When a financial adviser leaves a firm, clients often get caught in the middle of what amounts to a messy divorce. A squabble now playing out in the wealth management industry suggests that many of those splits could get messier.
Financial advisers act as shepherds for their clients, guiding them to sound investments. As the individual relationships grow, trust builds. If an adviser moves from one firm to another, clients typically follow.
For years, wealth management firms agreed not to stand in the way of such broker recruitment, putting client needs ahead of their own. But now, some firms are balking at letting clients go, and are threatening legal action to make them stay put. At the root of the fight is money, billions of dollars in client fees that wealth management firms reap every year.
The dispute started last year when Morgan Stanley, followed by UBS and Citibank, withdrew from the broker protocol, an agreement that established rules for broker recruitment. The protocol allowed brokers to move between firms and to take their clients with them.
The protocol was started in 2004 with four wealth management firms: Merrill Lynch, Morgan Stanley, Smith Barney and UBS. It is now endorsed by nearly 1,700 firms. But with two of the largest wealth managers pulling out — Morgan Stanley has some 15,000 advisers; UBS has more than 6,800 — an industry agreement most clients have never heard of could have a major effect on them.