FINRA Guidance Helps Departing Brokers

Posted by Benjamin I. Fink on

On April 5, 2019, FINRA provided guidance on customer communications related to departing registered representatives.  The full text of the Regulatory Notice can be found here:  FINRA Regulatory Notice  Member firms and registered representatives need to be aware of this development as it will have a significant impact on departures by registered representatives for rival firms.  According to the Notice: “FINRA has consistently sought to ensure that customers can make a timely and informed choice about where to maintain their assets when their registered representative … leaves a member firm.”  Therefore, according to the Notice, FINRA expects the following:
  1. In the event of a registered representative’s departure, the member firm should promptly and clearly communicate to affected customers how their accounts will continue to be serviced; and
  2. The firm should provide customers with timely and complete answers, if known, when the customer asks questions about a departing registered representative.
This guidance from FINRA represents a significant development for registered representatives moving from one firm to another.  Counsel should consider the implications of this guidance when advising firms and representatives with respect to their rights and obligations relative to any noncompete and customer non-solicitation covenants.  The Notice could also have implications for trade secret claims against departing representatives which must be considered.