UBS Pulling Out of Broker Protocol
(Updates to say that UBS has confirmed the withdrawal to its brokers.)
UBS Wealth Management Americas is pulling out of the Protocol for Broker Recruiting, company executives told the firm’s 7,000 brokers on Monday.
Tom Naratil, president of UBS AG’s Americas businesses, along with client advisory group head Brian Hull, informed their sales force of the decision Monday morning.
The pullout will be effective on Friday, December 1, sources said.
The decision will make UBS Financial Services, the firm’s U.S. broker-dealer, the second major firm to withdraw from the interindustry agreement that permits brokers to jump to other Protocol signatories without fear of being sued.
Morgan Stanley broke ranks on November 3, sparking a firestorm in the brokerage community over its effects on broker mobility and smaller firms’ ability to recruit from larger rivals. Its surprise announcement of its decision just four days before it became effective set off a short-term recruiting explosion as brokers accepted offers before the Protocol door shut.
“[UBS’ withdrawal is] the nail in the coffin for the Protocol,” said Ron Edde, a brokerage industry recruiter at Millennium Career Advisors in San Diego.
Brokers who jump among Protocol signatories are permitted to take rudimentary client-contact information with them to their new firms. Prior to the Protocol’s creation, large firms would routinely run to court when brokers left to seek orders temporarily restraining them from calling former clients to jump-start their practices at their new employers.
The Protocol was created in 2004 by Merrill Lynch, Smith Barney and UBS Financial Services to reduce litigation costs created by attempts to prevent brokers from calling their former clients. Morgan Stanley joined the pact in October 2006.
The Protocol has lost its protective punch for the big firms in recent years as more than 1,500 smaller broker-dealers and registered investment advisory firms have become signatories, allowing them to recruit from the bigger firms, with little traffic in the opposite direction.
UBS, Morgan Stanley and Merrill Lynch have in the past 18 months questioned the efficacy of the Protocol and of their expensive recruiting battles as they paid large signing bonuses to top brokers in a process that is often a zero-sum game.
UBS also has shifted its hiring strategy, announcing in June 2016 that it was cutting its recruiting budget by 40% as part of its Swiss parent’s broad cost-cutting efforts. The pullback, which Merrill and Morgan Stanley echoed in part this year, also was aimed at reducing more than $3 billion of “forgivable” recruiting loans weighing down UBS Wealth Americas’ balance sheet.
UBS’s salesforce has since slimmed down to just over 6,860 brokers as it accepted attrition of brokers who retired or left for other firms, but the U.S. broker-dealer also has been battling depletion of customer assets.
When Morgan Stanley announced its plan to leave the Protocol, it said the pact had lost its effectiveness and was being “gamed” by other firms who moved in and out of the pact as it suited their needs.
UBS officials attributed their decision on Monday to regulatory, technology and cultural shifts that have made investment recommendations less important to brokers’ jobs than helping customers plan their financial futures. They also acknowledged that it furthers their drive to back away from recruiting and focus on what they say is retention of their best brokers.
A UBS spokeswoman declined to comment on, or confirm, its decision to leave, but a million-dollar producer said firm executives cited the need for efficiencies that they said would make the organization stronger more responsive to brokers and their customers
“They regurgitated all the same reasons we cut recruiting a year ago,” the broker said.