The precedent one bank just set that could squash a talent poaching war

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Asset and wealth management are critical areas for banks moving forward. As low risk businesses that require little capital, they are ideal for the post Dodd-Frank world where banks need to keep a large portion of their assets in house, collecting dust.

The problem individual banks are facing is that every competitor is embracing a similar strategy, and there are only so many qualified bodies to go around. In fact, there is an extreme dearth of talent in wealth management, with the average financial adviser over the age of 50.

Most big brokerage firms have largely given up on training college kids (around one in 50 make it), so the answer over the past decade has been to poach veteran brokers with strong books of business using six- and seven-figure signing bonuses, shaped as forgivable loans. The end result has been a poaching war that better resembles a game of musical chairs, where brokers bounce from firm to firm with total industry headcount barely budging upwards.

Brokerage firms have tried two ways to stop the carnage. They have been backing a new rule that would force brokers to publicly acknowledge their signing bonus to clients, disincentivizing them from job-hopping. It’s a good idea but one that keeps getting pushed to the back burner and may never be introduced. Then in May, the four biggest brokerage firms banded together and said they’d reign in compensation for brokers. That was a bluff, one recruiter recently told us.

Now, one firm is reportedly ignoring aspects of a decade-old truce known as the Protocol for Broker Recruiting, where brokerage firms agree not to sue former employees when they walk to a competitor. The Protocol was necessary as it ended mountains of litigation but has also helped shape the current recruiting landscape. That one firm is an important one – Bank of America Merrill Lynch.

Reuters is reporting that BAML has been asking brokers to sign agreements saying that if they leave Merrill they can’t take certain clients with them. The focus, it appears, is on customers who were introduced to brokers through the bank’s other channels. Merrill Lynch could conceivably prove that those clients belong to the bank, not the broker.

"One of founders is trying to create exceptions to the protocol that are at odds with the stated goal laid out in the very first sentence: to further the clients' freedom of choice," an industry lawyer told Reuters. Merrill said it is abiding by the protocol.

While it’s clearly just a first step, it will be interesting to see the potential fallout. Merrill is one of the original four to sign the document. If the other 1,200 brokerage firms follow suit, wealth managers may find themselves staying put for a while, particularly if they rely more heavily on referrals.

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