Understanding the Broker Protocol: Key Considerations for Financial Advisors Switching Firms

At Abell Law, we have a wealth of experience guiding financial advisors and brokers as they transition between broker-dealer or registered investment advisory firms. These transitions demand careful attention to federal and state laws, contractual limitations, and the Protocol for Broker Recruiting (" Broker Protocol "). Both the new firm and the transitioning advisor must be well-versed in these rules and agreements, as well as any other applicable restrictions, to minimize risks and avoid potential liability.

The Broker Protocol - Legal Armistice :

In August 2004, three leading wirehouses - Merrill Lynch, Citigroup Global Markets, Inc. (Citi/Smith Barney), and UBS Financial Services Inc. (UBS) - created the Broker Protocol to reduce litigation arising from advisors transitioning between firms. Prior to the Broker Protocol, such transitions often led to expensive and time-consuming legal disputes. Since its inception, the Broker Protocol has evolved and expanded, with 2,142 firms currently active as members as of April 13, 2023.

Determining the Applicability of the Broker Protocol :

For the Broker Protocol to govern a transition, both the departing and new firms must be signatories at the time of the transition. Firms can join or leave the Broker Protocol at any time, which creates significant risk for the complacent broker. Ensuring that both the departing and onboarding firms are members of the Broker Protocol is crucial for advisors seeking its protections and benefits. It is advisable to confirm active membership on the day of your transition. Firms have been known to revoke membership in advance of material moves. Don't trust the notice requirements - always verify.

Complying with the Broker Protocol During a Transition :

The Broker Protocol establishes guidelines for transitioning advisors, limiting the client information they can bring to their new firm. To successfully move under the Broker Protocol, the following criteria must be met:

Members: Both the prior and new firms must be Broker Protocol members at the time of the transition;
Resignation: The broker must submit their resignation in writing, preferably using a written notice addressed to their prior firm, stating their intention to leave and join the new firm.
Protocol Information: The broker is allowed to take only five items of client information, referred to as "Protocol Information." These include client name, address, phone number, email address, and account title for the clients they serviced while at the prior firm.
Notice of Client Information: The broker must provide their prior firm with a detailed notice of the client information being taken, in accordance with the Broker Protocol. This notice should include a list of all Protocol Information to be transported to the new Broker Protocol Firm.
Client Account Numbers: Along with the notice of client information, the broker should provide a second list containing the client account numbers associated with the clients listed on the Protocol Information sheet.
Compliance with Restrictions: Once the broker joins the new firm, both the broker and the new firm must adhere to the Broker Protocol's restrictions on the use of client information. The Protocol Information should be used solely for the solicitation of the broker's former clients, and only the transitioning broker is permitted to use the information. The new firm must ensure that the Protocol Information is not used for any other purpose.

Potential Consequences of Breaching the Broker Protocol:

It is essential for both the transitioning advisor and the new firm to strictly adhere to the Broker Protocol's requirements. Failure to comply with these stipulations can result in a breach of the Broker Protocol, which can lead to litigation, financial penalties, and potential reputational damage for both the advisor and the new firm.

Transitioning between firms can be a complex process, but the Broker Protocol can facilitate a significantly smoother experience when both the advisor and the new firm have a comprehensive understanding of the steps required for compliance.

Abell Law advises on transitions and assists firms, advisors and reps to successfully navigate the Broker Protocol. We also specialize in assisting clients through non-protocol and hybrid (part Protocol part non-protocol) moves.

Contact us today to schedule a consultation and learn more about our services. When it comes to the Broker Protocol, the old adage is true - your better safe than sorry.

Disclaimer : The information provided in this blog post is for general informational purposes only and is not intended to be, nor should it be considered as legal advice. The opinions and perspectives expressed in this post are those of the author and may not necessarily reflect the views of the law firm. For specific legal guidance or advice regarding your individual circumstances, please consult with an attorney. The use of the information contained in this blog post or any reliance on the content herein does not create an attorney-client relationship. Please be aware that any review, distribution, or copying of this post and its contents is strictly prohibited. In some jurisdictions, these materials may be considered attorney advertising.