Finra guidance could help departing reps hang onto clients

If clients ask, firms must give them contact information for their former brokers

Apr 11, 2019 @ 2:12 pm

By Mark Schoeff Jr.

Brokers leaving firms could more easily hang on to their clients and avoid being disparaged by their former employers under recent Finra guidance.

The Financial Industry Regulatory Authority Inc. issued a regulatory notice last week that told brokerages to "communicate clearly, and without obfuscation, when asked questions by customers about the departing registered representative."

In response to a customer query, the firm must clarify that the customer can retain assets at the firm or transfer them elsewhere. The firm also must give the customer the former broker's contact information, if it has been provided.

"I'll be asking my clients to put their new contact information in their resignation letter," said securities lawyer Brent Burns, owner of an eponymous law firm.

The guidance comes as some brokerages have decided to leave the so-called Broker Protocol for Recruiting agreement that set informal rules for how firms deal with broker transitions.

The Finra guidance could help brokers on the move retain loyal clients.

"This gives the client an opportunity to contact a broker, which arguably may jump over a non-solicitation agreement," Mr. Burns said. "It will facilitate representatives breaking away from non-protocol firms."

The guidance will also clarify for clients their options when a broker leaves, according to Louis Diamond, executive vice president of Diamond Consultants, a recruiting firm.

"It creates more defined rules of engagement on how a firm has to react and talk to clients," Mr. Diamond said. "They shouldn't be blocked, intimidated or scared about working with the adviser of their choice."

By emphasizing that communication about former brokers must be fair, balanced and not misleading, the guidance should help change the tone when firms describe a former broker, according to Jon Henschen, president of Henschen & Associates, a recruiting firm.

"They just make things up and throw them under the train to keep the assets," Mr. Henschen said. "We've heard horrific things said about departing advisers over the years, so anything in writing by regulators that counters slandering of a representative's reputation is a positive trend."

The guidance doesn't represent new Finra policy. It's a reminder to firms about how they're supposed to handle broker departures.

"We believe the vast majority of Finra member firms are acting consistently with this guidance," Finra spokeswoman Michelle Ong wrote in an email.

The regulator struck the right balance, according to Daniel Nathan, a partner at the law firm Orrick. Firms don't have to provide contact information for their former representatives unless the customer asks. But they do have to be truthful in answering those questions.

"It's kind of respectful of both sides," said Mr. Nathan, a former Finra vice president and director of regional enforcement.


What do you think?

View comments

Recommended next


Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting It'll help us continue to serve you.

Yes, show me how to whitelist

Ad blocker detected. Please whitelist us or give premium a try.


Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print