Broker Dealer Financial Services Corp. & Investment Advisors Corp.

Broker Protocol FAQs

 

What is the Broker Protocol?

What is the Broker Protocol?

Adopted in August 2004, Broker Protocol has been generally described as a limited forbearance agreement, or covenant not to sue, between the companies that agree to join. So long as they the provisions of the Protocol, representatives leaving one Protocol firm to join another may retain a list and solicit their clients without fear of litigation and despite any terms to the contrary in their employment agreements. The principal goal of following protocol is to further the clients' interests of privacy and freedom of choice in connection with the movement of their Registered Representatives and Investment Advisor Representatives between firms. If departing representative and their new firm follows protocol, neither the departing representative nor the firm that he or she joins would have any monetary or other liability to the firm that the representative left by reason of the representative taking the information identified or the solicitation of the clients serviced by the representative at his or her prior firm, provided, however that protocol does not bar or otherwise affect the ability of the prior firm to bring an action against the new firm for "raiding."

Who is covered by the Protocol?

Who is covered by the Protocol?

The Protocol protects "registered representatives" who seek to move from one signatory "firm" to another. The term "registered representative" is not defined in the agreement, but the term is defined by the Financial Industry Regulatory Authority Rules as follows:

The term "registered representative" means an employee engaged in the solicitation or handling of accounts or orders for the purchase or sale of securities, or other similar instruments for the accounts of customers of his employer or in the solicitation or handling of business in connection with investment advisory or investment management services furnished on a fee basis by his employer.

The Protocol also does not define which "firms" are qualified to join the Protocol and seek protection under its terms for their newly hired "registered representatives." While some have argued that the Protocol was intended to cover only broker-dealers, the agreement does not say that advisory firms are excluded, or that hundreds of investment advisor firms have joined the protocol.

Can an individual broker or advisor join the Protocol?

Can an individual broker or advisor join the Protocol?

No. Only employer "firms" such as broker-dealers and registered investment advisors can join the Protocol.

What information can I take with me?

What information can I take with me?

If your old and new firms are members of the Protocol, you are permitted to take the name, address, phone number, email address, and account title for every client that you personally serviced at the firm, subject to certain limitations for partnerships and retirement agreements. You are not permitted to take any other documents or information concerning the accounts of your clients.

Can I obtain account numbers or statements for my clients after I move?

Can I obtain account numbers or statements for my clients after I move?

Yes. The new firm can request client account numbers, most recent account statements or holding information from the old firm by forwarding an authorization signed by the client.

What do I have to do to claim protection under the Protocol?

What do I have to do to claim protection under the Protocol?

You should provide a written resignation letter to your branch manager and attach a copy of the list you retained that also includes account numbers for each client. Remember, the list you take with you may not include those account numbers.

What about the terms of my employment agreement?

What about the terms of my employment agreement?

Many registered representatives have executed employment agreements containing terms prohibiting solicitation of customers or retention of customer lists. So long as the old and new firms are signatories to the Protocol and the registered representative substantially complies with its terms, the Protocol provides that the registered representative shall not be liable to the old firm for retaining the information identified in the Protocol or soliciting clients on behalf of the new firm.

Can I use the Protocol if I am part of a team or partnership?

Can I use the Protocol if I am part of a team or partnership?

Yes. If you have a partnership agreement, those terms apply to any client who you did not introduce to the team. Whether or not you have a team agreement, you are entitled to take information related to clients you brought to the team and solicit them after your resignation.

If you do not have a partnership agreement, but have been part of the team for more than four years, you are permitted to take information related to all clients serviced by the team and solicit them after your resignation. If you have been a member of the team for less than four years and there is no partnership agreement, you are limited to those clients you introduced to the team.

What if I acquired clients from a retiring broker?

What if I acquired clients from a retiring broker?

Like partnerships, the terms of the written agreement between you and the retiring broker, where the retiring broker gets paid in exchange for the transition of business governs the solicitation of any clients covered by that agreement. Once that agreement is completed, you will typically be free to treat the book as your own and solicit the clients pursuant to the terms of the Protocol.

If my employer is a member of the Protocol, can they still sue me?

If my employer is a member of the Protocol, can they still sue me?

Yes. While courts have routinely held member firms to the terms of the Protocol, there are a number of claims that are excepted from the Protocol, including solicitation of customers prior to resignation, retention of customer records or information beyond what is permitted under the Protocol, soliciting fellow employees to resign from the old firm, breach of a partnership agreement, and collection of sums due under promissory notes or training agreements.

Are all employees of a member firm covered by the Protocol?

Are all employees of a member firm covered by the Protocol?

Usually. This remains a matter of some controversy among Protocol members. Some firms have elected to limit their participation in the Protocol to employees of certain subsidiaries.

   Complying With The Broker Protocol When Changing Firms or Going Independent

 

 

Disclaimer: The Protocol for Broker Recruiting is a two page document that does not include definitions or explanations.

All answers provided here are just the opinions of the authors. Transmission of the information contained on this site is not intended to create, and receipt does not constitute, an attorney-client or business relationship between the sender and receiver. If you are considering joining or are already a member and have questions, you should consult with your own legal counsel.

 

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