MS Stock-Plan Unit Brokers Enraged by New Non-Solicit Contract
Morgan Stanley last week foisted a new contract on more than two dozen members of a highly lucrative brokerage team that restricts their ability to solicit clients if they leave the firm.
The new Joint Production Memorandum Agreement was given to advisors who had worked under Roger Coleman, the superstar broker who abruptly retired in January. Coleman was a much decorated advisor who booked much of his $28 billion-revenue business from corporate executives who are annually awarded with stock options and other compensation awards.
The agreement would prohibit a team member who worked with Coleman from contacting any clients referred from MS’s Corporate Equity Solutions unit for one year if the advisor leaves Morgan Stanley. The timing of the new contract coincides with reassignment of Coleman’s personal accounts among his former colleagues.
In addition to the one-year solicitation ban, departing brokers would not be allowed to take the names, addresses and other contact information for clients, in contravention of the Protocol for Broker Recruiting that large brokerage firms created in 2004.
“Nobody is happy about it,” said a broker on the Coleman team, which is primarily based in Garden City, New York. “Everyone thinks the firm is going too far on this one.”
Corporate stock plan units typically advise large companies on structuring equity compensation plans for executives, and feed the names of beneficiaries to advisors for solicitation about managing their annual awards. Existing clients sometimes open additional accounts for such awards. Prior to the new contract, the one-year contact ban applied only to advisors who were designated as a “joint producer.”
Morgan Stanley is now claiming that all individual accounts referred through corporate equity programs belong to it rather than advisors. An earlier agreement on who “owns” the clients was much less restrictive, said a lawyer who has reviewed the new contract.
“They’re asking them to acknowledge that the clients are Morgan Stanley’s,” said the lawyer, who requested anonymity because he is not authorized to discuss it publicly. “No one seems to care about what the client wants.”
The contract, which AdvisorHub reviewed, requires brokers to affirm that the Corporate Equity Solutions program “had a meaningful impact in introducing, winning and/or maintaining the client accounts.
“Non-solicit restrictions shall be enforceable notwithstanding any third-party agreement, e.g. the Protocol for Broker Recruiting, to which Morgan Stanley may be a signatory,” it says.
The Protocol permits brokers who move among signatory firms to take a limited amount of client information with them when they change employers for purposes of soliciting them.
While the Protocol was aimed at reducing expensive litigation among large brokerage firms, its signers now include hundreds of small advisory firms who can hire from the larger firms without fear of reprisal. As a result, Merrill Lynch, Morgan Stanley and other early Protocol firms are carving out exceptions to the pact’s protections.
Bank of America, for example, last year began requiring retail brokers at Merrill Lynch to agree to refrain from soliciting clients who were referred from a bank branch if the broker leaves. Banks that own brokerage units now routinely promote cross-marketing of leads among their employees, enhancing the process with referral fees and other bonuses.
The Broker Protocol already exempts accounts in stock management programs from its protections. A Morgan Stanley official said the new joint production agreement is standard where clients work with multiple bankers and advisors across the firm, as is typical in the corporate stock unit.
What particularly irks advisors, some of whom chafed about sharing their production credit with Coleman, is that Morgan Stanley has substituted itself now that he has left. Coleman, who ranked in Barron’s Top 10 Financial Advisor lists for several years running, was typically credited for around 30% of revenue gleaned from a stock management-referred account, according to the source on the team.
“Everyone is considering not signing,” said the broker. “These accounts represent a large portion of their business and I can understand the hesitance.”
Advisors on Coleman’s team said they have still not received a compelling explanation for why he so abruptly left. A Morgan Stanley spokesman at the time said Coleman, who was 54 in late December, had retired.
Morgan Stanley is already embroiled in litigation involving Coleman and former members of his team. The company in January 2013 unsuccessfully filed a temporary restraining order against Brian Shepherd and Brian Melbourne for contacting their clients after they left MS for Credit Suisse’s U.S. brokerage unit. It is now contesting an arbitration claim filed by the two advisors that challenges the compensation formula used for Coleman’s team.
Depositions in that case, which seeks $30 million, are ongoing.