Morgan Stanley could do little but watch as a team of advisers overseeing $2.2bn in assets quit last month to start their own shop, the latest in a string of departures that have shifted billions of dollars in assets away from big Wall Street banks.
Bloomberg News reports that after months of secret and meticulous planning, 13 employees in Wichita, Kansas, left on a Friday with phone numbers and e-mail addresses for 800 clients, and then spent a frantic weekend on the phone trying to get them to switch to their upstart. It all depended on a gift from Morgan Stanley: Years earlier, the bank had signed away its right to sue.
The defectors who started the firm, 6 Meridian, were able to take clients with them thanks to an industry agreement called the Protocol for Broker Recruiting. The pact was devised in 2004 by three firms - Merrill Lynch, Citigroup and UBS - in the name of reducing litigation and giving customers a choice when one big firm poached from another. Morgan Stanley, which declined to comment, joined the protocol two years later.
But over the years, the protocol has had an unanticipated effect by offering a blueprint to brokers with an entrepreneurial bent: have someone set up a shell company, have the company sign the protocol, and then take over the company without fear of a lawsuit.
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