Financial advisors who may be thinking of leaving a wirehouse to start their own registered investment advisory using a custodian or working with a broker-dealer would be well-advised to check if both their old firms and new affiliated companies have signed onto the industry’s Broker Protocol.
Under the protocol, which was developed by FINRA and signed by more than 800 firms, client public contact information such as name, address, phone number, email address and account title can be taken when a broker leaves a firm but not client portfolio information. Moreover, departing advisors can't solicit the clients until after they have left the old firm.
As of May 4, the law firm Bressler Amery & Ross P.C. will administer the Broker Protocol, maintaining and distributing lists of the signatory firms and their contact information.
"Advisors need to take the Broker Protocol very seriously, as the firm they are leaving will be looking for any evidence of violations so they can take them to court," says Danny Sarch, founder of Leitner Sarch Consultants in White Plains, N.Y.
But that doesn't mean that advisors can't prepare with a "protocol-approved" spreadsheet provided by their new broker-dealer or custodian, he says.
Such a spreadsheet would list each client by number and each type of account they have with the advisor at the old firm, such as a joint account with a spouse, an individual retirement account or a separate business account, Sarch says.
On a separate master list, not provided to the new broker-dealer or custodian until after the advisor has resigned, the advisor would list each client's name, Social Security number, mailing address and email, along with their corresponding number that is listed on the spreadsheet.
When advisors start their own firms, they would then print out mailing labels to clients from the master list for packages with the necessary paperwork to transfer accounts to the new firm's custodian or broker-dealer.
"While the advisor can't take the financial information contained in any of the client's accounts at the old firm, this spreadsheet listing the types of accounts just gives the advisor a head start to better serve their clients," Sarch says.
There are even firms such as Broker to Broker of LaVergne, Tenn., that will do this on behalf of an advisor, he says.
Broker to Broker populates the packages ahead of time, using the spreadsheet as the guide.
Some firms, such as Ameriprise Financial in Minneapolis, have added conditions or limitations to their joinder agreements, which could affect protocol agreements, says Alan Foxman, senior consultant at National Compliance Services in Delray Beach, Fla.
"While these conditions may seem reasonable, there is the risk that, as more firms impose their own conditions, the protocol may crumble under the weight of all the varied exceptions," he says. "Any rep considering departing from his firm would, therefore, do well to request a copy of the joinder agreement for his firm from the protocol administrator."
Katie Kuehner-Hebert is a freelance writer in Running Springs Calif. She has contributed to Financial Planning, On Wall Street and American Banker.
This story is part of a 30-day series on going independent.