HighTower Withdraws from Protocol, Calls It Irrelevant to New Business Model
(Corrects number of advisors to 289 in fourth paragraph from the end.)
HighTower Advisors, founded a decade ago with the goal of hiring high-producing brokers from large broker-dealers and splitting revenue with them, dropped out of the Protocol for Broker Recruiting on Tuesday.
“We now own more than 80% of the revenue of our advisory businesses,” HighTower Chief Executive Bob Oros said in a prepared statement. “That will be nearly 90% by August 2019, up from 23% in early 2018. Given this evolution away from broker recruitment to an ownership-based business model, the Broker Protocol is no longer relevant to us or to our advisors.”
The Protocol was formed in 2004 by Merrill Lynch, Smith Barney and UBS Financial Services to lower skyrocketing legal bills engendered by courtroom petitions to enjoin fleeing brokers from soliciting their clients. Other firms signed on, but the pact lost its punch for the big players in recent years as thousands of small advisory firms who have few advisors to lose joined with the goal of recruiting from their larger rivals. In late 2017 and early 2018, Morgan Stanley, UBS and Citigroup acknowledged the changing dynamic, dropped out of the pact and selectively began suing some departing brokers.
There is no direct cost to joining the Protocol, and a HighTower spokeswoman did not comment on whether the firm’s withdrawal is aimed as a prophylactic against losing advisors.
HighTower is the fourth, and largest, firm to drop out of the pact this year, according to an archive maintained by law firm Carlile Patchen & Murphy LLP. A handful of small registered investment advisory firms have signed onto the agreement in 2019.
HighTower, whose previous management withdrew from its plan to sell the firm or take it public within a decade of its founding and share some of the wealth with its brokers, currently has 289 advisors, according to a spokeswoman. The firm’s website still advertises that HighTower was “built by advisors, for advisors” and flaunts a checklist contrasting the “unbiased guidance” its firms give to customers to the “old Wall Street paradigm” of proprietary products “pushed” by brokers who receive “opaque commissions.”
Oros, a discount brokerage and independent broker-dealer veteran recruited to HighTower this year, said in his prepared statement that the firm is using its new capital to benefit advisors as well as its shareholders.
“Advisors use our capital for a range of purposes unique to their own unique business priorities, such as for tuck-ins, acquisitions, expansion, partial monetization or business succession,” he said. “Combined with access to institutional-quality operational and IT support, advisors have all the tools they need to accelerate the growth of their businesses.”
HighTower’s decision to withdraw from the Protocol was reported earlier on Tuesday by the “Financial Planning” website.