- On June 19, 2018
There continues to be speculation in recruiting circles on when Merrill Lynch will pull out of Broker Protocol. Both Merrill and Wells Fargo Advisors (WFA) have projected they will remain in Protocol, for the time being, but there seems to be more conviction with WFA’s desire to stay in protocol than Merrill’s. The problem, of course, is that when, or if, Merrill decides they will exit protocol, it is very likely their advisors will only have a few days notice to do anything about it.
On November 21st we predicted UBS would be out of Protocol within the same month and by December 1st they officially were. In the same article, we wrongly predicted Merrill would pull out of Protocol in December. While the December prediction was off, we continue to think (and we know we aren’t alone) that Merrill intends to pull out of Protocol this year. It has been like watching a fire drill in slow motion this year.
While we aren’t predicting the exact month, we are helping advisors with preparing as if it could be any month, because it could. While the focus of the next Protocol exit has been mostly on Merrill, it is Wells Fargo Advisors who should equally be in preparation mode. When Merrill exits Protocol, there is a reasonable probability WFA will quickly follow.
WFA only has four Protocol options
- Remain in Protocol whether Merrill exits or not
- Remain in Protocol after a Merrill exit for a while but then exit later
- Exit Protocol right after a Merrill exit
- Exit Protocol before Merrill does
Will they stay or will they go now…
…If they stay there will be trouble…if they go there will be double…we love that song. Sure, WFA could choose to stay in Protocol long term regardless of what Merrill does. It’s difficult for us to see a path leading to WFA remaining as the only Protocol wirehouse firm. But, we have seen crazier things happen in our industry than that, so you never know until you know. WFA does seem committed to Protocol and saying all of the right things. While WFA may prefer a Protocol world, they won’t likely be able to be the only wirehouse in it.
WFA already has their contingent protocol strategy decision made
We don’t know what WFA’s protocol reaction strategy will be if Merrill Lynch exits Protocol, we’re just pretty sure they have already decided. With Morgan Stanley and UBS out, having Merrill follow next would, of course, have significant impacts on WFA. The recruiting and retention ramifications would be so profound that WFA has surely already evaluated their options and has their reaction strategy plan of action already in place.
Of course, this would be held close to the vest and may not be detailed in a corporate memo yet. But you have brilliant people running WFA, and they know Merrill exiting Protocol is a likely, if not real, possibility.
If WFA does intend to exit Protocol if Merrill does, then it’s also difficult to see the benefits of WFA waiting for very long. If the decision to exit Protocol is made conditioned on Merrill leaving, then WFA would benefit more by a rapid exit following Merrill than a prolonged one.
How the Merrill and WFA protocol exit could play out
- Merrill exits Protocol this year
- WFA has already determined their reaction strategy if Merrill exits
- WFA has already decided that they can’t be the only wirehouse Protocol firm
- If Merrill exits, WFA has decided to also exit
- If WFA is also going to exit, then doing so immediately after Merrill is the smart move
- Merrill announces Protocol exit followed by WFA exit announcement the next day
- Within a week after, all four wirehouses will be officially non-Protocol firms
If exiting protocol after Merrill is the decision, then the smart move is a swift protocol exit
There wouldn’t be many good reasons to prolong an exit and a lot of great reasons from the WFA corporate perspective to exit immediately after Merrill. The smart move would be for WFA to exit immediately after Merrill with the same notice period Merrill provides their advisors.
Why could WFA decide to exit within a day of Merrill Lynch’s exit?
- If Merrill exits then the likely prevailing view from advisors will be that WFA will follow. This will be a significant recruiting obstacle to WFA and prevent WFA benefiting from Merrill’s exit and perhaps bring their recruiting to a grinding stop.
- There is already a steady stream of exiting WFA advisors leaving each month. WFA would be able to put a temporary band-aid on the existing monthly outflows. If recruiting essentially stops because advisors think WFA will exit Protocol next, then retention becomes all the more critical.
- The faster they exit after Merrill with a matching notice period, the fewer advisors they would lose than waiting weeks or months. Competitors can only recruit out so many advisors with a week or less notice.
- The negativity in the financial services media would be split with another wirehouse, with Merrill taking the brunt of it because most would understand WFA’s position of not being able to remain as the only wirehouse Protocol firm. Even WFA advisors may be more understanding than Merrill advisors will be because of this.
- Advisor negativity could also be offset if WFA simultaneously opened up their FiNet platform for a smooth transition from PCG, or something similar, when exiting Protocol for their W-2 employee WFA advisors.
- WFA would benefit from the recruiting chaos a rapid follow-up exit would cause. WFA knows that their competitors recruiting resources would be maximized in transitioning Merrill advisors alone, and utterly overwhelmed if WFA’s exit was at the same time.
- Remember that Morgan Stanley exited on November 3rd and UBS soon followed on December 1st. If Merrill follows the Morgan Stanley and UBS example of only giving a few days notice, and within a day or two, WFA exits with a short warning as well, then we would see about 25,000 advisors (and their millions of clients) lose Protocol protections all at the same time.
- The recruiting forces against WFA would be more dissipated if competitors had to focus on both wirehouses simultaneously during that week (or less) notice period. Competitors would have to make choices and wouldn’t be able to onboard all the advisors swimming to their ships. There wouldn’t be enough life jackets to go around for everyone.
Merrill and WFA advisors have two protocol equation options:
Preparation = Choice
Complacency = Captivity
When wirehouses exit Protocol with less than a week’s notice, only the advisors who have already prepared will have the choice to leave under protocol. Advisors who were complacent will become captive advisors who can still move of course, but not in the easy way Protocol allows.
For advisors who are committed and happy wirehouse lifers, none of this will matter anyway. For those advisors who aren’t exactly thrilled, or wouldn’t be satisfied if their firm pulled out of Protocol, then your smart move would be to prepare now so you can be poised later when the time comes.
Preparation involves confidentially exploring which options are the most ideal for you and beginning the confidential due diligence process. Advisors who have taken steps to have a recruiting offer in hand, or have provided enough information that a firm could quickly deliver an offer, will be the ones that get all of the life jackets. The advisors who do not have anything prepared and have not already had preliminary discussions will find themselves swimming to the ship only to be turned away.
Advisorbox provides the highest quality life jackets
While some think it is all quiet on the recruiting front regarding Protocol, we see what is happening in the recruiting trenches, and it is anything but peaceful. While there are advisors who are leaving now because they see the writing on the wall, others would rather not move at this time but are getting prepared and poised just in case.
Advisorbox provides custom life jackets for wirehouse advisors who don’t want to go down with a non-Protocol ship. Our life jackets fit snug, come in a variety of options, has no quantity limit, and are completely invisible.
If your wirehouse exits protocol causing your heart to sink, then inflate the life jacket and exit the ship in time. If you choose to stay, no one there knew you had the invisible life jacket. The life jacket(s) gives you the freedom to choose. And like we often say, choice always benefits the advisor.
Written by the Advisorbox Team
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