Is the Broker Protocol Collapsing?

by | Advisors

Is the Broker Protocol Collapsing?

In recent months, both Morgan Stanley and UBS have withdrawn from the Broker Protocol and many pundits have opined that the departure of two of the original and largest members of the Broker Protocol may have the effect of planting the first seeds to the Broker Protocol’s eventual demise. Although Merrill Lynch announced earlier this year that it intended to remain a member of the Broker Protocol, some pundits have speculated that it may be delaying the timing of its announcement to avoid any appearance of collusion between itself, Morgan Stanley, and UBS.


Protecting the Client

Hayden Royal is committed to a client first approach to Wealth Management. We firmly believe that It’s our job as fiduciaries to our clients to advocate first for their needs. Client relationship disruptions caused by contractual wrangling only serve to injure the end client and prohibit the advisor from carrying out his/her most important duty to the client – acting as a fiduciary. The relationship and servicing of retail advisory clients, however, is much more personal and unique.


How can lack of Broker Protocol hurt the client?

As an example, what if a long-time client dies when an advisor is on “garden leave” and the family looks to their trusted advisor to help sort through the quagmire of issues associated with the deceased client’s portfolio – only to find that the advisor is prohibited from providing service to them because he/she is in contractual limbo? This could ultimately cause harm to the client, which is entirely inconsistent with one of the main goals of both the SEC and FINRA – namely to protect the client.



If the flow of litigation ensues from large firms’ departures from the Broker Protocol, issues such as this will be at the forefront. The Broker Protocol indirectly serves and should continue to serve a noble purpose – allowing for orderly advisor transition so that the client needs are ultimately served.


Background: How Does the Broker Protocol Work?

The Broker Protocol is an agreement among many financial institutions that sets forth the rights that a departing broker/investment advisor has in connection with his/her departure from a Broker Protocol member firm with respect to certain client information in order to, among other things, contact clients and attempt to move the client over to the advisor’s new firm. Established in 2004 by Smith Barney (n/k/a Morgan Stanley), Merrill Lynch, and UBS, the primary purpose of establishing the Broker Protocol was to potentially avoid protracted and costly litigation associated with an advisor’s entitlement to, and ability to move the advisor’s clients to a new firm. As a result, the amount of non-compete/non-solicit litigation involving advisor departures has decreased dramatically in the past 15 years.