Another one of the original three signers of the broker protocol has decided to exit the agreement. Citigroup Global Markets will leave as of January 8.
'Similar to others in the industry, Citi has decided to exit the protocol,' wrote spokesman Drew Benson in an email. 'This decision allows us to continue to invest in our growing team of award-winning financial advisors.'
The agreement came into existence in 2004, with Citigroup Global Markets’ Smith Barney unit, now Morgan Stanley, Merrill Lynch and UBS agreeing to it.
It now includes more than 1,500 smaller firms, and was designed to make it easier for brokers to move between the firms that had agreed to it without fear of being sued for taking confidential information with them.
It was also aimed at cutting down on legal expenses incurred by the wirehouses as they tried to hang on to brokers and their clients. But many recruiters and lawyers say its primary function today is to help smaller firms recruit advisors.
This has not gone unnoticed by larger shops and in November 2017 Morgan Stanley, which has almost 16,000 advisors, broke ranks and announced it was to withdraw from the agreement.
It was followed by UBS in December of that year. Many observers had thought Merrill Lynch would be the next to exit, but it told its 15,000 brokers in December that it has no immediate plans to leave the protocol.
Citigroup's retail brokerage sales force was sharply reduced when it sold Smith Barney to Morgan Stanley in 2013, in the aftermath of the credit crisis, and today it has only about 1,000 advisors for wealth management and banking clients.
Recruiters say the story of its exit is only a story because of its high profile.
'While the name “Citi” is a big name to the public, Citi has not been recruiting advisers with books for years,' said Danny Sarch of Leitner Sarch Consultants, a recruitment firm. 'Most of their wealth management business is a “bank broker" business. So, the news of their leaving the protocol is actually much ado about nothing. The better question is why they ever were in the protocol at all.'
Louis Diamond of Diamond Consultants, another recruiter, called it a minor event. 'While Citi is a splashy name and one of the largest global financial institutions, they have a rather boutique wealth management unit and mostly consist of bank-based financial advisors,' he said.
Diamond also pointed to the fact that Citi does very little recruiting of advisors with books of business. 'They definitely looked at the calculus proving they would stand more to lose by staying in than exiting,' said Diamond.
'I assume one of the reasons Citi is leaving the protocol is to make it more difficult for their financial advisors to leave, particularly to the RIA / independent model,' said recruiter Michael King of Michael King Associates.
'Since their financial advisors get many leads from the bank this has always been a concern of theirs.'
News of Citi's exit from the protocol was first reported by AdvisorHub.