Citigroup has announced its withdrawal from a pact which was designed with a view to allowing financial advisers to switch firms without a lawsuit being filed against them by former employers. The withdrawal of Citigroup from the pact comes after UBS Group AG and Morgan Stanley also indicated that they would exit the protocol. Citigroup will exit the pact on January 8.
“Similar to others in the industry, Citi has decided to exit the protocol. This decision allows us to continue to invest in our growing team of award-winning financial advisers,” Drew Benson, a company spokesperson, said in a statement.
Three months ago the decision by Morgan Stanley to withdraw from the pact raised concerns in the sector that other players would exit the protocol. The fears were confirmed when UBS indicated it would follow Morgan Stanley’s lead.
Signed around 14 years ago, the agreement was meant to mitigate lawsuits whenever financial advisers were poached by competitors. So far close to 1,700 companies have signed the agreement. Three firms created the protocol which offers departing financial advisers a waiver on the non-solicitation agreements which are common in the sector.
In the United States Citigroup employs around 1,000 relationship managers and financial advisers as part of the Citigold service. Advisers are thus able to transfer to other firms books of business on condition that the client information they bring along with them is limited.
In October while exiting the protocol Morgan Stanley indicated that the pact was full of loopholes and gamesmanship and this made the agreement unsustainable. A significant number of the big wirehouses had also indicated that they would be pulling back from the recruitment of new financial advisers.
Hundreds of firms
Despite the exit of Citigroup, UBS Group AG and Morgan Stanley, there are hundreds of firms which remain in the pact and this includes two of the biggest wealth management firms in the industry, Wells Fargo Advisors and Merrill Lynch. Last month, the head of Merrill Lynch, Andy Sieg, indicated to his leadership team that the firm had no intentions of exiting the pact though it was monitoring what the competition was doing. Two months ago, the chief executive officer of Raymond James Financial, Paul Reilly, said that the firm would remain party to the pact until everyone else had left.
The exit of Citigroup from the industry pact coincides with a decision by the U.S. Financial Industry Regulatory Authority to fine the financial institution approximately $11.5 million over errors which resulted in its retail clients getting wrong research ratings.