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Why Morgan Stanley's Protocol Rupture Isn't a Factor for Many Team Departures

By Murray Coleman November 6, 2017

Despite reports indicating a bevy of Morgan Stanley advisors are jumping ship now that it’s breaking with industry protocol for handling employment moves, not everyone’s convinced such a policy reversal is behind any new uptick in recruiting activities.

In fact, several wealth management headhunters say they doubt it’s even possible from an operational standpoint for newly-minted job changers to spin on a dime. “These decisions aren’t made over a matter of days or weeks,” says Mindy Diamond, a longtime industry recruiter and consultant.

She observes that a reported shift of $6 billion in client assets had been announced through Friday in the days following Morgan Stanley’s break with the industry protocol. Diamond is expecting that total to surge well past $10 billion as soon as more recruiting deals come to light and managers at Merrill Lynch and UBS consider their protocol options.

Still, she cautions it’s too early to jump to any conclusions about how any possible unraveling of the broker’s protocol – which sets guidelines for what client information advisors can take with them when changing firms – might play out in coming weeks.

“The aftermath of Morgan Stanley’s pulling out of the protocol might hasten some decisions by people already looking to leave,” Diamond says. “But most of these advisors who are moving now actually made their choices weeks or months ago.”

At the same time she sees the break in protocol by Morgan Stanley – and any similar moves by other wirehouses in the future – as providing employers increased opportunities to publicize their recruiting victories.

“Although advisors usually don’t make hasty decisions in deciding where to move their businesses,” Diamond says, “firms hiring new talent in this environment are likely to accelerate those announcements.”

One of the most active recruiters this year has been RBC Wealth Management. Whether a matter of coincidence or growing momentum, the pace of its new advisor announcements kept flowing last week.

News of a move by advisor Paul Hendershot, a seven-year Morgan Stanley veteran, came just days after the wirehouse made its protocol break. Along with partner Carsten Frederikson, the Dallas-based practice managed about $140 million and produced annual revenue of around $1.2 million at Morgan Stanley.

But despite reports elsewhere that might seem to indicate otherwise, Hendershot tells FA-IQ his practice’s move had nothing to do with Morgan Stanley’s protocol decision. He also pointed out that his first day on the job actually took place at midweek.

“We’d been in discussions with RBC for several months – the fact that this was the best place for our clients led us here,” he says. “The protocol issue wasn't a factor in why we made this decision.”

Worth noting, say industry analysts, is that new defections from Morgan Stanley come amid last quarter’s drop in fee-based assets and advisor headcount. Meanwhile, RBC has been making no secret of its efforts to aggressively ramp up recruiting.

In fact, Hendershot considers himself “totally agnostic” regarding the industry protocol. “We’re not lawyers and we have no ability to assess the impact of Morgan Stanley’s decision,” he says.

Hendershot adds that “we started from scratch” at Morgan Stanley and his team left “without owing anything” to the wirehouse.

Paul Hendershot

The move was spurred by several key factors, he says. First, Hendershot sees RBC as offering his practice an investment platform with more flexibility in terms of how his team can manage client assets.

Changing shops should let both practice partners work with investment strategies that “let us tailor individual portfolios more uniquely for each client” than under Morgan Stanley’s platform, Hendershot adds.

Also, he likes that RBC seems to offer his practice a more “flat” organizational structure. “We think we’re going to be able to get things done for our clients more efficiently and in a timelier manner,” Hendershot says.

Working at a large wirehouse made him feel “like we weren’t getting all of the attention our clients deserved,” he adds.

“RBC offers us more of a boutique feel, which is something that really appeals to us,” Hendershot says. “At Morgan Stanley, we were just two out of 15,000-odd advisors.”

RBC Wealth Management reports it now has about 1,800 advisors. “We’ve recruited more in the past six months than in all of the previous year,” says a company spokeswoman.

Separately, RBC announced Friday that Hobgood Peatross Investment Group had joined the firm from Wells Fargo Advisors. The group includes the father-son team of Alfred Hobgood III and Alfred Hobgood IV. Another veteran wirehouse advisor, A. Harrison Peatross Jr., is also coming over to RBC with the team.

The Raleigh, N.C.-based practice managed about $182 million in client assets at Wells Fargo, according to a statement accompanying the move.

“RBC Wealth Management is actively recruiting financial advisors in the Raleigh market that fit our client-centric values,” says Chip Anderson, the firm’s complex manager in Atlanta.