The Protocol for Broker Recruiting was established to cut down on litigation associated with advisors moving from firm to firm — but there are still plenty of disputes.
Brian Carlis and Scott Unger, attorneys at Stark & Stark, say they’ve dealt with hundreds — maybe thousands — of disputes related to client data.
For the most part, “advisors transition due to the belief that the pastures will be greener at the new company,” Carlis said in a recent interview with ThinkAdvisor. “For a while, [the trend] was the transition to independence, where the commission-based wirehouses were losing advisors to fee-based discretionary fiduciary investment advisory firms. There’s still plenty of that, but there also the transition between advisory firms — protocol and non-protocol.”
About 2,400 firms, including broker-dealers and RIAs, have entered the broker protocol.
“My hunch would be more than half are RIAs,” Carlis said.
We caught up with Carlis and Unger, who counsel protocol and non-protocol firms in the transition process, to get the latest on the shifting of advisors to other firms.
THINKADVISOR: Has the recruiting environment changed?
Carlis: Not with the broker protocol. We have virtually no issues or problems surrounding protocol transitions that we quarterback. I’d like to think it’s because we give the appropriate counseling and guidance in the protocol transition process. It’s a very simple process, but if the transitioning advisor does not follow the process to the letter, that is where problems can arise.
Certainly the guidance we provide is that a transitioning advisor under the broker protocol must follow the terms of the protocol to the letter — without exception.
Problems generally arise when the transitioning advisor doesn’t follow the protocol?
Unger: Correct. We tell the leaving broker what you can take, which is client names, client addresses, email addresses, phone numbers and account titles. That’s it. Leave everything behind. We don’t want it; we don’t need it. Please follow our instructions.
Carlis: As a general rule, it may be the one or two instances where an issue was raised with one of our advisors in transitioning pursuant to the protocol —typically a letter is sent to say, “Hey, we think this or that happened.” And we respond to that and that will normally end it.
Normally there’s just some confusion about what was taken. But again, it’s a very simple process — it’s a spreadsheet with the five categories of information and if the question is, “Well, can I take this or that?” If it’s not one of the five items, the answer is an unequivocal no.
If we’re talking about a protocol transition and a lawsuit following, it almost always deductively has to follow that the transitioning advisor did not follow the protocol.
Unger: Or the suing party believes they did not follow the protocol.
What about non-protocol transitions?
Carlis: Most of the time the friction will happen in a non-protocol transition, because, of course, there’s not protocol protection because one or both of the firms involved would not be a broker protocol member firm. In that instance, we counsel clients to take absolutely nothing when they leave. Zero.
Do non-protocol transitions happen a lot?
Carlis: A fair amount. I have more than one client that is not a protocol member firm that deals with transitions.
What regulatory disputes surround the protocol?
Unger: You have Reg SP, which is the HIPAA equivalent for the securities industry. Clients’ Social Security numbers, dates of birth, personal, protectable information can’t be removed. So that can be an issue if an advisor decides to take more than they’re supposed to take under the protocol.
The protocol has been around for quite some time. Do you think it needs any updates or tweaks?
Carlis: I don’t believe that it does. I would go with “if it isn’t broke don’t fix it” approach. I think that the five categories of information are sufficient for the transfer. The next steps are to obtain additional documentation and information, but that’s after the transitioning advisor is registered with the new firm.
Unger: And the end client decides what they want to do.
Any other thoughts?
Unger: A transitioning advisor should get guidance on the do's and don’ts on the transition process. I would recommend hiring counsel.
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