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Why Merrill Lynch Could Leave the Broker Protocol Before the Year is Out

November 30, 2017

Merrill Lynch is likely to follow the example of wirehouse rivals UBS and Morgan Stanley in exiting the Broker Protocol, recruiters tell InvestmentNews. And it could happen within the next three weeks, they tell the publication.

Monday, UBS announced plans to exit the protocol, as reported, while Morgan Stanley pulled out four weeks previously. And Merrill Lynch is likely to pull out before Wells Fargo Advisors, the only other wirehouse, because it has followed UBS and Morgan Stanley in the way it recruits its advisors, recruiters tell InvestmentNews.

In May Merrill Lynch opted to step away from offering large bonuses for top advisors and instead focus on luring less experienced brokers. That decision followed similar moves at UBS and Morgan Stanley, and Merrill Lynch will likely behave similarly when it comes to the protocol, recruiters tell InvestmentNews.

Wells Fargo Advisors, on the other hand, must continue to focus on attracting experienced brokers because it has lost many advisors following a bogus account scandal at its parent company’s banking unit, the publication writes.

Merrill Lynch may pull out before the end of the year, Casey Knight, executive vice president of ESP Financial Search, tells InvestmentNews. Wells Fargo, meanwhile, will likely stay on “well into next year,” according to Knight. Spokeswomen for both Merrill Lynch and Wells Fargo declined comment to InvestmentNews.

The Broker Protocol, established in 2004, lets advisors take some client information when switching firms, without fear of getting sued, so so it doesn’t do much for a firm that’s a “net loser of advisors,” Joe Duran, CEO of United Capital, tells the publication. Duran says the protocol has paved the way for independent broker-dealers and RIAs to snatch advisors from the wirehouses, leaving both Wells Fargo and Merrill Lynch little incentive to stay.

“I think there is little doubt we are seeing the end of the protocol,”Duran tells InvestmentNews.

But the protocol may survive if for no other reason than a lack of a decent alternative, industry observers tell Bloomberg. For one thing, prior to the drafting of the protocol, advice firms would regularly seek restraining orders against departing advisors, and no protocol would mean that “judges would get fed up,” Kevin Hoffman, an attorney who represents advisors, tells the news service. In addition, the protocol still has big backers, with Raymond James recently promising to remain no matter what, Bloomberg writes.


Finally, regulators may take issue with an environment in which clients’ rights are hurt because they have difficulty moving with their advisors, Brian Hamburger, founder of MarketCounsel, which helps advisers go independent, tells the news service.

So far in 2017, 18 firms have pulled out of the protocol, with Cornerstone Financial Partners being the latest, as reported.

And the pace of withdrawals has accelerated, according to records collected by law firm Carlile, Patchen & Murphy. There are currently 1,696 signatories to the protocol.

By Alex Padalka
  • To read the InvestmentNews article cited in this story, click here.
  • To read the Bloomberg article cited in this story, click here.