In May, Morgan Stanley distributed a memo outlining new guidelines for the distribution of house accounts and leads to brokers.
As one criterion to qualify for the freebies, brokers must sign a noncompete agreement. The agreement covers assigned accounts as well as accounts brokers get from leads generated by the firm — plus any referrals received from these covered accounts. The firm retains the right to reassign the accounts.
The new policy, authored by the firm's senior sales managers, lays out a series of factors branch managers should consider in distributing accounts and leads. The intent is to keep assets at the firm.
“Retention of accounts at the firm” should be considered in distributing them, the memo says.
If brokers do not sign the noncompete agreement, in which they agree not to solicit covered accounts for a period of one year after leaving the firm, they cannot receive leads or house accounts.
“Commitment to Morgan Stanley policies and business strategies” is another factor managers should consider, the memo says.
“It's part of that captive sales force they want,” says a Morgan Stanley rep in the Southwest.
A West Coast rep notes the contract language is similar to the firm's “code of conduct” whereby reps agree not to take information from the firm upon termination. “Nothing we ever sign is for our benefit,” the rep adds.
More Employment Agreements?
Under the new Morgan Stanley contract for house accounts, brokers agree (among other things) not to accept account transfers from these clients if they solicit them after leaving the firm.
The language is typical for noncompete agreements, but seems to flout a proposed rule interpretation from the NASDR. The NASDR wants to make clear that firms cannot interfere with customer mobility, including seeking court orders to stop transfers (see “NASDR Wants Comments on Account Transfer Rule,” Page 34).
But the NASDR also says its proposed interpretation does not prevent firms from imposing or enforcing employment contracts. Attorneys say that kind of tacit endorsement from the regulator might give employers an incentive to force more noncompete agreements on their brokers. — D.J.
