BROKER MIGRATION AND NONCOMPETES

Stock brokerage companies have long sought to impose restrictions on their financial advisors to prevent them from resigning to join competing firms, taking client lists, and then soliciting the clients they had serviced while at the prior firm. Typically, the firms did this by requiring their employees to sign restrictive covenant agreements containing confidentiality and non-solicitation provisions.

With the downturn in the U.S. economy, it is a a sure bet that legal disputes will increase between departing brokers/financial advisors and their previous employer. This blog will address these issue in two parts. First, I will discuss today the “Protocol” agreement. Tomorrow, I will discuss the effect of the Protocol agreement in court litigation.

The major players, Citigroup Global Markets, Inc. (Smith Barney), Merrill Lynch, Pierce Fenner & Smith Inc. and UBS Financial Services, Inc. entered into the Protocol for Broker Recruiting (“Protocol”) in 2004. Under the Protocol, when a financial advisor leaves one signatory firm to join another signatory firm, the new employer and the departing broker will have no liability to the former firm for transferring certain client information to the new firm, or for soliciting certain clients that the departing broker serviced at the prior firm, if the departing broker follows the terms of the Protocol. Over the past few years, dozens of other financial services firms have joined the Protocol.

The Protocol permits departing brokers to take with them to their new firm only certain information: specifically, the “client name, address, phone number, email address, and account title of the clients that they serviced while at the firm.” The Protocol further provides that departing brokers must submit a written resignation to local branch management and include a copy of the client information they are taking with them, as well as the account numbers for the clients serviced by the departing broker. Under the express terms of the Protocol, brokers who comply with the Protocol are then “free to solicit customers that they serviced while at their former firms, but only after they have joined their new firms.”

Dan Frith

Dan Frith

Dan Frith has over 25 years of experience representing individuals and families in cases of medical malpractice throughout Virginia. He has been named "Best Medical Malpractice Attorney" by Roanoker Magazine and is a member of the Million Dollar Advocates Forum. To speak with Dan, contact him by email at dfrith@frithlawfirm.com.