Property Rights to Client Relationships and Financial Advisor Incentives

65 Pages Posted: 3 Nov 2017 Last revised: 1 Dec 2020

Date Written: November 2, 2017

Abstract

We study the effect of a change in property rights on employee behavior in the industry for financial advice. Our identification comes from staggered firm-level entry into the Protocol for Broker Recruiting. The agreement waived non-solicitation clauses for advisor transitions among member firms, effectively transferring ownership of client relationships from the firm to the advisor. After the shock, advisors appear to take better care of client relationships by investing in client-facing industry licenses, shifting to fee-based advising, and garnering fewer customer complaints. Our findings support property rights-based investment theories of the firm and document offsetting costs to restricting labor mobility.

Keywords: Property Rights, Labor Mobility, Financial Advisors, Non-Solicitation Agreements, Protocol for Broker Recruiting

JEL Classification: G24, J44, J60, K31, L22

Suggested Citation

Clifford, Christopher P. and Gerken, William Christopher, Property Rights to Client Relationships and Financial Advisor Incentives (November 2, 2017). Journal of Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3064204 or http://dx.doi.org/10.2139/ssrn.3064204

Christopher P. Clifford

University of Kentucky ( email )

College of Business & Economics
Lexington, KY 40506-0034
United States
859-257-3850 (Phone)

William Christopher Gerken (Contact Author)

University of Kentucky - Finance ( email )

College of Business & Economics
Lexington, KY 40506-0034
United States

HOME PAGE: http://www.willgerken.com

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