Updated Thursday, September 3, 2015 as of 9:36 PM ET

Navigating the Broker-Dealer Landscape

I recently flew from Columbus to Hartford with my usual connection in Baltimore.  As I was enjoying some down time on the leg to Hartford it was obvious that winter is here; the ground is lightly snow covered, mixed with clouds and it was hard to figure out where I was at any given moment.  Of course I am not a pilot, but I consider myself fairly competent in geography. Certainly I was flying over urban, rural and suburban areas, I just could not differentiate them from that first look. 

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Comments (2)
First and foremost ... it needs to be clear and in writing as to who will have professional "ownership" over the client accounts that a Rep brings in. If the B/D is to claim ownership, then that Rep is not really an Independent Contractor, but actually an Employee and therefore should be reimbursed for all out of pocket work related expenses and likewise entitled to all employee benefits (ie Health Insurance, Paid time off, Workers Comp, and etc) as mandated by state and federal labor law. Simply becuase a rep is paid via 1099 and labeled as being an Independent Contractor does not always make them such under the eyes of the law. Don't beleive me? Then talk to a Labor Attorney. If the Rep is truly being an Independent Contractor (separate business owner) then he/she should be able to "sell" those accounts and receive a cash payment for the value of his/her Book of Business at any time, or be able to transfer that entire Book of Business "en masse" to another B/D firm with minimal effort if things just do not work out. Some B/D firms participate in a program called Protocol which still allows for Block Transfers. Find out before signing up if the new B/D is in fact a Protocol participant. And lastly, be prepared to file a lawsuit against that B/D if your Book of Business is ever "stolen" or if your rights under Labor Law are ever violated.
Posted by Ralph M | Monday, December 31 2012 at 1:37PM ET
Thanks for your comments, they are very interesting. I would like to address them and will begin to do so, working backwards. The "protocol" has nothing to do with block transfers and a firm being a protocol member will not provide access to block transfers to the Advisor. In fact, very few if any firms allow them. These two topics are two completely different discussions. Please let me know if you would like me to clarify what the protocol is.
Regarding w-2, 1099 Advisors, and ownership of client relationships, you are correct but I am not sure why you are stating these facts. Ask any wirehouse and they will provide documentation that they own the Advisors' client relationships. Ask any IBD and they will provide documentation that the Advisor owns the client relationships. It IS clear. In a 1099 setting, the Advisor is free to sell his/her practice for a cash payment for the value of the book. ...not trying to split atoms here, but the cash payment will be minimal compared to the overall structure of the sale.
One of your comments that I do disagree with: Most employers don't reimburse their employees for all out of pocket expenses, especially wirehouses in this business; I like your train of thought though!!
Posted by Ned V | Thursday, January 17 2013 at 2:14PM ET
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