Brokers, like us all, are guilty of searching for greener pastures. Whether it be for higher commissions, a change of scenery, or institutional differences, brokers leave for different firms all the time. So, what should you do if a broker leaves her firm and wants you to move your account with them?
Most broker firms are part of what is called the Broker Protocol. The Protocol is a basically a treaty between the top wirehouses and it dictates the circumstances in which a broker could leave a firm for another. If both firms are signatories to the protocol, the broker can take limited amounts of client information with her.
The departing broker is allowed to take a client list of hers that includes client’s names, addresses, phone numbers, email addresses, and account titles of clients she served at the former firm. This protocol was drafted in response to brokers leaving a firm late on Friday evenings, leaving their resignation letter on their desk, and calling their clients over the weekend to jump ship with them. The firms hated this and would sue the broker and the new firm. This expensive process was rampant and the top firms decided to call a cease-fire.
The departing broker must exercise good faith in assembling the client list.
Because it is so common that brokers switch firms, more and more firms have signed on to the protocol. A broker will then be immune from suit if they substantially comply with the requirements of the protocol. The standard is whether or not the broker exercised good faith in assembling the list and substantially complied with the requirement that only client information related to clients he or she serviced while at the firm be taken with him or her.
What if your broker leaves, what should you do? First, you must evaluate your current relationship with that broker. Has she lived up to her original sales pitch? Are you happy with your
portfolio? Were you interested in how the broker operated, or were you more interested in the firm itself?
Next, you should ask some questions regarding the departing broker. Was it a mutual departure? Was there something that caused the broker to leave? You should be cautious if the broker immediately starts to complain about his former employer. Perhaps you need to do a little research regarding the broker to see if they have any disciplinary actions pending against them. A good place to start is the Broker Check on FINRA’s website: https://brokercheck.finra.org/.
It should not always be a cause of concern if a broker leaves. It is important to know the situation before deciding to go back into business with that broker. Be prepared however to hear from the former broker’s firm. They will likely make a pitch that your account is already with the firm and will be the least amount of paperwork if you just “stay with us.”
It is ultimately your choice. If you do wish to move your account to the new broker’s firm, you only need to fill out what is called an ACAT form and the former firm will transfer your account over to the new firm.
Sean M. Sweeney is a shareholder at Halling and Cayo, a full service law firm in Milwaukee, WI and the head of its Securities Litigation team.
He represents individual and institutional investors in FINRA arbitration and court nationwide. He recovers investment losses from fraud or breach of duty from their broker-dealer.
Contact him at (414) 755-5020 or via e-mail at SMS@hallingcayo.com to see if he can help recover your funds.