If you are a broker, I am confident you have a non-compete. I am also confident you know about the “protocol” signed by leading houses, such as ML, Citigroup etc.

What if you move from a protocol signatory firm to a non-signatory firm? Well, in my experience, the protocol firm will say you CANNOT take the client list and will threaten to sue. The good news is, some courts understand that industry standards mean more than one brokerage house and their veiled threats:

Breakaway Brokers See Protocol Protection

By Annie Gasparro

“NEW YORK — Brokers who flee wirehouses for an independent model may not have to fret about being legally pursued by their powerful former employers.”

WAIT – I already disagree with Annie, the author. You do have to fret about being pursued. You always have to fret that – at least now you may have some peace, that the house won’t be successful.

Ok, back to the article:

“Brokerage firms often seek temporary restraining orders to prevent brokers from taking clients with them when they leave. This threat can make some advisers hesitant to go independent, but a recent broker victory in Indiana could establish an industrywide protocol.

In this case, the judge ruled that even though neither company was a member of the Protocol for Broker Recruiting agreement, the standards still apply.

The protocol allows brokers to take client names, contact information and account types, but no account details. It was first signed by Citigroup Inc. (C), UBS AG (UBS) and Merrill Lynch & Co. in August 2004. Since then, more than 100 other brokerage firms and registered investment advisers have joined.

Because all major brokerages are members of the agreement, the court decided it should be the industry standard, said Paul Lieberman, lead counsel and associate director of litigation at Hamburger Law Firm. As long as advisers comply with those guidelines and the terms of their contracts, the brokerage giants should not be able to obtain restraining orders against them.

“I was pleasantly surprised to hear that in court,” Lieberman said. “If the judge issues a [written] ruling” it is likely to set a precedent, he said. “We will certainly be using it in other cases like this.”

In the case filed in the U.S. District Court for the Southern District of Indiana, a brokerage house alleged that the departing advisers breached client confidentiality, among other things. The Hamburger Law Firm successfully argued that the brokers were in compliance with their contracts and that the clients have a right to stay with the advisers when they move.

For brokers considering going independent but fearing legal action from their former employers, the ruling shed light on the process. Going independent is much riskier legally than jumping from one wirehouse to another, Lieberman said, because the brokers are more responsible for their own compliance and legal advice.

With the protection of the protocol agreement, indie advisers would be untouchable as long as they follow the terms themselves.”

AGAIN – ANNIE, I disagree. They can still be sued and forced to defend themselves. This is not exactly “untouchable,” but it is some good news.

About the author

Lauren Ellerman

In 2011, Lauren Ellerman was named "Young Lawyer of the Year" by the Roanoke Bar Association for her work in the community. To speak with Lauren about your personal injury case, contact her at

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