The Treat is for the Taking: The Anniversary of Morgan Stanley’s Halloween Protocol Withdrawal

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Despite haunting tales of legal battles over client contact over the last year, you may be surprised to know that many financial advisors have successfully transitioned away from non-Protocol firms. My law firm alone has already assisted over 60 financial advisors transition billions of dollars of customer assets since two of the three original signatory firms withdrew from the Protocol almost a year ago this Halloween.

The Halloween 2018 treat is that advisors and clients can still freely move.  However, in the context of a non-protocol move, a transition is now more analogous to being forced to forego the E-Z Pass transponder tag (Protocol Membership) and wait on line and pay slightly more at the toll booth to get over a bridge or tunnel.  However, provided that the advisor pays the toll (abiding by contractual obligations), such advisor can still get to the other side.  The vast majority of financial advisors are employed “at-will” and clients still retain privacy rights and the freedom of choice with whom to invest their money, irrespective of Protocol membership.

How clients exercise their freedom of choice as to where and with whom clients choose to maintain and manage their money is the ultimate consideration for an advisor contemplating a departure.  Advisors must objectively assess the strength of the advisor/client relationship and whether clients will likely desire and choose to follow the advisor upon departure.  Although Protocol membership enabled departing financial advisors to take certain information and “solicit” clients in connection with exercising their choice, now such choice is left exclusively to the to the clients without such aide.  However, Protocol membership does not make the decisions to move accounts – clients do.

Although there have been a number of lawsuits filed by non-protocol firms from wirehouses to private banks and discount brokers, such filings likely could have been avoided if such advisors and/or teams retained competent counsel to fully understand their post-employment contractual obligations pre-departure—the slight upcharge at the toll booth—and acted in a manner consistent with such obligations.  Consulting with experienced counsel pre-departure will inform the advisor(s) of the Do’s and Dont’s of a successful non-Protocol transition and that it will be slower and more cumbersome than a Protocol transition, although, when successfully executed, clearly worth the extra time and effort.

Unlike in 2004 when the Protocol was born, we now live in a 24/7/365 information era with iPhones, LinkedIn, Facebook, Google, Twitter, and apps. Information is readily available and in abundance.  Clients can readily find advisors and vice versa.

Thus, the critical, yet unscientific, pre-departure deoxyribonucleic acid (“DNA”) analysis will likely predict the ultimate success of an advisor’s transition.

Firm DNA is composed of, among other things, its name, systems, processes, technology, research, and client related documents, which it broadly defines as its confidential and proprietary information or trade secrets.  Theoretically, firm DNA theoretically provides the basis for an advisor, and by extension the client, to join and remain at the firm. Advisors are prohibited from taking firm DNA upon departure and firms will rely upon its DNA to attempt to convince clients to remain post-departure.

Advisor DNA are literally molecules contained within each cell of the advisor’s own bodies that carry within them how they will look and function – in other words, who they are.  Firms cannot retain advisor DNA upon departure, which DNA has been utilized in the creation and maintenance of each and every advisor client relationship.

Thus, when an advisor departs, clients have a simple choice: Firm DNA, Advisor DNA, or neither.  If the clients choose Advisor DNA, then Protocol or non-Protocol, the clients will likely transfer their accounts and the transition will be a success.  If the client chooses Firm DNA, then it is best that the advisor not make the move.

Even if an advisor is currently at a non-Protocol firm, freedom awaits if a transition is well-conceived, the advisor honors post-employment obligations, and has strong Advisor DNA.  Whether Halloween or otherwise, the treat is for the taking.

David A. Gehn is a partner at the law firm Ellenoff Grossman & Schole LLP.  Since 1992, David’s practice has focused on the financial services industry.  David regularly represents broker-dealers, financial advisors, and registered investment advisory firms in connection with transitions, licensing and regulatory issues, litigation, and arbitrations. Connect with him via LinkedIn or email

Disclaimer: This article only reflects the personal opinion of its author. The opinions and views contained in this article shall in no way reflect the opinions and views of Ellenoff Grossman & Schole LLP or any other persons or entities. Nothing contained in this article shall be construed as legal advice and should not be relied on in any manner. This article may be considered ATTORNEY ADVERTISING.

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