a good move. Being paid an outsized transition package, leveraging a global brand and gaining access to a robust open architecture platform would be major wins for advisors like Sam. But the best part is coming under the protection of the Protocol – which makes any future considerations to change firms decidedly easier.

No one would suggest – least of all me – that an advisor should look to leave any firm, Protocol or otherwise, unless that firm no longer served him and his clients. But, for Sam and many others like him, evaluating your options and making a move – or in some cases possibly two – allows for an advisor to fully realize their career goals and achieve success.