Morgan Joins TRO Pact

Morgan Stanley has officially opted to join the inter-brokerage pact, first created in the fall of 2004, which stipulates that members will not sue brokers departing to other firms

Morgan Stanley has officially opted to join the inter-brokerage pact, first created in the fall of 2004, which stipulates that members will not sue brokers departing to other firms when they try to take their clients with them — as long as they are moving to another firm named in the pact. Morgan is one of the last major brokerage firms to join. A spokesperson for Morgan Stanley said the firm has given notice to the pact's participants of its intention to become part of the agreement. The firm says it will begin operating under the protocol later this fall.

The pact, which was developed by several major Wall Street firms — including Merrill Lynch, UBS and Smith Barney — makes life easier for brokers jumping ship to a new firm by letting them get in touch with clients without fear of being slapped with a temporary restraining order (TRO) after their departure. Advisors are free to make clients aware of their departure only after joining the new firm. Clients who choose to follow the rep will have their accounts transferred within one day by the broker's prior employing firm, according to the pact. Just last month, regional wirehouse Raymond James & Associates announced its decision to sign onto the agreement. Wachovia Securities joined in January 2006.

Theodore Levine, a lawyer with Wachtell Lipton Rosen & Katz in New York, who helped structure the protocol, says, “It's my general sense that [the protocol] has eliminated the time, effort and cost of TROs that were previously used by the firms after their brokers left.”

A spokesperson for Merrill Lynch says the pact is doing its job. “Brokers are moving relatively easily between the firms that have joined the protocol, while at the same time, the clients' interests are being protected and litigation between those firms over broker departures is down markedly,” he says.

Morgan Stanley may have delayed joining the pact because it has only recently stabilized broker retention — the firm lost hundreds of brokers last year after Philip Purcell's departure and during the ensuing turmoil, says Rick Peterson, of Rick Peterson & Associates in Houston. Now that the firm is recruiting heavily again, it may want to make it easier for brokers coming from other major firms to make the transition. Morgan Stanley says the idea of joining the agreement was “never off the shelf.”

Hide comments

Comments

  • Allowed HTML tags: <em> <strong> <blockquote> <br> <p>

Plain text

  • No HTML tags allowed.
  • Web page addresses and e-mail addresses turn into links automatically.
  • Lines and paragraphs break automatically.
Publish