What if you’re a broker who wants to change firms for good cause?
Silver Law Group represents investors and individual financial advisors in claims against brokerage firms for misconduct relating to failure to properly disclose the reasons for a brokers termination, claims of harassment or misconduct by the brokerage against the financial advisor and investors who have been harmed when brokerage firms fail to advise the client that a broker has been terminated for cause or damage to investor’s portfolio.
What if, after your broker moved to the new firm, and you followed them, his or her prior firm decided to accuse them of misconduct on their termination form?
These are questions that are difficult to answer in light of the Protocol For Broker Recruiting, more commonly known as “The Protocol.”
In 2004, three of the biggest major brokers in the US created a protocol for brokers who decided to move to another firm. The Protocol is a set of guidelines that define exactly what a broker can and cannot not take with them upon departure. Over 1700 firms are now Protocol members.
Another benefit to the Protocol is allowing wealth management firm clients to find out where their brokers have migrated. But the recent departures of founding firms UBS Wealth Management and Morgan Stanley have raised questions about the Protocol’s relevancy.
What The Protocol Means To Your Broker And You
Since its inception, Protocol signees have increased tenfold. A broker may be working for a firm that is a member of the Protocol and moving to one that isn’t—or vice versa.
When the Protocol pact was implemented, “It was sort of meant to be, everybody put your guns down,” said Scott Silver of Silver Law Group.
For a client, it means that they can continue to work with a broker they’ve known for some time. For the broker, they can move to a new firm and offer their clients a new brokerage for their investments. But the broker has specific guidelines he or she must follow if one or both firms are Protocol members.
- The broker’s resignation must be in writing and delivered to the branch manager, along with the names of clients being taken to the new firm
- Brokers can only take specific client information from one firm to another:
- Client Name
- Address
- Phone Number
- Email Address
- Account Title
- Brokers cannot take more than this information, such as Social Security numbers; this would violate the Protocol
- The broker can begin to contact and solicit business from these existing clients only after resigning from their old firm and beginning work at the new firm. He or she cannot tell clients about their departure nor begin soliciting business before their resignation.
- If there is no written partnership agreement, the broker can take the entire client list with them after four years of working there. If the broker has been there less than four years, he or she can only take the list of clients that they introduced to the firm during their tenure.
The broker must review the Protocol and learn the status of both firms, as well as review their partnership agreement with the firm they are leaving.
The Form U5 (Termination Form)
Even with the Protocol, departures can still become difficult for the broker if their old firm decides to retaliate. Many brokers who have found themselves with adverse information on their Form U5 termination forms believe their firms are attempting to “black ball” them.) The Form U5 is the broker-dealer version of the “pink slip.”)
When a broker leaves a firm, whether to move to a new broker-dealer, or leave the securities industry for a different career or company, their employer firm is required to file a Form U5 to notify FINRA of their termination. The firm describes the reasons for the termination, whether voluntary or discharged for a specific cause. The broker’s end of employment could be something as simple as retirement, changing firms, or something more serious, such as fraud or other misconduct.
Unfortunately, many brokers are not aware of what their previous firms may add to the Form U5. Many brokers believe they are leaving a broker dealer on good terms, only to discover that their former employer added slanderous or inflammatory information as their reason for termination. Many brokers believe the firms are retaliating when they leave.
“If you just talk to your firm, you might be able to have a voluntary termination put down, rather than being terminated, which is good because, once it’s a termination, they have to give a reason,” said Scott Silver.
Defending their record can become difficult for a broker, especially if they were not aware of the information until much later. Firms are allowed to add this information, because it goes into FINRA’s Broker check website and the broker’s CRD file. The reasoning is so that investors and members of the public can freely investigate anyone they are considering doing business with before signing up and giving any money. But many brokers who have committed no infractions see this practice as “weaponizing” the Form U5 to prevent them from ever working again, or at least have difficulty moving to a new firm.
Brokers who decide to defend themselves and fight back have an uphill battle to clear their names. This is especially true if they find out long after they’ve left the firm and moved into another company. In addition to difficulties in getting the CRD corrected, and the inaccuracy is removed, a broker must spend thousands of dollars on legal fees to be represented by legal counsel.
Although some brokers are successful in defending their record against such retaliation, overall things have not shifted the balance in favor of the broker.
Has Your Broker Moved Recently?
Silver Law Group represents investors in securities and investment fraud cases. Our lawyers are admitted to practice in New York and Florida and represent investors nationwide to help recover investment losses due to stockbroker misconduct. If you have any questions about how your account has been handled, call to speak with an experienced securities attorney. Most cases are handled on a contingent fee basis, meaning that you won’t owe us until we recover your money for you. Contact us today at (800) 975-4345 and let us know how we can help.