EXCLUSIVE: Citi Puts Another Nail in Coffin of Broker Protocol
Citigroup is withdrawing from the Protocol for Broker Recruiting as of January 8, becoming the second of the original three signers of the pact to leave in the last two months.
The banking giant’s exit is somewhat symbolic since it affects the fewer than 1,000 brokers who work at its Personal Wealth Management division and who get a large part of their referrals of wealthy clients from Citibank branches. But on the heels of Morgan Stanley’s and UBS Financial Services’ withdrawals, it signals continuing disruption in Wall Street’s recruiting environment.
The Protocol, which was initially signed in 2004 by Citigroup Global Markets’ Smith Barney unit, Merrill Lynch and UBS—and which now includes more than 1,500 smaller firms—permits brokers to move among signatory firms with customer-contact information without fear of being sued for taking confidential data with them.
It was intended to lower legal fees that the big firms were amassing from lawsuits aimed at retaining clients of former brokers who were moving among them in a zero-sum game. Executives at the firms say the Protocol today is primarily a one-way Street used by smaller firms to recruit talent.
Morgan Stanley in the past two months has revved up its lawsuit engine against departing brokers.
“Similar to others in the industry, Citi has decided to exit the Protocol,” a Citigroup spokesman wrote in an e-mail. “This decision allows us to continue to invest in our growing team of award-winning financial advisors.”
He did not respond to questions on how many brokers work within the bank’s Personal Wealth Management division and on how the decision will enhance growth.
In 2013, Citi completed its divestiture of Smith Barney and its more than 7,000 brokers to Morgan Stanley, leaving it at the time with about 350 Personal Wealth Management brokers at its branches. The bank clarified its Protocol agreement that year to say that only its PWM business, described as its “successor retail broker-dealer business to Smith Barney,” was subject to the pact and specifically exempted employees in its private banking division who typically work with wealthy families and individuals from the pact’s protection.
Raymond James Financial Services, BB&T Securities, LPL Financial Services and other broker-dealers with units that serve in-house bank customers or third-party banks and credit unions also have exempted those units’ employees from the Protocol’s protection.
Morgan Stanley, the biggest U.S. broker as measured by its almost 16,000 financial advisors, pulled out of the Protocol on November 3 and was followed on December 1 by UBS.
Merrill Lynch told its approximately 15,000 brokers earlier this month that it has no immediate plans to leave the Protocol.