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(Bloomberg) -- UBS Group AG is withdrawing from an industry pact designed to allow financial advisers to change companies without being sued by former employers, further destabilizing the accord after Morgan Stanley’s October exit.
The Zurich-based firm will no longer adhere to the Protocol for Broker Recruiting as of Dec. 1, according to an internal memo from Tom Naratil, president of wealth management Americas. On Wall Street reported the decision earlier Monday.
“Our operating model is more focused on retaining our existing advisers than recruiting to grow our business,” Naratil said in the memo. “Our top priority is helping you reach your full potential, not recruiting advisers from our competitors.”
Morgan Stanley’s departure from the pact sparked concerns in the industry over further defections. The agreement, signed in 2004, was designed to mitigate lawsuits when advisers left to join a competitor. Almost 1,700 firms have signed the protocol.
New York-based Morgan Stanley said the agreement was no longer sustainable and had become “replete with opportunities for gamesmanship and loopholes.” Competitors employed tactics such as joining the pact to lure advisers, only to then drop out of the agreement, the firm said.
Withdrawing might make it harder for the companies to recruit advisers in the future, said Bill Willis, head of recruiter Willis Consulting. If other big players such as Bank of America Corp.’s Merrill Lynch, Wells Fargo & Co. or Ameriprise Financial Inc. join UBS and Morgan Stanley in leaving the pact, then it starts to become a meaningless accord, he said.
“I wouldn’t be surprised to see the other major firms follow,” he said.
Read more: A Q&A on the Broker Protocol
Not all companies are eager to leave. Raymond James Financial Inc. Chief Executive Officer Paul Reilly said this month, soon after Morgan Stanley announced its plans, that he would stay in the accord even if it ends up being “the last firm standing.”
Recruiting of advisers at some of the major banks has declined. UBS said last year that it would cut back on the number of advisers it wooed from competitors, and would spend less money on those efforts. Rivals including Morgan Stanley followed with similar initiatives. And more brokers are also turning toward being independent or registered investment advisers, which could pose more of a threat to banks, said Frank LaRosa, CEO of Elite Consulting Partners.
Those changes came after the Department of Labor announced its new fiduciary rule, which was designed to eliminate some conflicts of interest from people who oversaw retirement accounts. The regulation, created under then-President Barack Obama, has been in a state of flux since Donald Trump was elected.
(Updates with recruiters’ comments starting in sixth paragraphs.)
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