December 6, 2004

Good News for B/D Reps Who Switch

In a surprising move, the National Association of Securities Dealers (NASD) has reversed its rule banning the use of negative response letters for the bulk transfer of client accounts when a rep switches broker/dealers.

The Financial Planning Association's Washington office played a key role in convincing the NASD to reserve its decision. The "hero" is the FPA, says Neal Solomon, president of Solomon Associates in Gloversville, New York. Solomon, who serves on the FPA's government relations committee, is in the process of switching broker/dealers. When he realized how costly it would be to comply with the NASD's rule banning the use of negative response letters, which was passed in October, Solomon contacted the FPA. Neil Simon, a member of the FPA's Washington office, and Solomon promptly set up a meeting with the NASD's general counsel to discuss the rule.

During the meeting, Solomon told the NASD that it would cost him upwards of $100,000 to comply with the rule and cause him four or five months of leg work. He also said the rule would interrupt some clients' service and even cause some clients to be without service. Says Solomon: "NASD came to recognize that if [reps] didn't have the ability to do the mass transfer, less desirable clients may be abandoned." Clients may be abandoned either because they didn't respond in the allotted time approving the switch to another B/D, or because the rep failed to invite them to "switch because of the cost involved."

NASD realized that its former rule "could disenfranchise a group of investors," Solomon says. "The residing B/D may not have the ability or desire to serve those customers." Moreover, "the rep and the new B/D have limits in terms of their ability to go get the accounts, either by desire or simple manpower."

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