Legal Guidance for Financial Broker Employment Transitions

Brokers, financial advisors, and other financial professionals seeking a change in employment must navigate an array of legal and commercial concerns and issues as they transition to a new firm. In many cases, a financial advisor wishes to bring his or her client base along as he or she transitions. Often, this leads to significant disputes between the broker and his or her former company. In other scenarios, solicitations for clients to change brokerages can also result in disputes and litigation.

Brokers who transition between firms that are signatories to the Protocol for Broker Recruiting can typically rely on the protections provided by the law. However, the Protocol has its limits and brokerages may be willing to push the envelope to retain clients. In situations where a broker is moving to a firm that is not a Protocol signatory, the litigation risk is much more prominent.

At the Heyman Law Office, Mr. Heyman and his team of lawyers assist financial professionals in transitioning to a new brokerages or registered investment advisory firms. Mr. Heyman has more than 20 years of practical experience and has handled transitions to new firms, intra-industry disputes, and other legal challenges. He has advised hundreds of advisors with their transitions. To discuss how Mr. Heyman may be able to assist you in a transition to a new broker dealer or RIA call 410-762-0140 or schedule a confidential consultation online.  

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What is the Protocol for Broker Recruiting?

A broker who wishes to change jobs and take his or her clients along often faced litigation for their move or new position. Brokers moving to other firms often failed injunctions, temporary restraining orders, and claims for damages. The Protocol for Broker Recruiting is a set of rules and procedures intended to provide a pathway to avoid litigation between brokerages that are Protocol signatories. While the broker can often benefit from the protocol, one of the chief goals behind it is protecting client privacy and their right to select a broker of their own choice. In the case of a broker leaving a Protocol member firm to join a new Protocol member firm, neither the broker or the new brokerage would face liability for the transition unless the Protocol’s rules are not followed.

To receive the full benefit of the Protocol’s protection, the financial advisor may take only certain information to the new brokerage. The client account information a broker is permitted to transfer includes the:

  • name of the client
  • account type or title
  • phone number
  • address
  • e-mail

The advisor may not take any other financial or personal information if he or she wishes to receive the benefit of the Protocol. That is, the financial advisor may not take or transfer account statements, account numbers, and other information.  Additionally, the financial advisor must provide his or her current firm written notice of resignation and two spreadsheets – one with the information described above, and another with the account numbers, which is to remain with the broker dealer she is leaving.  Also, whether clients can be solicited at a new firm may depend on the existence of a partnership or team agreement between the departing broker and others at his firm..

Can the Protocol Apply to Firms that Are Not Protocol Signatories?

For a time, it was clear that only signatories to the Protocol were governed by its rules and protections. However, several years ago non-signatories to the Protocol began to advance the argument that the Protocol itself had become so pervasive that it become an industry standard that should apply to and protect all transitioning brokers (and their clients) regardless of whether the brokerage itself had signed the Protocol.

This argument has been accepted in some courts while others have been more skeptical of the argument. Courts in Utah and Wisconsin have been receptive to the argument. However, a 2012 FINRA panel of arbitrators did not find the argument convincing on principles of contract law and awarded damages. As such a careful and thorough understanding of the protocol, jurisdictional precedent, and other factors is essential when pursuing relief for brokerages that are not signatories to the Protocol.

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Guidance Regarding Employment Transitions for Investment Advisors and Brokers

Employment transitions for financial professionals can be rife with legal and business challenges. An unartful transition or ill-considered transition plan can give rise to significant liabilities and the potential loss of one’s client base. Mr. Heyman can work to take steps to increase the likelihood that your employment transition will proceed smoothly. If you are already facing a dispute or litigation, he can handle the matter for you and will aggressively support your right to service your clients and grow your business. To schedule a confidential legal consultation with Mr. Heyman, call 410-762-0140 or contact the Heyman Law Office online.