When an advisor is looking to start his or her own or join a registered investment adviser (RIA) firm and is currently employed at another brokerage firm, it may make sense for the advisor to review the Protocol for Broker Recruiting (commonly referred to as the Broker Protocol) to determine its applicability to his or her scenario.
Note: RIA in a Box LLC is not a law firm and does not provide legal advice. We strongly advise that all individuals consult with proper legal counsel for all matters related to employment law including but not limited to the Broker Protocol. This overview is provided for general information purposes only and should not be relied upon to take any action.
Update: As of May 4, 2015, Bressler, Amery & Ross P.C. took over the administration of the Protocol for Broker Recruiting. Details on how a firm can join the broker protocol are located here.
Today, the broker protocol is a commonly heard phrase as it relates to “breakaway brokers” leaving a traditional wirehouse to start his or her own or join another RIA firm, but the origins of the broker protocol are actually much different. According to the Securities Industry and Financial Markets Association (SIFMA) which currently administers the Broker Protocol, the original protocol was initially an agreement signed in 2004 between Smith Barney, Merrill Lynch, and and UBS to reduce the number of lawsuits between the firms related to financial advisors transitioning between the firms. In particular, the protocol was intended to govern the sharing of client information when advisors transitioned between the firms that signed the protocol.
Today, it is reported that there are over 1,000 firms that have joined the broker protocol. RIABiz publishes a list of current broker protocol member firms which is updated from time to time. In addition, SIFMA provides a weekly list of current members to all member firms. While many of the large wirehouses remain members, it’s also hard to miss the number of small RIA firms which have also joined the protocol over the years that were founded by or appear to be actively recruiting “breakaway brokers.”
There is no upfront or annual charge for a firm to join the broker protocol and SIFMA provides detailed instructions. Many new RIA firms or firms looking to recruit new investment adviser representatives will join the protocol, however it’s important to remember that by joining the protocol, a member firm is also likely agreeing to follow the protocol for when a representative leaves the firm to join another firm. In addition, the protocol notes that it does not prohibit a member firm from taking action against another member firm for “raiding.”
It is generally thought that the broker protocol is only enforceable if both firms (the firm the advisor is leaving and the firm the advisor is joining) are members of the protocol. If both firms are members, the protocol outlines clear guidelines as to what types of client information a departing advisor is and is not allowed to take with him or herself to the new firm. The protocol notes that a transitioning advisor can only take the following information for each client relationship:
- Name
- Address
- Phone Number
- Email Address
- Account Title
The protocol also notes that an advisor is explicitly prohibited from taking any other client information. There is also an outlined process for providing this list of client information along with a written letter of resignation to the local branch management.
To help ensure compliance with SEC Regulation SP and other applicable regulations, the protocol notes that the new firm that the advisor has joined agrees to limit to use of the above client information solely to the new joining advisor’s solicitation of his or her former clients at the previous firm. A former client will be asked to sign a standardized form authorizing the release of previous account numbers and other account information before the previous firm will release such information to the new firm.
Any RIA firm looking to make use of the broker protocol is strongly encouraged to review the protocol’s exact language in detail and to seek the proper legal counsel. There are a number of additional scenarios that the broker protocol addresses and it’s very important that a firm that is considering joining the broker protocol fully understand the ramifications of the decision and whether the protocol is applicable to a given firm. Any firm that joins the broker protocol is agreeing to be governed by and to follow the exact guidelines of the protocol.