By Elizabeth Dilts and Olivia Oran
NEW YORK (Reuters) - Morgan Stanley (NYSE:MS) is quitting a pact it signed with rival securities brokerages over a decade ago agreeing not to sue one another when brokers quit to join rivals and take clients with them.
The bank's announcement on Monday comes amid a changing competitive landscape for the securities industry. Top advisers are increasingly leaving major brokerages to join independent registered investment firms, the majority of which are not party to the pact.
Morgan Stanley said in a statement that quitting the agreement would allow it to invest more in its advisers and their teams.
Industry recruiters said that by exiting the industry accord, Morgan Stanley will be able to act more aggressively to keep its top advisers and fight for the clients of those who leave.
"If you’re going to be a net loser rather than a net gainer in terms of recruiting, why stay in the protocol?” said Danny Sarch, president of the recruiting firm Leitner Sarch Consultants.
Morgan Stanley is the first Wall Street brokerage to exit the industry truce, called the Protocol for Broker Recruiting, and its departure could trigger a wave of defections.
Representatives of others subject to the protocol, including Bank of America Merrill Lynch (NYSE:BAC), UBS Wealth Management Americas and Raymond James, could not immediately be reached for comment. A representative for Wells Fargo (NYSE:WFC) Advisors declined to comment.
The agreement was struck in 2004 when major broker-dealers still dominated the wealth management industry.
Increased regulation of major banks in the wake of the financial crisis has made independent firms increasingly attractive to financial advisers seeking relief from red tape. They often taken their clients with them when they leave, and under the protocol, their former firms cannot sue them.
From 2006 to 2016, the top four U.S. securities brokerages, Morgan Stanley, Bank of America, Wells Fargo and UBS Wealth Management Americas, lost 10 percent of the industry's asset market share and now account for 36 percent of assets under management, according to research firm Cerulli Associates.
Cerulli estimates that so-called registered investment advisers, a popular type of independent firm, will control 28 percent of assets under management by 2018 and 24.6 percent of the advisers. In 2016, they controlled 23 percent of investor assets.
Morgan Stanley's decision comes just a few months after several large wealth management firms made changes to their recruiting practices, including reducing adviser recruiting. For years, brokerage executives have complained about endless competition among Wall Street firms to offer ever more lucrative recruitment packages to gain top advisers and their clients and assets.
