23
January
2018

As Big Firms Exit Broker Pact, Investors Are Uneasy

When a financial adviser leaves a firm, clients often get caught in the middle of what amounts to a messy divorce. A squabble now playing out in the wealth management industry suggests that many of those splits could get messier.

Financial advisers act as shepherds for their clients, guiding them to sound investments. As the individual relationships grow, trust builds. If an adviser moves from one firm to another, clients typically follow.

For years, wealth management firms agreed not to stand in the way of such broker recruitment, putting client needs ahead of their own. But now, some firms are balking at letting clients go, and are threatening legal action to make them stay put. At the root of the fight is money, billions of dollars in client fees that wealth management firms reap every year.

The dispute started last year when Morgan Stanley, followed by UBS and Citibank, withdrew from the broker protocol, an agreement that established rules for broker recruitment. The protocol allowed brokers to move between firms and to take their clients with them.

The protocol was started in 2004 with four wealth management firms: Merrill Lynch, Morgan Stanley, Smith Barney and UBS. It is now endorsed by nearly 1,700 firms. But with two of the largest wealth managers pulling out — Morgan Stanley has some 15,000 advisers; UBS has more than 6,800 — an industry agreement most clients have never heard of could have a major effect on them.

Dennis J. Concilla, a partner in the securities law practice at Carlile Patchen & Murphy, who was involved in the creation of the broker protocol. Credit Maddie McGarvey for The New York Times
22
January
2018

CAPITAL FORENSICS, INC. TO ASSUME BROKER PROTOCOL ADMINISTRATION FROM BRESSLER, AMERY & ROSS, P.C.

 
PALATINE, IL – JANUARY 22, 2018 – Capital Forensics, Inc. (CFI) announced today that the firm will assume responsibility for administration of the securities industry’s Protocol for Broker Recruiting (“Broker Protocol” or “Protocol”) effective January 22, 2018. CFI has provided a range of regulatory consulting and litigation support services over the past 25 years, primarily for financial services companies.
 
The Broker Protocol administration role has been performed since May 2015 by the law firm Bressler, Amery & Ross, P.C., and the transition of responsibilities to CFI was facilitated by the Securities Industry and Financial Markets Association (SIFMA), the trade group that represents the shared interests of securities firms, banks and asset management companies.
 
 
 
01
December
2017

Investment in Human Capital and Labor Mobility: Evidence from a Shock to Property Rights

We show that the assignment of property rights to client relationships affects employee behavior in the industry for financial advice. Our identification comes from staggered firm-level entry into The Protocol for Broker Recruiting. The Protocol effectively transfers the ownership of the client relationship from the firm to the employee. We document that entering into the Protocol increases employee labor mobility among member firms. Further, upon Protocol inclusion, we find that employees are less likely to generate customer complaints, more likely to invest in their own general human capital, but less likely to invest in firm-specific human capital. We use detailed employee-employer matched data for the universe of financial advisors to show these effects hold within the same job spell and across advisors within the same county at the same time. Our results suggest that limiting labor mobility may limit employee incentives to invest in human capital.

Read the full article by downloading it

Written by: Dennis J. Concilla

16
December
2011

Terminated Representatives – How does the Protocol apply to them?

It’s Friday afternoon and your manager unexpectedly calls you into his office. When you get there, you’re surprised to find an HR representative is already there. Thus, begins any employee’s worst nightmare. You are being terminated and will be asked to leave the building immediately. Oh, and you will need to pay back that promissory note as well. For a representative subject to an employment agreement containing non-solicitation and confidentiality provisions, does the Protocol provide any protection in this situation?

Written by: Dennis J. Concilla

01
January
2011

What is the Broker Protocol?

Each year hundreds of Registered Representatives leave their firms to create new firms or move to other companies. Until 2004, these transitions were often accompanied by lawsuits. Former employers sought to enforce contractual non-solicitation and non-compete provisions limiting contact by the departing individual with their established clients. These suits could be costly and sometimes resulted in injunctions preventing the brokers from continuing to serve their customers. The Protocol for Broker Recruiting virtually ended this litigation among firms that chose to enter into the agreement. 

Written by: Dennis J. Concilla

09
April
2011

DAMAGES AWARDED BY FINRA PANEL FOR FAILING TO JOIN THE PROTOCOL

If joining the Protocol will effectively transition a broker to a new employer without the fear or cost of litigation, can the new employer be held liable for failing to do so when its recruits are sued by their old employer? Maybe so. In an arbitration award issued in July, 2010, a FINRA panel sitting in Indianapolis ordered a broker-dealer to pay 2 million dollars to a pair of brokers it hired from Merrill Lynch for damages sustained in what appeared to be a botched transition.

Written by: Dennis J. Concilla

07
December
2011

Social Networking - Was that tweet a solicitation?

In just a few short years, social media sites such as LinkedIn, Facebook and Twitter have become an accepted and some would say essential tool of business communication. Employers seeking to preserve the confidentiality of their customer lists have struggled to keep pace in this rapidly changing environment. This issue has also been the subject of many recent articles and our firm was asked to comment on it earlier this month for an article appearing in the Wall Street Journal. News for Brokers, Wealth Managers and Their Clients. Wall Street Journal (November 4, 2011).

Written by: Dennis J. Concilla

27
July
2010

Third Circuit Case Explores Nooks and Crannies of Trade Secret Misappropriation Under Pennsylvania Law

A July 27, 2010 decision by the United States Court of Appeals for the Third Circuit, in Bimbo Bakeries USA, Inc. v. Botticella, No. 10-1510, upheld an injunction preventing a senior executive from commencing employment at Hostess Brands, Inc., a bakery rival to the plaintiff Bimbo. The decision is notable in that the Court enjoined Mr. Botticella’s employment, in the absence of any non-competition agreement, on the basis that there was a “substantial likelihood,” but not an “inevitability,” that Mr. Botticella would disclose or use Bimbo’s trade secrets in the course of his planned employment at Hostess.

Written by: Dennis J. Concilla