The Exit Protocol in the Securities Industry

“I’m leaving this damn chicken coop and taking my eggs with me”
— an anonymous broker

This is going to sound a little dated, but I can distinctly remember when one of our brokers fled to another firm in a classic Friday night exit strategy. The immediate hue and cry from the Head of our Compliance Department was “Oh my God, he’s taken the Rolodex”! Such was the protective nature of assets in those days and our in-house legal beagles quickly put pen to paper threatening the dear departed with a life in hell if the Rolodex was not returned forthwith.

— Ownership

That twirling little item of information was only the start of an industry compliance procedure designed to prove the FIRM owned the assets. Over the years that indeed has proven to be the case and continues to be enshrined in an everyday employer contract. However, the ownership of the client relationship is, in reality, a different ‘kettle of chickens.’ At the end of the day it is the client who will choose with whom they deal, and thus a good relationship broker will win the assets no matter where he/she lands.

— The Long Turmoil

Over the decades the divide between legal ownership and relationship ownership in the war of assets has remained a contentious issue replete with injunctions, lawsuits, tears, lost friendships and bitterness. In the complicated and emotional matter of moving from one firm to another the question of moving the book (assets) is of paramount importance. If the accepted procedure allowing the IA to retain his/her birthday list consisting of a client’s name, address and phone number is adhered to, along with the successful transfer of a license, the way will be cleared to favour the relationship factor. Yet, game, set and match in the asset wars as we have known them is far from over and far from clear.

— Our Kissing Cousins

Having worked for Pru-Bache and Mother Merrill in days past I knew the trends of our broker cousins to the South would invariably cross the border in some form. Thus, the issue of The Broker Protocol in the U.S. is something to consider as the asset question in our country continues to evolve. The American Protocol allows the departing IA’s to take account information consisting of name, address, phone number, e/m address and the account title of clients they serviced at the firm. Pretty close to the accepted “birthday” protocol in Canada, eh? The difference is if the broker is a joint signatory to the Protocol along with the firm he/she worked for, then the broker is allowed to solicit the clients they serviced after they have joined their new firm. What is now changing in the U.S.A. is some of the major firms (Morgan Stanley, Cornerstone Financial Partners, U.B.S. Citigroup) have exited the Protocol while Merrill and Wells Fargo are still in for the time being. (Merrill stopped paying recruiting bonuses in June of ’17).

— And Here At Home

The impending demise of the American Protocol for Broker Recruiting, signals an all out effort to retain assets for the firm when an IA departs. It also serves to cut down on very large recruiting costs which can hang around in the balance sheets for many years. The struggle for asset retention in Canada is currently a huge priority for our bank-owned firms. Along with designing manoeuvres in retirement strategy, H/H client management limits, raising the bar on A.U.M., etc. it is conceivable the big firms may abandon the “birthday protocol” and head directly for the courtroom in the event of an IA departure. Whether or not the clash between firms and brokers south of the border actually has a direct effect up here the local battle for assets is in full engagement.

— The Alternative Trend

One significant difference in the asset ownership issue between the U.S.A. and Canada is the size of the independent R.I.A. market in the States. That US market is huge compared to our principal/agent population here in Canada, and the U.S. trend for ownership, as an issue, has not crossed the border yet. But, with the aggressive stance taken by the large Canadian firms with regard to asset and revenue levels, business style, retirement choices, et.al, it is entirely likely the independent market in this country will come into its own sooner or later.

The Curry-Henry Group is in the business of helping and assisting IA’s navigate the sometimes rough waters of their career-making decisions. Managing other people’s money is a very personal calling and the IA who has chosen this profession must have the freedom, flexibility and tools to bring to the client relationship. That relationship outweighs all other considerations. Knowing this we help you package your choices when contemplating a career change. The CHG service strategy deals with problems, actions, and results which lead to a definable outcome.

Brian L. Curry