By George C. Miller, Esq. of Shustak Reynolds & Partners, P.C. posted on Friday, February 27, 2015.

George C. Miller

Partner

Location: San Diego, California
Phone: (619) 696-9500 (Ext. 105)
Direct: (619) 501-8270
Email: [email protected]

According to recent reports, Bank of America / Merrill Lynch may be distancing itself from “The Broker Protocol.”  The Broker Protocol is a longstanding agreement amongst more than 1,200 brokerage firms, registered investment advisory firms and others that allows financial advisors who leave one Protocol firm to join another Protocol firm to take certain client contact information with them.  As long as the advisor complies with the terms of the Protocol (e.g., takes only a client list containing the name, address, phone number, email address and account title), the Broker Protocol provides that neither the departing representative nor the hiring firm shall have any monetary or other liability to the prior firm.

Along with UBS Financial Services, Inc. and Citigroup/Smith Barney, Merrill Lynch was one of the original signatories to the Broker Protocol.  The Broker Protocol came into existence following an avalanche of temporary restraining orders, injunctive proceedings and other litigation related to a departing financial advisor’s resignation and attempt to transition his or her valuable book of business from one firm to another.  In those claims, firms often accused departing advisors of misappropriating trade secrets or proprietary customer data or of violating restrictive covenants/non-compete agreements.  For the past decade, the Protocol drastically reduced the number of these litigations.

With competition for client assets at an all-time high, however, Merrill Lynch appears to be considering a change in course.  In recent months, Merrill Lynch brokers have been asked to sign agreements stating that if they leave Merrill Lynch, they cannot, despite the protections of the Broker Protocol, take client names or contact phone numbers with them.   In addition, Merrill Lynch is reportedly offering new recruits up-front bonuses tied to 14-year promissory notes as part of an attempt to keep client assets from leaving the firm.  While forgivable promissory note/golden handcuff bonuses are common in the securities industry, those notes typically are forgiven over a much shorter,  7 to 9 year horizon.

A Merrill Lynch spokesperson quoted in a recent Business Insider article stated that Bank of America Merrill Lynch is not trying to do away with the protocol, adding that the firm is a “strong supporter[] of the broker protocol.”  According to the same article, however, more than 20 people familiar with Merrill Lynch, including current employees, outside lawyers and recruiters, said that in recent months many brokers were asked to sign contracts that conflicted with the Broker Protocol.

Shustak Reynolds & Partners, P.C.’s securities and FINRA attorneys and broker protocol lawyers in San Diego, Irvine, San Francisco and New York represent registered representatives, financial advisors, investment advisors, financial institutions and others in a wide variety of securities-related disputes, including broker protocol disputes and non-compete, restrictive covenant and trade secret litigation.  The firm’s financial services attorneys, FINRA attorneys and broker protocol lawyers have extensive experience handling intra-industry employment, recruitment and broker transition disputes, including golden handcuff and forgivable promissory note disputes.  The firm’s FINRA attorneys are uniquely experienced in handling FINRA employment disputes involving allegations of misappropriation of trade secrets or broker protocol violations.  Contact us today at 619.696.9500 for a confidential analysis of your situation.

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