Headhunter Offers to Pay Morgan Stanley Brokers’ Legal Fees
A Colorado-based search firm is jumping on the outrage it says Morgan Stanley generated by dropping out of the Protocol for Broker Recruiting by offering to pay up to $25,000 of legal costs for brokers with at least $500,000 of production who leave the firm.
Advisorbox on Wednesday unveiled the (ALLI), a promotion it has aimed at brokers who brought customers with them when they joined Morgan Stanley under the protection of the industry pact and “got trapped” by the broker-dealer’s abrupt exit.
“It’s an equalizer, not only to help advisors go to other firms that might lack resources to fight legal battles but so they don’t have to live in fear and confusion about what all this means,” said Advisorbox founder Darren Manis. “We’ve talked to dozens of Morgan Stanley advisors who would like to leave, but are paralyzed trying to figure out what’s going to those who leave.”
A spokeswoman for Morgan Stanley, which pulled out of the Protocol two weeks ago, did not respond to a request for comment.
The biggest U.S. brokerage firm said the inter-industry recruiting pact had lost its value for the three big firms that designed it in 2004 to lower exorbitant costs they incurred suing each other to retain advisors and clients. The Protocol permits brokers to join other signatory firms with basic customer-contact information, but it is now dominated by smaller broker-dealers and advisory firms that recruit out of the larger firms while rarely losing their own advisors.
AdvisorBox is offering to pay up to $25,000 to brokers who leave under its aegis, an amount it says should cover two consultation sessions with lawyers to ensure that they do not violate employment agreements and non-solicit clauses and to offset expenses they may incur if Morgan Stanley seeks restraining orders in court and arbitration.
Manis said he is cobbling together a group of employment lawyers and also contracting with technology experts who can help brokers obtain publicly available client contact information via social media so they avoid violating privacy laws and contractual promises to leave customer data behind.
“This is certainly a novel approach for a recruiting firm,” said David Harmon, an employment lawyer in New York who often represents brokers and advisors. “The landscape is changing, and while it remains to be seen if more firms will follow Morgan Stanley its decisions certainly makes movement out of the firm more difficult.”
Since new employers typically cover litigation costs of brokers who move to or from non-Protocol firms, Manis expects that his primary expenses from brokers taking his offer will be the typical $1500-$2500 consulting costs that lawyers charge. Since he and other recruiting firms in the brokerage industry typically are paid 6% of a broker’s fees and commissions produced in the previous 12 months ($60,000 for a million-dollar producer), he said he can easily cover the $25,000 maximum if required.
But he admits that he is hoping to counter the challenges that Morgan Stanley’s exit from the Protocol, or Prexit, as some wags put it, present to recruiters and brokers.
The firm has said it will enforce one-year non-solicitation agreements in most of its advisors’ employment contracts and agreements. Other large firms in the Protocol, including original signers Merrill Lynch and UBS Financial Services, have not said whether they will follow Morgan Stanley but are widely expected to do so. (The third original member, Smith Barney, is now part of Morgan Stanley.)
“It’s an interesting time in the industry,” said Brad Kirklin, a lawyer at Levinthal Wilkins in Houston who said he will work with Advisorbox. “We’re in a different world now, and it will be fascinating to see if the other big boys follow suit and how courts will respond to charges of non-solicit provision violations.”
At least one Morgan Stanley broker laughed when told of the $25,000 offer.
“The fact that the would advertise that is kind of comical,” the 20-year industry veteran and former Smith Barney broker said, speaking on condition of anonymity. “To cap it at $25,000 is laughable considering how much they still pay us to move and the ‘blood money’ the new firm ends up paying to the old firm to settle these things.”