Opinion: Team Agreements Cut Away at Protocol Protections

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Much ink has been spilled on the protections that the decade-old Protocol for Broker Recruiting offers advisors who want to change firms, but less heralded are exceptions to the Protocol that apply to advisors who want to split not only from their firms but also from a team or partner.

Ignoring these special provisions can be perilous. Your written partnership or team agreement usually trumps the normal protections of the Protocol.

While the Protocol generally permits advisors moving from one signatory firm to another to take a contact list of names of clients they personally serviced and to solicit those clients, a provision in a partnership or team agreement that prohibits an advisor from taking a client list or soliciting certain clients may be enforced under the Protocol.

Morgan Stanley filed suit in May accusing a junior advisor of violating his team agreement when he left his $1.2 billion-dollar team in New Jersey. The firm said he took information for all clients served by the 10-person team when, under the applicable team agreement, he was only permitted to take information on just $40 million of the assets, according to the suit.  

As that case shows, it is vital to understand the terms of your written partnership or team agreement before leaving.

Even when such an agreement is in place the Protocol makes clear that the agreement may not prevent a departing partner or team member from taking a contact list for, and soliciting, those clients the financial advisor “introduced” to the team or partnership.

Establishing credit for such an introduction is not always easy, however.  Facts can be particularly tricky to establish in situations where advisors who split have run joint seminars or otherwise jointly prospected for new clients.

If there is no applicable written partnership or team agreement, the Protocol has a default “four year rule.”  An advisor who has been a producing team member or partner for four years or more can take a contact list for all clients serviced by the team. This means that an advisor with relatively junior status can solicit a team’s entire client list—whether or not he or she introduced a single client to the team—if there is not a written agreement to the contrary. On the other hand, if the departing advisor has been a producing member of the team or partnership for less than four years, the departing advisor may only take a contact list and solicit those clients that he or she “introduced” to the team or partnership.

Of course, whether you are part of a team or not, it is always important that you follow the Protocol in good faith.

Remember that you must not go beyond the five categories of information permitted by the Protocol when you leave: clients’ names, addresses, phone numbers, email addresses and account titles. If you take anything more, you run the risk of being sued in court and/or FINRA arbitration. Should you be found to have violated the good-faith terms of the Protocol, you may lose its benefits and protections and be subject to injunctive relief and monetary damages.

About the authors:

Andrew Shapren and Anne Kozul of Buchanan Ingersoll and Rooney, PC routinely represent firms and individuals with respect to legal issues that arise from the transition of financial services professionals between firms.  This article is not intended to be nor is it legal advice.

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