by Robert Bloink, Esq. and Prof. William H. Byrnes

If you are considering transitioning your book of business to a new firm, maintaining the confidentiality of client information should be your overarching concern. Navigating a move without triggering a lawsuit can be challenging, but there is a protocol that provides advisors with a best practices guide when moving between firms.

In 2004, three wirehouses—Citigroup Global Markets, Inc. (Smith Barney), Merrill Lynch, and USB Financial Services, Inc.—created the Protocol for Broker Recruiting (the Protocol). The Protocol’s primary purpose is to safeguard clients’ privacy and flexibility when choosing Registered Representatives (RRs)—especially RRs who are switching firms. By reducing litigation over RRs transitioning to new firms, the high costs associated with competitive recruiting efforts can be minimized and client information can remain protected.

The following is a list of some of do’s and don’ts set forth by the Protocol:

Do:

(1) Submit a written letter of resignation to your local branch manager. This letter should include a specification of the client information you are taking with you;

(2) Take certain information about your existing clients with you—including names, phone numbers, home, and email addresses, and client account titles;

(3) Use good faith when compiling your list of clients; and

(4) Consult with an attorney who can address any unanswered questions you may have.

Don’t:

(1) Forget to provide your local branch manager with your written resignation letter and customer information letter simultaneously;

(2) Take prohibited information about your existing clients with you, such as Social Security numbers or account numbers;

(3) Make copies of confidential client information to take with you before you leave;

(4) Take information about clients you did not service;

(5) Give yourself too much leniency when creating your list of clients, especially accounts shared with others; and

(6) Pre-solicit accounts before you resign. RRs can solicit existing customers only after they have completely transitioned to their new firm.

Approximately 465 small and large firms have joined the Protocol since it was formed. Due to its success, the Securities Industry and Financial Markets Association (SIFMA) will begin taking on administrative tasks associated with the Protocol beginning May 17. This includes maintaining the Protocol’s list of signatories, issuing member updates, and providing prospective members with information about joining the Protocol. Firms interested in joining are required to fill out a two-page application before becoming a signatory to the Protocol.

If an RR follows the Protocol when switching between signatory firms, neither the RR nor the new firm will have any monetary or other liability resulting from the transition. But if RRs are transitioning to firms that are not members of the Protocol, the Protocol’s rules and protections will be inapplicable. In those cases, however, the Protocol can still provide a valuable guide that can minimize disputes.

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