Morgan Stanley

Broker Protocol Administrator Delayed Public Notice of Morgan Stanley’s Exit

Morgan Stanley’s protocol administrator appears to delay public announcement of pullout.

The law firm that administrates the Protocol for Broker Recruiting Agreement delayed sharing the news that Morgan Stanley was withdrawing from the arrangement, according to some industry observers, potentially narrowing a critical window of time for any employee advisors planning to leave the brokerage firm for another while under the agreement’s protection.

At issue is the timing of the announcements by both Morgan Stanley, and the administrator of the protocol, law firm Bressler, Amery & Ross.

Morgan Stanley submitted its intention to withdraw from the agreement in a letter, reviewed by WealthManagement.com, sent to the law firm on Tuesday Oct. 24. In accordance with the rules, firms must give a ten-day notice of their intent to abandon the agreement; Morgan Stanley’s letter noted its final day would be Nov. 3.

Some observers say it is no coincidence that the notification was sent one day after the administrator distributes its official weekly update of changes detailing which firms have joined the agreement and which are leaving. Given that their letter was sent Tuesday, Morgan Stanley’s name was not on last week’s list.

During that week, the administrator was also not answering questions or confirming any update on the status of Morgan Stanley as a protocol member, according to Sharron Ash, chief litigation attorney at Hamburger Law Firm, which helps wirehouse brokers leave their employer firms and join, or set up, independent practices. Ash suspects the law firm withheld information about Morgan Stanley’s withdrawal to limit the timeframe advisors and recruiters had to react to the news.

Bressler, Amery & Ross did not respond to requests for comment.

When Morgan Stanley did make its intentions public Monday morning, it was hours before the administrator’s weekly list of changes was sent out – this time with Morgan Stanley included. The notice said Morgan Stanley’s last day in the agreement would be Friday, Nov. 3. “It’s no coincidence that this press release came out the same day that this update was due to be pushed out by the law firm that puts out the protocol [updates],” Ash said.

The Protocol for Broker Recruiting is a self-imposed agreement by brokerages that essentially set the ground rules for how far firms can go when trying to impede employed advisors moving from one firm to another, or setting up their own independent practice, and taking their clients (and their clients’ investable assets) with them. The agreement was established by a handful of national brokerages, but has since ballooned to some 1,700 firms, including a small number which drop in and out of the agreement as it suits their business purposes. In its announcement, Morgan Stanley blamed “gamesmanship” and “loopholes” in the protocol for its decision to withdraw.

It’s not clear when Morgan Stanley’s 15,000 advisors got news of their firm’s intention, but some suspect it was the same time as the public, giving them just four days to change firms under the protocol before the brokerage pulled out. A spokesperson for Morgan Stanley said its advisors were notified “before the public announcement,” but declined to say how long before or how the change was communicated to them.

The difference between four days and 10 days of preparation for an advisor to leave one firm for another is critical, according to Shirl Penney, the president and CEO of Dynasty Financial Partners which helps advisors and teams establish their own registered investment advisory firms. He said Dynasty has helped advisors make a move in as little as three days, but months of planning often go into the process.

Ash said advisors at firms that are not part of the protocol move to different firms all the time, but for them, and soon for Morgan Stanley’s advisors, the move might be more litigious and limit their options, as firms hiring departing brokers are also often sued by the former employer.

“If anyone (at Morgan Stanley) is going to leave and take advantage of the protocol,” Ash said, “it needs to be done in the next 48 hours.”

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