New Morgan Stanley hires ignore Recruiting Protocol

Posted by on Apr 30, 2012 in Marc's Blog | Comments(0)

You have to be living under a rock to not know about the Protocol for Broker Recruiting. This was an agreement entered into between UBS, Merrill Lynch and Citigroup/Smith Barney/Shearson Lehman Brothers (whatever they wanted to be called then) that specified what a broker could and could not do when changing firms. The Protocol (as it is now called in shorthand) allowed brokers to take a limited amount of information, which was shared with the “losing” firm and the “gaining” firm. In exchange for playing by the rules, these three firms agreed that they would not seek to obtain injunctions against departing brokers for taking the client list. Raiding and other misdeeds were specifically excluded.

The Protocol was open for membership to anyone who agreed to abide by its terms. There are over 500 signatories to the Protocol. Some of the signatories no longer exist, I’m pretty sure. But the protocol has eliminated a lot of litigation. All of the major Wall Street firms have joined in the Protocol and many regional firms. The largest non-signatory traditional broker-dealer that I know of is Robert W. Baird & Co.. As a result of Baird’s refusal to join, Baird finds itself in court and arbitration on injunction and recruiting cases where other firms do not.

Merrill Lynch, as one of the original signers of the Protocol, was formerly one of the most aggressive pursuers of former brokers. For the most part, its litigation is now limited to promissory notes and training agreements. Thomson Reuters reports that Merrill Lynch was able to regain custody of “non-Protocol” data after five brokers left for Morgan Stanley. Three of the brokers were alleged to have done some things that are definitely not allowed in the Protocol, such as taking cost basis data (which is silly, since most of this data is required to transfer when an account transfers via ACATS), and taking data related to customers of other brokers in the office, which has never been allowed.

A Morgan Stanley Smith Barney representative is quoted in the article as saying that these matters are typically resolved without resorting to litigation. But the problem is that after the lawyers swap letters and the business people check out the allegations, the damage has been done. Brokers and their new supervisors should know better. And, by the way, look out for security cameras. They always make for some interesting viewing in a recruiting case.

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