UBS Financial Services is pulling out of the broker recruiting protocol. The move by UBS, which had announced earlier this year it would scale back recruiting efforts and focus on retention of existing brokers, was expected.

The move follows by a month Morgan Stanley’s decision to pull out of the recruiting pact. Industry observers said it was likely other major wirehouses would follow Morgan Stanley and UBS.

In a memo sent to the brokerage network Monday, Tom Naratil, head of wealth management, said the firm will exit the protocol as of this Friday, December 1. “[O]ur operating model is more focused on retaining our existing advisors than recruiting,” Naratil said. “Our top priority is helping you reach your full potential, not recruiting advisors from our competitors.”

Mindy Diamond, president and CEO of Diamond Consultants, said she thought that Merrill Lynch, a unit of Bank of America, could soon exit the protocol. Speaking two weeks ago at the annual Schwab Impact conference in Chicago, Bernie Clark, executive vice president of Schwab Advisor Services, also predicted additional wirehouses might follow Morgan Stanley.

Both Clark and Diamond said the move would not be viewed favorably by many brokers. In all likelihood, the strategy could prompt more brokers to consider going independent, both said.

Philosophically, the protocol "underscores and facilitates advisor and client choice," Diamond said. Moreover, the agreement aligns brokerage firms with a world where clients and regulators are increasingly expecting advisors and brokers to act as fiduciaries.                                                                         

The protocol is a voluntary agreement that lets brokers take client contact information and solicit those clients to follow them when they move from one protocol signatory to another. It was designed to reduced litigation between firms and brokers and minimize negative client experiences. About 1,700 brokerage firms were signatories and there are still more than 1,600 firms who adhere to the agreement.

But giant wirehouses may have other priorities these days. Many have billions of dollars in outstanding forgivable loans they have made to lure brokers to switch firms. “Our industry has evolved significantly since the initiation of the Broker Protocol in 2004, with changes in regulations, technology and a major shift towards wealth management and financial planning,” Naratil said.

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