By: Charlie Latimer, Director of National Recruiting
Published December 6, 2017
Whether you are an institutional advisor considering becoming an independent advisor or you’ve already made the jump to independence, you are no doubt closely following the exit of Morgan Stanley and UBS from the Broker Protocol. The Broker Protocol is a voluntary agreement that allows for recruiting and attrition amongst firms and brokerage houses with minimal litigation – assuming everyone plays by the rules.
A sort of gentleman’s agreement, the Broker Protocol has been leveraged questionably over the years with firms opting in and out as it suits their needs. For this reason, advisors have always faced the possibility of a locked gate when attempting to exit a firm, but with two major players no longer willing to comply, the Broker Protocol itself could be in real peril. Predictions are that Merrill Lynch may be the next to follow suit. As an advisor, it’s incumbent upon you to gain a thorough understanding of what the end of the Broker Protocol could mean in terms of your professional future and the best interests of your clients. There are several angles to consider. Here are the most important.
Have you been strongly considering going independent?
Should the exit of Morgan Stanley and UBS herald the beginning of a mass exodus from the Broker Protocol, there will never be a more imperative time to make the choice to go independent. Delaying this decision means you run the risk of a forced transition from 1099 advisor to captive W-2 employee. You will no longer own your business and potentially sacrifice better long-term payouts and the ability to design and implement a succession plan that is appropriate for you and your clients.
If you choose to act now, you can still take advantage of upfront transition assistance but be aware that time is of the essence. Per the recent press, UBS and Morgan Stanley each resigned from the Broker Protocol and eschewed the 10-day notification period effectively catching advisors off guard. Without having thoroughly examined their options, many advisors were unable to pivot quickly in the wake of the news.
Are you nearing retirement?
Even if you are in a later stage of your career, the precarious future of the Broker Protocol has the potential to impact you significantly. Don’t risk the ability to retire on your terms while fulfilling your obligations to your clients and their families. As an independent advisor, you can decide whether to transition your business to someone you hand-select or to sell it; both options can be formulated to provide for you well into retirement. Either way, almost all the value is in your book of business. If you choose to allow yourself to become a W-2 employee, you may be obliged to sign new compensation and employment agreements essentially transferring ownership of your book to the wirehouse. Your client accounts will become wirehouse property, serviced by a new generation of W-2 employees upon your retirement. Any succession planning you may have done for your clients or for yourself would be null and void, with many crucial decisions out of your hands.
Are you considering a career change?
Your options for a career transition as a captive employee of a large brokerage firm will also not be as plentiful as they would be for an independent advisor. If you are considering exiting your practice for any reason, you again will want to consider getting away from the wirehouse model before you do. As an independent advisor, you will be more able to negotiate a sale or transition of your business that is amicable and beneficial—without the threat of expensive litigation from the wirehouse. Independent advisors can confidently prepare for their future endeavors having done their due diligence to provide for their clients in a way that is consistent with the clients’ best interests.
If any of the scenarios covered in this article resonate with you, may want to learn more about Private Advisor Group’s fast track to independence. Private Advisor Group is built to scale with the resources to facilitate any number of transitions at any given time—under demanding deadlines. Please take a minute to review Going Independent on our website. We hope you will choose to take this important step with us, but even if you choose to go independent elsewhere, you need to do it now. I welcome the opportunity to delve deeper into this topic and talk about any of your concerns with you personally. Don’t hesitate to reach out.
Thank you and Good Luck!
Director of National Recruiting
Private Advisor Group