Cresset is leaving the broker protocol, again.
On Wednesday, the firm filed to withdraw from the pact on the first day of 2024. The notification came just eight months after Cresset rejoined the protocol, and nearly four years after the firm first withdrew in February 2020.
The Protocol for Broker Recruiting was created in 2004 in response to regulatory concerns that rampant litigation of defecting advisors was harming clients. By 2010, the two-page document—outlining how advisors would be permitted to depart with a limited amount of client information without incurring legal reprisal—had been signed by more than 400 firms, including many active recruiters in the burgeoning RIA channel.
As of Thursday, there were 2,424 signatories to the list, currently maintained by Capital Forensics, a litigation and compliance firm owned by J.S. Held.
Cracks in the agreement began to appear in 2017 when UBS and Morgan Stanley both withdrew from the protocol. At the time, Morgan Stanley said the protocol had been undermined by an abundance of “opportunities for gamesmanship and loopholes,” while UBS said it was abandoning aggressive—and expensive—recruiting tactics in favor of developing existing advisors and training up emerging talent.
That was the same year Cresset launched. Founded as a multifamily office by co-Chairmen Avy Stein and Erik Becker to help their families manage their own assets, Cresset has quickly become one of the fastest growing RIAs in the country. After adding close to $15 billion in assets this year, the firm manages around $45 billion for some 900 client accounts across a range of subsidiary businesses.
Cresset was a signatory to the protocol from 2017 until February 2020, when it withdrew for the first time, and rejoined this April.
In May, Cresset brought in Liz Nesvold to serve as the firm’s first president and announced the acquisition of San Francisco-based TRUE Capital, which the firm said would seed a new sports and entertainment division.
The firm has been seeking a minority investor to support ongoing recruitment and M&A initiatives, according to sources with knowledge of the search.
Firms seeking a private equity investor or other kind of sale are more inclined to withdraw from the agreement in an effort to “tighten up retention,” according to Patrick Burns, a California attorney who works with advisors changing firms or going independent. The same applies to firms with high attrition rates. For those who are gaining more advisors than they’re losing, he said, “its best to be on the protocol.”
Eric Siber, a managing director and the resident protocol expert at J.S. Held, said it’s rare to see firms, particularly RIAs, withdraw.
“We haven’t seen that many withdrawals in 2023,” he said, calling Cresset’s exit “interesting.”
“More come than go,” Siber said. Aside from concerns that a large producer might be leaving, he said a desired sale may be the only other reason it makes sense to leave the agreement.
“It could be a defensive move, to assure potential buyers that those top producers won’t leave during the transition,” he said. “It could be a strategy to keep people in their seats.”
Once a firm withdraws, they’re not permitted to rejoin the protocol for 12 months, he noted.
Commenting on Cresset’s 2020 withdrawal and return earlier this year, he said the time frames were not unusual, but noted that J.S. Held has had to limit others from jumping into the protocol during a recruitment push and then withdrawing once talent was onboarded.
Yet Cresset's history with the agreement "wouldn't jump off the page," he said.
Multiple attempts to reach Cresset for comment were unsuccessful.
