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
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: Suggested Citation