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Dynasty Boss Slams Wirehouses for Leading by Fear

By Rita Raagas De Ramos April 11, 2018

Lambasting wirehouses for reneging on the Protocol for Broker Recruiting, Dynasty Financial Partners’ CEO thinks the fear caused by these exits is a recruitment opportunity for independent players. Morgan Stanley was the first wirehouse to withdraw from the broker protocol in November, followed by UBS in December.

The latest and 45th firm to join Dynasty’s RIA network in June last year was Procyon Partners, founded by former UBS advisors led by Phil Fiore. UBS filed a motion for a temporary restraining order and injunctive relief against their former advisors shortly after they left. The motion was denied, and Procyon has proceeded with business as usual. UBS withdrew from the broker protocol in December, and its case against Procyon remains pending in Finra arbitration.

“Leadership by fear – speaking from the wirehouse perspective – is not sustainable, and you can see that across time,” says Shirl Penney, president and CEO of New York-based Dynasty.

While some commentators have suggested that freeing themselves from the shackles of the broker protocol improves Morgan Stanley and UBS's ability keep incumbent advisors, Penney says the broker protocol exits and fears that advisors would rather stay put in broker-dealer firms rather than risk legal retaliation is “really more of a speed bump than it is a wall.”

“Leadership by fear, speaking from the wirehouse perspective, is not sustainable, and you can see that across time.”
Shirl Penney
Dynasty Financial Partners

Penney believes such “fear tactics” could help advisors realize the importance of their freedom. And when they do decide to jump ship, firms such as Dynasty – which provides support to breakaway advisor groups – would benefit because the advisors will most likely opt for the backing of an RIA network rather than venture out on their own, he says.

The broker protocol departures are “good for us,” Penney says. “There is a lot at stake – a lot of enterprise value – when you’re moving a business. In this environment people are looking for a more experienced partner.”

In an environment where broker-dealer firms are doing their best to hold on to their clients, Dynasty can provide “expertise and guidance” to departing advisors, Penney insists. These include support providing access to capital or liquidity during the business transition; getting the business up and running and swiftly opening client accounts; promoting a new firm without breaking broker protocol rules or non-solicitation clauses; and completing paperwork.

Tim Oden, Orange County, Calif.-based head of business development at Charles Schwab’s RIA custody unit says breakaway advisor groups that join Dynasty’s network would also benefit from the support of Schwab Advisor Services.

He says Dynasty and Schwab, and other service support firms in the industry, “have developed a certain choreography that maps out the way you can make this transition in such a way that it is respectful to your previous employer and to your clients.”

Schwab previously focused on providing advisors with safe custody of their assets and a trading platform, Oden says. But with the onset and continued momentum of the breakaway advisor movement Schwab has also been providing advisors with “decision support,” which includes help with decisions prior to leaving a broker-dealer firm, as well as decisions during and after the business transition, he says.

Oden says Schwab “invested heavily in the last few years” to improve the firm’s ability to provide advisors with decision support because “advisors were telling us they needed more of that kind of support.”

The broker protocol exits of firms such as Morgan Stanley are seen by experts as a stern warning against advisors thinking of leaving and taking clients and assets with them. And Morgan Stanley, which has been relatively aggressive in pursuing legal action against former employees since exiting the broker protocol in November, has indeed warned that it expects all former employees to comply with their legal and contractual obligations to the firm.

Some recent advisor departures from Morgan Stanley and UBS have benefited other broker-dealer firms instead of the RIA networks, however. One such beneficiary has been Raymond James Financial, which has said it intends to remain a broker protocol signatory.

In February, eight former Morgan Stanley advisors, led by Patrick O’Neill, who reportedly had $337 million in client assets, set up an independent firm affiliated with Raymond James. Also in February ex-UBS advisor Andrew Hutcheson, who had around $200 million in client assets, moved to Alex.Brown, a division of Raymond James – partly, Hutcheson insisted in a press release, because of the firm’s “pledge that you own your book of business.”

Shirl Penney

Yet it remains to be seen exactly how much of a deterrent the broker protocol departures are for advisors. In March JPMorgan, a broker protocol signatory, lost a team of advisors mainly focusing on high-net-worth individuals in Mexico and overseeing $30 billion in client assets to UBS.