Evidence-Based Investing – More Beginning of the End

I was fortunate to attend the second annual Evidence-Based Investing conference on November 2nd in NYC, put on by the team over at Ritholtz Wealth Management, and once again it was excellent.  I summarized this event last year, and others have more eloquently done so this year.

Some news was breaking during the week that contrasted so perfectly with the mood and camaraderie at the conference.  Morgan Stanley announced they were leaving the Broker Protocol, pushing the message to the field with 4 days notice.

The ‘Protocol’ was designed in 2004 when some thoughtful executives of Smith Barney, Morgan Stanley, Merrill Lynch, UBS, etc, decided it was ridiculous to sue each other every time a broker switched firms.  Simply put, the Protocol allows an advisor to resign, hand the firm a list of clients they intend to take, and that’s that.  No lawsuits, no restraining orders, a simple ‘starting line’ where both the advisor and firm had an equal chance to call and woo the client into staying or going.

One can argue all day whether there are better ways to handle it, but the Protocol worked.  My firm signed it, and so have many others leaving the Big Bank world.  In the battle of David vs Wall Street Goliath, it was the one small rock in the slingshot of the advisor.

On the day Morgan Stanley announced it, I tweeted this:

Days later:

At its core, the Protocol creates a discussion of who ‘owns’ the client.  Contrary to what many clients feel, and common sense, the Wall Street firms maintain that they ‘own’ the client.  Somewhere in the employment contract it states that the client is firm property, and therefore when the advisor leaves they are legally prevented from soliciting the client to go along.  For over 10 years, the Protocol offered a small reprieve from that premise.  With Morgan Stanley’s move, that period is clearly coming to an end.

Last year I remember thinking (and writing) that the Evidence Based Investing conference felt like the beginning of the end.  Old Wall Street was dying, the horse was out of the barn and couldn’t come back.  Young, brilliant people, together in a room with a goal of transforming the industry into one based on facts, research, transparency and truth.  It is literally and figuratively a new generation.  An army of professionals out there striving to do this job better every day with the clients’ best interest at heart.  They offer ideas and insights, respectful challenges to each others’ work, all backed up by decades of personal and professional research.  They believe investments should be cheap, and clear, and they’re more than happy to educate on why.

It’s tremendous irony that this story broke over the same days I was sitting with this group.  What a contrast of worlds!  Every year the movement gets bigger and better, and the gulf only widens between the firms trying to ‘own’ the clients, and those trying to serve them.

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