Just about every securities broker is aware of the existence of the Protocol for Broker Recruiting (the “Broker Protocol”). Unfortunately, too many brokers think they understand the Protocol, and move forward with a transition without the assistance of experienced counsel. That leads to a motion for an injunction in court, with a companion arbitration case for an injunction and damages.
Fortunately, with some planning and the assistance of an experienced stock broker transition lawyer, all of that can be avoided.
If you are considering changing firms, call our office at 212-509-6544. We have assisted countless brokers and advisors in their transition to a new firm and can help to make your transition as seamless as possible.
The History Before the Protocol for Broker Recruiting
The Broker Protocol was created in 2004 in an effort to minimize the litigation that was occurring when advisors would transition from one firm to another.
Before the Broker Protocol was in place, advisors needed to resign from one firm and immediately contact their clients to join the new firm. This resulted in brokers resigning on Friday afternoon, after the close, leaving a resignation letter on their manager’s office chair, and to start calling clients.
Firms believed that the clients belonged to the firm, the advisors believed that the clients belonged to them, and litigation started. That litigation was done on an “emergency” basis, with the firm’s attorneys sending demand letters, running to court on Monday morning seeking restraining orders, alleging breach of contract, and theft of trade secrets. The broker’s attorneys were then racing to file opposition papers and a short-noticed hearing before a judge. A week of frenzied activity, and significant legal costs. Plus upsetting to the clients.
Ultimately the firm and the broker would agree to a settlement, identifying who the broker could solicit and a payment from the receiving firm to the old firm.
The Broker Protocol was designed to eliminate all of that, and it was relatively effective.
The Broker Protocol Procedure
First, in order for the Broker Protocol to apply, the old firm and the new firm must both have signed the Broker Protocol. The text of the Protocol and a list of firms who have signed on is available at The Broker Protocol.
Most firms have signed on, but there are some exceptions – Citigroup, Morgan Stanley, and UBS all left the Protocol. Merrill carved out broker and advisor trainees, and most of the firms with a banking channel have tried to carve out their bank advisors and bank clients. I say “tried” because such carveouts are not a always effective.
Under the Broker Protocol, a broker may take only the client name, address, phone number, email address, and account title of the clients that he serviced while at the firm (the “Client Information”) and is prohibited from taking any other documents or information. The broker cannot take client account numbers.
Further, resignations must be in writing and delivered to local branch management and shall include a copy of the Client information that the RR is taking with him. The RR list delivered to the branch also shall include the client account numbers for the clients serviced by the RR, but the broker cannot take those account numbers.
When properly conducted, much of the pain in moving firms, and clients, can be lessened, if not eliminated. We have transitioned brokers pursuant to the Protocol with a minimal amount of acrominy.
Non-Protocol Firms
Whether you are at a protocol or non-protocol firm, transitioning to a new firm without taking the proper steps can result in a lawsuit by your old firm, motions for injunctions and other “emergency” relief, will be a major distraction as you try to get up and running at your new firm, and can cost you tens of thousands of dollars in legal fees.
Alternatively, planning the move with the assistance of experienced of an experienced securities employment lawyer can make all of the difference in the outcome.
If you are changing firms, do not do it alone. You have issues about what you can take with you, what you can use at the new firm, who you can talk to about your move when you can talk to them, your new compensation agreements, your old compensation agreements, and a dozen other issues.
Upfront Forgivable Loans
Another issue is the repayment of a forgivable loan that was paid as a bonus during the broker’s employment, and that is still outstanding to the old firm. The loans are forgiven over the course of time, but become payable in full when the broker is no longer employed by the firm. The Broker Protocol has no impact on the repayment of the loan, and in most cases, the loan must be repaid.
These loans are promissory notes, which are unconditional promises to repay. We have successfully negotiated the repayment of the loan, either by reducing the principal and interest or by extending the term of the loan. However, in order to litigate the repayment, the broker needs to be able to prove a counterclaim that is in excess of the amount of the outstanding balance.
 | Representing Advisors and Investors, Nationwide. |
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Mark J. Astarita is a veteran securities attorney representing investors and financial professionals nationwide in securities investigations and arbitrations. Have a question? Email him at mja@sallahlaw.com, call his office at 212-509-6544, or visit The Securities Lawyer
Mark Astarita is a nationally recognized securities attorney, who represents investors, financial professionals and firms in securities litigation, arbitration and regulatory matters, including SEC and FINRA investigations and enforcement proceedings.
He is a partner in the national securities law firm Sallah Astarita & Cox, LLC, and the founder of The Securities Law Home Page - SECLaw.com, which was one of the first legal topic sites on the Internet. It went online in 1995 and is updated daily with news, commentary and securities law related links.
