Prexit: What Happens if Firms Exit The Protocol?

Prexit: What Happens if Firms Exit The Protocol?

While rumors circulate, we’re left wondering why firms would ever consider exiting the Protocol.

Clearly, over the past 8 months, the financial advisor recruiting environment has experienced significant change.

Two of the most noteworthy: In October 2016 firms pulled the back-end components of their recruiting deals (after the Department of Labor issued their FAQs on the Fiduciary Rule); and in May of this year Merrill Lynch and Morgan Stanley joined UBS in their decision to stop recruiting all but “franchise” advisors.

Over the past few weeks, rumors have abounded that some wirehouse firms are contemplating an exit from the 13-year old arrangement that protects firms and advisors alike: Membership in the Protocol for Broker Recruiting (“Protocol”). What is the rationale for considering such a move and, more telling, what impact will it have on advisor recruiting?

The backstory of the Protocol

The Protocol was promulgated in 2004 by Smith Barney, Merrill Lynch and UBS to stave off the common and expensive litigation that occurred between the firms when a departing advisor left one firm and joined a competing one. These firms (and more than 1,500 others today) developed and adopted the Protocol when they finally realized that – despite the fact that their advisors were signatories to non-competition and non-solicitation agreements – at the end of the day the clients dictated who their personal financial advisors would be. Accordingly, rather than continue the never-ending litany of court battles, these firms agreed to a cease fire of sorts, permitting an advisor to freely leave one member firm and join another. As long as the advisor adhered to certain governing principles, he would be permitted to take a list of client names, addresses, phone numbers, e-mail addresses and account names, and actively solicit these clients after moving to a new firm without the fear of being slapped with a Temporary Restraining Order (TRO).

The Protocol was a game changer, analogous to Major League Baseball’s adoption of free agency.  Suddenly, advisors who believed that they and their clients were not at the right firm – and who wanted to seek a superior environment for their practices – could easily change jerseys without the dread of being locked into protracted litigation. It ushered in the “golden age” of recruiting and was one of the primary reasons that the independent advisory space has grown to where it is today. Any firm, regardless of size, could simply send in a one-page joinder document electing to become a member of the Protocol and it would immediately be permitted to recruit advisors from another Protocol firm without the fear of expensive litigation.

But, the Protocol was not a panacea for all financial firms. To be willing to join the ranks of other Protocol members, a firm’s leadership had to carefully weigh the pros and cons of such membership. In essence, would they lose more advisors than they would gain if they were to join? If answered in the affirmative, then it would make sense not to join, instead holding their advisors to the letter of their employment agreements and non-competition restrictions.

If the big firms are recruiting less, are they better served by being “in” Protocol or “out”?

By pulling out, they could go back to the “old days” of enforcement of non-solicitation restrictions in employment agreements and thereby keep more of their advisor force intact. This is precisely the reason that there have been rumors of firms pulling out: While it would be a draconian way of ebbing advisor attrition, in the short-term it would have a tangible impact on movement.  On the other hand, though, Merrill, Morgan and UBS have been clear about their intent to continue to lure top talent.  And, there is very little chance of successfully recruiting a quality advisor without being able to offer him Protocol protection.

The PREXIT effect on advisors

Make no mistake: If firms pull out of the Protocol in any significant number, the days of advisor choice and free agency are over. Financial advisors will once again be strongly tethered to their firms unless they have the fortitude and resources to endure the potential legal consequences of leaving—just as we saw with the teams who recently left Goldman.

The elimination of the Protocol would also mean that every advisor is attached to a more expensive price tag. That is, without the client portability insurance that the Protocol provides, the value of an advisor’s business would be negatively impacted should he decide to move. Therefore, it stands to reason that the more control an advisor has over his business, the more he is worth to the market at large.

While there is no evidence that firms will actually exit the Protocol – and we truly don’t believe they will – such an event would indeed substantially impact the industry. For firms, it would offer a short-term, albeit acrimonious solution to advisor attrition. Yet, for employee advisors the wave is much more foreboding. It would mean further restricting them from pursuing what is best for their clients and their own futures. PREXIT or not, it is incumbent upon advisors to define their goals and plan for the future of their advisory business, as one thing is certain: The state of flux that has enveloped our industry is not likely to settle anytime soon. As such, it may be the best advice to keep calm and carry on

Howard Diamond
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After a successful career as a lawyer and litigator, Howard was looking for a new challenge and was ready for a change. Diamond Consultants was no longer the small business it ... Click for full bio

Solving Your Biggest Client Issue May Be at Your Fingertips

Solving Your Biggest Client Issue May Be at Your Fingertips

Written by: Shileen Weber

When the American Funds’ Capital Group  asked 400 advisors last year to name the biggest issues they face in their businesses, it wasn’t the DOL, market uncertainty or the economy that sat in the center of the idea cloud of answers.

It was client issues.

At a time when regulatory concerns and market turbulence would seem to be at all-time highs, the advisors who answered the survey were most concerned about servicing their clients as well as ways to find new ones and grow their businesses.

It’s one of the ironies of the business, that the things most people find so hard to manage – creating financial plans, managing assets and staying ahead of events – are what advisors find to be the easiest parts of the business. Marketing - the business of selling themselves – can be the area advisors find the hardest elements to master.

In this age of instant communication, it can be even more intimidating to market your practice, especially to younger clients for whom many traditional methods like newsletters, postcards and phone calls don’t work anymore. For them, email is the preferred way to get information, and, if it’s important, they are more likely to respond to texts, not phone calls.

But, it doesn’t have to be that hard. The digital age gives you access to ideas and content of all kinds you can use to touch your clients in a way that positions you as a valuable resource. The key is to keep it simple, stick to some basics and create consistent outreach that clients and potential clients are interested in and will appreciate you sharing with them.

Here is a common-sense approach you can take that will not require you to hire an expensive agency or take valuable time away from managing your clients’ assets and running your business.

Content is King

Create a content calendar for the year: Think about reasons to touch a client 13 times during the year – that can be once a month and on their birthday. (The common rule of sales is that it takes at least 7-13 touches to make a connection.) The number is limited and keeps you from inundating the clients who likely already feel inundated with content. You can take the seasonal approach – tax planning in the fall, January for account review content, college financing in the spring – and supplement it with topical events during the year. Creating a calendar will help you stick to a plan. Here’s one resource for a content calendar.

Review what content is already available to you:  Basically, this means finding the resources you already have and determining what pieces will be most valuable to your clients. Start first by checking out content your broker-dealer already generates that you can personalize. Many firms have economists who write regularly about the market. That’s content you can pass along to keep clients up-to-date they would not have access to anywhere else. In addition to your broker-dealer, mutual funds, your clearing firm, and money managers are all excellent sources of informative and even analytical content.

Personalize the content you use: Add your name, the client’s name or some way to avoid making it feel like canned content that you are using just to check the outreach box. See what capabilities your email program may have to help you.

Related: What's an Investor to Do When History Doesn't Repeat Itself?

The birthday strategy: One advisor used clients’ birthdays in a new way. Instead of the card or lunch date, the advisor asked the client’s spouse for a list of friends he could invite to a birthday lunch and made it a memorable event that was also a soft approach to getting referrals.

Become a curator of good content: What your review will show you is that you don’t have to generate the content yourself. You can point clients to pieces you find insightful. You are likely already doing this every day just to keep yourself informed. The next step is to compile it and send out the very best pieces to your clients, again, with a note with your own thoughts about why you found it valuable.

Find out what is working and do more of it: Use your client interactions, in-person and online, to find out what types of content clients liked and any they didn’t. You can use tracking on your emails to see how many were opened as a measurement tool, but the personal interactions tend to provide more insight than raw data.

Be disciplined about your execution: Get help from an office assistant or schedule the time each month to do the content development and outreach. As any good strategy, if you make it a habit, it won’t seem so hard.

Most importantly, be yourself and be personal: You may want to regularly get personal by talking about your family and hobbies. The ultimate is if you can provide content that is personal to your clients, not just about their investments – they get that from their statements, apps and online portals. Think alma maters, hobbies, children and parents.

Of course, as a disclaimer, you have to make sure all content and communications are complying with regulations and the rules of your own broker-dealer.

The process of creating a plan will get you thinking about your clients in a new way. That exercise alone can re-energize your business and get you seeing marketing opportunities in places you may never have seen them before.

Shileen Weber is Senior Vice President of Marketing and Communications at GWG Holdings. She was previously Director of Online Strategy and Client Experience at RBC Wealth Management, where they placed first in two JD Power and Associates U.S. Full Service Investor Satisfaction Study (2011 and 2013).
GWG Holdings, Inc.
Investing in Life
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GWG Holdings, Inc. (Nasdaq:GWGH) the parent company of GWG Life, is a financial services company committed to transforming the life insurance industry through disruptive and i ... Click for full bio