Broker Transition Part 2 – Are Your Clients Really Yours? Navigating the Protocol

From Deutsche Bank to Credit Suisse and Barclays, brokers are in transition for a variety of reasons – some voluntary and some obligatory.  Either way, for a FINRA registered representative, leaving their broker-dealer can be a nerve-wracking time.  Regardless of the reason for leaving, the ultimate goal is always the same: get to your new firm and bring with you as many clients as you can without getting sued by your old broker-dealer in a FINRA Arbitration.

But, easier said than done.  In addition to the logistical challenges, there are also some legal hurdles that must be cleared first.

The first major question that should be asked is: “Does the Protocol for Broker Recruiting apply?”  If either your old firm or new firm are not signatories to it, then your answer should be “No.”  If both your old firm and your new firm are signatories to it, then the answer to that question should be “Yes” – but some restrictions may apply.

If the Protocol does not apply, then your situation is going to be much more fact-specific.  In addition to the specific statutes and common law that apply in your state or jurisdiction, you will need to assess what covenants and limitations are included in the contracts you have with your current firm.  Unfortunately, some of these can be very restrictive.

For example, in some cases, you may have even signed a “non-competition” agreement.  In some cases, non-competition agreements may contractually prohibit you from speaking with your clients for a specific period of time (potentially a year or more) in the event you leave the firm.

Non-competition agreements and other restrictive covenants may appear in any number of contracts a FINRA registered representative has with their firm.  Obviously, if one such provision was covertly inserted into one of your employment agreements, it could potentially cause you problems should your firm attempt to enforce it in a FINRA Arbitration or court.  That is one reason why it’s always best to review your agreements with the firm and have an attorney experienced in the field of FINRA employment law look over them as well before you start your transition.

If the Protocol does apply, your road may be a little bit easier.  Specifically, the Protocol outlines the rights and obligations of the departing registered representative and both their old and new broker dealers.

For example, registered representatives may take with some certain pieces of client contact information (e.g., names, addresses, telephone numbers, email addresses, and account titles) but are prohibited from taking anything else.  However, you must notify your firm with your resignation letter of what client information you are taking with you and include a list of customer account numbers.  Once at the new firm, this information may be used by you (and only you – not other brokers at your new broker dealer) to solicit your former clients.  Assuming your clients have decided to join you at your new firm, your new firm’s back office largely takes over to ensure things are processed properly.

One caveat is important to remember, even if you are at Protocol firm, you should ensure that no agreements you signed waive or restrict your rights under the Protocol.  For example, it was reported by AdvisorHub that “Morgan Stanley [] foisted a new contract on more than two dozen members of a highly lucrative brokerage team that restricts their ability to solicit clients if they leave the firm” just last week.  The agreement discussed, which was presented to certain Morgan Stanley brokers, contained a provision that was effectively a waiver of the Protocol.  The specific provision would prevent brokers from taking the names, addresses and other contact information for clients with them, even if they transitioned to another Protocol firm.

Ultimately, Brokers should be careful with what they are signing.  You cannot always trust that your broker-dealer has your best interests at heart – you need to look out for you, especially when transitioning (or considering transitioning) between firms.

**Nothing contained herein is intended as, nor should be constituted to be, legal advice.  Individual situations may vary.  You should contact an experienced FINRA employment attorney to assess your specific situation and provide you with personalized legal representation.**

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