About Face, Cresset Bolts Broker Protocol (after rejoining it months ago)

In a surprising move, Cresset has filed to withdraw from the Protocol for Broker Recruiting, marking its departure on the first day of 2024. This development comes merely eight months after Cresset rejoined the protocol and almost four years since the firm initially withdrew in February 2020.

The Protocol for Broker Recruiting, established in 2004, was designed to address regulatory concerns about the adverse impact of extensive litigation involving departing advisors on clients. The two-page document outlined conditions under which advisors could leave while retaining a limited amount of client information without facing legal repercussions.

Initially embraced by over 400 firms, including many active recruiters in the growing Registered Investment Advisor (RIA) channel, the protocol has expanded to 2,424 signatories, managed by Capital Forensics, a litigation and compliance firm owned by J.S. Held.

The cracks in the protocol began to surface in 2017 when both UBS and Morgan Stanley withdrew from the agreement. At that time, Morgan Stanley expressed concerns about the protocol’s susceptibility to “gamesmanship and loopholes,” while UBS cited a shift away from aggressive recruiting tactics, opting to focus on developing existing advisors and nurturing emerging talent.

This pivotal year coincided with the launch of Cresset, founded as a multifamily office by co-Chairmen Avy Stein and Erik Becker to manage their families’ assets. Despite being a relatively new entrant, Cresset has rapidly emerged as one of the fastest-growing RIAs in the country.

Cresset’s decision to withdraw from the protocol raises questions about the ongoing viability and effectiveness of the agreement. The protocol, initially hailed as a solution to address the challenges faced by departing advisors and mitigate legal repercussions, has experienced notable defections from major financial institutions over the years.

The departure of UBS and Morgan Stanley in 2017 signaled a shift in industry sentiment, with concerns raised about the protocol’s susceptibility to exploitation and the need for a more strategic approach to advisor recruitment and retention.

Cresset’s unique position as a rapidly growing RIA adds a layer of significance to its departure from the protocol. The firm’s impressive growth, accumulating close to $15 billion in assets this year alone, highlights its prominence in the industry. Managing approximately $45 billion across 900 client accounts through various subsidiary businesses, Cresset’s decision may prompt other firms to reassess their participation in the protocol.

The evolving landscape of the financial advisory industry, coupled with the changing dynamics of advisor recruitment and retention, has prompted firms to reconsider their strategies. Cresset’s move may signal a broader trend where firms, particularly those experiencing significant growth, evaluate the protocol’s relevance in achieving their business objectives. As the industry continues to adapt to new challenges and opportunities, the Protocol for Broker Recruiting may undergo further scrutiny and adjustments to align with the evolving needs and priorities of financial institutions and their advisors.

Cresset’s decision to withdraw from the Protocol for Broker Recruiting adds a new chapter to the evolving narrative surrounding this industry agreement. The protocol, once seen as a vital tool in addressing legal challenges associated with advisor departures, has faced notable departures from major players in recent years. Cresset’s departure, given its remarkable growth trajectory, prompts reflection on the protocol’s efficacy and its alignment with the strategic goals of rapidly expanding firms in the RIA space. 

As the financial advisory landscape continues to transform, the protocol may undergo further evaluation and potential adjustments to meet the evolving dynamics of advisor recruitment and retention in the industry.

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