Schwab IMPACT
Shirl Penney
Dynasty Financial founder and CEO Shirl Penney

Dynasty CEO: Smaller Firms Will Be Most Impacted by Protocol Exits

Smaller firms, those with between $100 million and $200 million in assets, will have a harder time paying settlements.

Morgan Stanley recently announced it was leaving the industry agreement known as the protocol for broker recruiting, a move that raises questions for the wealth management industry. Other wirehouses are likely to follow suit in the immediate term, so many advisors are accelerating their move from those firms and get out under protocol while they still can, said Shirl Penney, CEO and founder of Dynasty Financial Partners at Schwab’s annual IMPACT Conference in Chicago.

Once those businesses are out, we’re back to a 2004 environment, before the protocol was in place. The typical settlement at that time was between 20 and 30 percent of an advisor’s revenue. For high-end registered investment advisors, the increase in compensation they’ll get by going independent will allow them to buy their independence, Penney says. Such firms are making 65 percent gross income on the RIA side, versus 40 percent at the wirehouse. 

Smaller firms, those with between $100 million and $200 million in assets, will have a harder time paying those settlements, Penney adds. The smaller firms feel stuck and worried about getting sued.

These teams will likely join pre-existing RIAs that have scale and capital. If they don’t have the resources to deal with that, a move can appear daunting. But joining a larger, existing firm can provide them the comfort of having more resources and help with the transition.

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