Morgan Stanley Exits Broker Protocol, Raises Questions for Advisors

Morgan Stanley Exits Broker Protocol, Raises Questions for Advisors

Morgan Stanley has decided to aggressively fight the industry-wide trend of financial advisors bailing out of bulge-bracket institutions in exchange for greater benefits and compensation as independents.

This will allow for the financial behemoth to make easier claims to continue service with their clients after an advisor departs. Originally, the above mentioned “protocol” was intended to keep the collateral damage of advisors moving between houses to a minimum, but now that a significant portion of top advisors are being poached by independents, there is a shrinking pool of reasons for big dogs like Morgan Stanley to keep to the old ways.

This protocol was set up in 2004 by the most powerful wire houses in the industry in the more carefree days that preceded the Great Recession.  After the bottom fell out of the markets, regulators set their sights on the entire banking scene and the world of retail client advising was forever changed. The regulator’s main focus was on the biggest and most influential service providers, and thus the giants were the hardest hit.  This opened the door for smaller, more nubile firms to set up shop and afford advisors more leeway in generating business.

As a result, Morgan Stanley began to increasingly recognize that it was on the short end of the stick, and that it has a greater interest in protecting its own interests as opposed to providing an exit shield to some of its top performers.  It is very reasonable to expect the other major players such as UBS, Wells Fargo and Merrill Lynch to follow suit and exit this protocol. As an obvious result, movement within the industry will slow.  

However, just as the S&P Index does not always move in a predictable direction, little else in the world of finance does.  Shirl Penney, the President and CEO of Dynasty Financial Partners, has made a business out of helping advisors set up on their own as Registered Investment Advisers (RIA).  She believes that with the protection of the protocol removed from top-end producers, they will be emboldened to pursue options with considerably higher compensation, or better yet, options that will allow them to claim partial ownership of the business itself.

For more information, please read:
Questions Abound After Morgan Stanley Leaves Broker Protocol | Wealth Management


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