Who "owns" the relationship between an investor and their adviser? If you thought it was the investor, think again.

Recently, Morgan Stanley and UBS Financial Services pulled out of a private "cease fire" agreement among brokerage houses that has made it easy for brokers to move from firm to firm. By withdrawing, the two are signaling to brokers considering a move at the two firms that they and their new employer face the threat of lawsuits if they take client contact information with them, a practice allowed under the pact.

The voluntary agreement, known as the Protocol for Broker Recruiting, was established in 2004 among three brokers including UBS, and now covers more than 1,600 firms. It has provided a means for brokers to switch firms or go out on their own "gracefully and respectfully" without fear of being sued, said Bill Willis, who leads a California recruiting firm specializing in the financial adviser industry.

The defections by two of the largest players, employing more than 18,000 brokers between them, raises the prospect that the industry may return to the era when the client-adviser relationship was treated as the property of the firm. With more than $10 trillion in U.S. investor assets up for grabs, it's understandable that the financial advice industry competes fiercely to win clients. Organic growth is both expensive and difficult, so firms have tried to grow by recruiting high-performing advisers who can bring their clients with them.

But both Morgan Stanley and UBS said that the escalating cost of recruitment is not worth it. While the two have said they want to focus on client service and employee retention rather than trying to recruit brokers from other firms as a path for growth, Willis dismisses that claim. The firms withdrew from the protocol, he argued, because they were "net losers" in the competition for brokers and client assets.

In addition to firms poaching brokers and clients under the protocol, the traditional sales-oriented, commission-based brokerage business faces growing competition from the rise of RIAs (Registered Investment Advisors). While a sales-oriented broker pushes specific products where they earn a commission, RIAs offer financial and investment advice without considering commissions. They typically charge a fee based on a percentage of assets, so they enjoy more autonomy and increased earnings potential as their clients' portfolios grow. The protocol has provided a pathway for many former brokers to set up shop as independent advisers while bringing clients along.

The move by Morgan Stanley and UBS is "contrary to the spirit [of the protocol agreement] to put the client first," Willis argues. The move sends a message that a client's relationship with an adviser "is not as important as what it means for the firm," he added. "That's not only absurd, it's wrong."

Recent research seems to support the idea that the protocol is good for clients. Shortly after Morgan Stanley withdrew, two finance professors from the University of Kentucky coincidentally released a study examining the impact of the protocol on adviser behavior. Professors Chris Clifford and William Gerken analyzed 1.3 million individual advisers at 50,000 firms between 1999 and 2016, using public filings about brokers' employment history and customer complaints against them. They observed a 42 percent decline in complaints after a firm joined the protocol. They also found that brokers in protocol firms were more likely to further their education pursuing advanced licenses to become investment advisers. The researchers concluded that advisers in protocol firms are more likely to view client relationship as a long-term asset and "take better care of [client] relationships after their firm enters the Protocol."

The largest brokers remaining in the protocol are Merrill Lynch, which is owned by Bank of America, and Wells Fargo. Merrill Lynch senior management told employees it is staying in the protocol for now, according to the trade magazine InvestmentNews. Both are likely to stay for the next year at least, Willis, believes, and points out they are positioned differently within the industry than Morgan Stanley and UBS.

Protocol participants headquartered in Minneapolis include Ameriprise Financial with nearly 10,000 brokers nationwide and RBC Wealth Management, which has approximately 1,800 brokers. Ameriprise spokeswoman Kathleen McClung said the protocol "makes sense for our business today and we have no plans to exit it at this time," adding that the firm "will continue to evaluate the environment closely."

Brad Allen is a freelance journalist and former investor relations executive for companies including Imation Corp. and Cray Research. His e-mail is brad@bdallen.com.