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INSIGHTS
Who Owns the Client?
Kenneth Kehrer, PhD, Principal Tim Kehrer, Senior Research Analyst Kehrer Bielan Research & Consulting
Banks and credit unions have historically asserted ownership of the brokerage clients acquired by their financial advisors, many requiring their advisors to sign non-solicitation agreements.  This position has been cited as one reason why top advisors are wary of working in a financial institution, and why bank-based advisors drag their feet about eschewing transaction commissions to build future income through advisory business.  While those points are debatable, one result of the non-solicitation agreements is clear.  They work.  When advisors leave a bank, they tend to leave most of their clients, and their assets, behind.
 
To support an expert witness engagement, Kehrer Bielan surveyed 18 bank broker dealers about their experience when an advisor leaves the firm.  The survey participants collectively employ 6,200 advisors and have $463 billion in assets under management.  Four of the firms participate in the broker protocol -- in the news again because of Morgan Stanley’s withdrawal – and do not have non-solicitation agreements. 
 
The 14 firms with non-solicitation agreements report that advisors leaving to join another firm typically take about 13% of their clients with them, and 17% of their assets.  This is markedly different from the experience cited in the industry press that advisors in wire houses or independent firms take more than half of the business with them when they leave.
 
 
The 14 firms with non-solicitation agreements report that advisors leaving to join another firm typically take about 13% of their clients with them, and 17% of their assets. 
Kehrer Bielan does find that advisors with longer tenure with the firm, and those with a preponderance of advisory assets, tend to take more business with them than advisors with less tenure and relatively more transaction accounts.  But over half of the advisors in banks and credit unions have been with the firm for less than five years.
 
Another thing is clear – FINRA arbitration panels uphold the non-solicitation agreements, and award damages against firms and advisors who flaunt them.