NEW YORK, Oct 30 (Reuters) - Morgan Stanley is quitting a pact it signed with rival securities brokerages 13 years ago agreeing not to sue one another when brokers quit to join rivals and take clients with them.
The bank’s announcement on Monday comes amid a changing competitive landscape for the securities industry. Top advisers are increasingly leaving major brokerages to join independent registered investment firms, the majority of which are not party to the pact.
Morgan Stanley said in a statement that quitting the agreement would allow it to invest more in its advisers and their teams.
Industry recruiters said the move, which takes effect on Friday, will allow Morgan Stanley to act more aggressively to keep its top advisers and help it fight for the clients of those who do leave.
”If you’re going to be a net loser rather than a net gainer in terms of recruiting, why stay in the protocol?” said Danny Sarch, president of the recruiting firm Leitner Sarch Consultants.
Morgan Stanley is the first Wall Street brokerage to exit the industry truce, called the Protocol for Broker Recruiting, and its departure could trigger a wave of defections.
Representatives of other large firms that are subject to the protocol, including Bank of America Merrill Lynch, Wells Fargo Advisors, UBS Wealth Management Americas and Raymond James, could not immediately be reached for comment.
The agreement was struck in 2004 when major broker-dealers still dominated the wealth management industry.
The increased regulation of major banks in the wake of the financial crisis, however, has made independent firms increasingly attractive to financial advisers seeking relief from red tape. The advisers often taken their clients with them when they leave, and under the protocol, their former firms cannot sue them.
From 2006 to 2016, the top four U.S. securities brokerages, Morgan Stanley, Bank of America, Wells Fargo and UBS Wealth Management Americas, lost 10 percent of the industry’s asset market share and now account for 36 percent of assets under management, according to research firm Cerulli Associates.
Cerulli estimates that so-called registered investment advisers, a popular type of independent firm, will control 28 percent of assets under management by 2018 and 24.6 percent of overall adviser headcount. In 2016, they controlled 23 percent of investor assets.
Additional reporting by Olivia Oran; Editing by Steve Orlofsky and Dan Grebler