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Citi Plans to Leave Protocol Agreement

Those working for the remnants of Smith Barney will no longer be protected under the recruitment truce.

Citi is withdrawing from the Protocol for Broker Recruiting Agreement, making it harder for hundreds of financial advisors and relationship managers to leave and take clients with them. The bank confirmed the decision on Friday and said the exit is effective as of Jan. 8.

The bank currently has about 1,000 financial advisors and relationship managers who work with Citigold clients from nearly 700 branches nationwide. The network of employees is a remnant of the bank’s Smith Barney brokerage, a joint venture between Citi and Morgan Stanley created in 2009. Morgan Stanley later renamed the business Morgan Stanley Wealth Management in 2012 and assumed full control over it in 2015.

In 2004, when the protocol agreement was created, Smith Barney was one of three firms—including Merrill Lynch and UBS—to sign and take part in the arrangement. But today, more than 1,600 firms are part of the protocol agreement and some of the largest brokerages no longer see the benefits in participating.

“Similar to others in the industry, Citi has decided to exit the Protocol,” a spokesperson said in an email. “This decision allows us to continue to invest in our growing team of award-winning financial advisors.”

A spokesperson for Citi declined to comment further on the decision.

Morgan Stanley was the first to leave the protocol agreement in October and claimed it had become “replete with opportunities for gamesmanship and loopholes” that undermined the rules. By exiting the agreement, the brokerage said it will be able to invest more in its advisors and drive growth.

A few weeks after Morgan Stanley left the agreement, UBS sent a memo to its advisors notifying them the firm would no longer be a member, making it the second wirehouse and original member of the agreement to leave.

Gehn Gehn, a partner at Ellenoff Grossman & Schole, said UBS’ exit from the protocol agreement should not have been a surprise, especially after Morgan Stanley’s departure. There is little incentive for any of the wirehouses to remain part of the agreement if the others are not, he said.

Merrill Lynch, which many expected to leave the protocol, said days after UBS’ departure that it intended to remain part of the pact. Andy Sieg, the head of Bank of America’s Merrill Lynch, made the announcement on a phone call with leadership and market executives Dec. 4, a person familiar with the call said.

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