The ‘Protocol’ & What It Means to Financial Advisors

Posted by Benjamin I. Fink on

In 2004, Citigroup, Merrill Lynch and USB developed the Protocol for Broker Recruiting (the “Protocol”) to protect client information while giving clients an opportunity to more easily transition their accounts from one brokerage company to another when their financial advisors left one brokerage house for another.  If a financial advisor decides to move from one company that has signed the Protocol to another, neither the transitioning advisor nor the advisor’s new company will be liable for any damages, as long as the procedure spelled out in the Protocol is followed.  As of October 13, 2010, 586 companies had signed the Protocol.

When a financial advisor is deciding to move from one company to another, the advisor should consider whether both companies are signatories to the Protocol.  If the advisor’s current and prospective employers are both signatories to the Protocol, the advisor need only to comply with its terms to avoid being sued by his former employer for issues relating to the transition.  This result holds even where the advisor has signed a non-compete with his or her former employer, as the Protocol prevents signatories to it enforcing non-competes against brokers who move between signatory firms.  If an advisor wants to leave a firm that has signed the Protocol to become an independent advisor, the advisor can join the Protocol to enjoy its protections.  However, if either the former or new employer of the advisor is not a signatory to the Protocol, any non-compete agreements signed by the advisor would remain binding and in effect.

Should an advisor’s current and new employer both be signatories to the Protocol, certain steps should be taken by the advisor to ensure compliance with the Protocol.  First, the advisor should resign in writing to his branch manager.  With the written resignation, the advisor should provide a list of all his clients as well as client account numbers.  The advisor is not allowed to bring this list with him.  Additionally, and possibly most importantly, the advisor should not solicit his current employer’s clients or employees before he tenders his written resignation.  However, regardless of any restrictive covenants to the contrary, the advisor may take certain client information including the name, address, phone number, e-mail address and account name of each client he serviced.

Making use of the Protocol is an effective way for a financial advisor to transfer his business to a new company and avoid litigation.  In the event you would like to know more about the Protocol and how to ensure compliance with it, please contact Berman Fink Van Horn P.C.