3 Broker Protocol changes to watch

NASHVILLE — Thinking of making a career move while your firm is still in the Broker Protocol? You’d better be prepared for more changes to the industrywide accord, caution attorneys Brian Hamburger and Sharron Ash.

A lot has changed since the protocol was originally created in 2004. Now, more firms are moving to limit the extent of their membership. Client privacy and data security concerns are complicating advisors' ability to transition between firms. And more tussles over what constitutes a firm's trade secrets are erupting.

"These trends weren't around back then. There was not even a hint of that in the Broker Protocol," says Hamburger, founder of Hamburger Law Firm and CEO of MarketCounsel, and who spoke at the Investments & Wealth Institute's annual conference (the institute was previously known as IMCA).

The protocol, which currently counts 1,750 companies as signatories, permits advisors switching firms to take basic client contact information with them. That includes names, phone numbers, email addresses, home addresses and account types.

"From a legal perspective, it is a limited forbearance agreement," Hamburger says.

In other words: a ceasefire between firms.

But 15 years after its creation, the agreement is under threat from possible further exits, and from rising issues its creators could not have foreseen. Morgan Stanley exited the protocol in October, and UBS followed a month later.

Here are three other big changes to watch, Hamburger and Ash say.

1. Limited protocol membership: Some firms are moving to limit which parts of their enterprise are members of the protocol, the attorneys say. Firms have also been attempting to limit which clients are subject to protocol protections, exempting, for example, referrals that came through the bank side of a wirehouse.

"All those types of arrangements have made what was once a simple agreement into a question of whether the firm has a qualifying relationship," Ash says.

2. Client privacy: When it comes to privacy issues, clients may increasingly have to sign agreements to allow their contact information to be shared.

Indeed, in a recent legal spat between JPMorgan Chase and a departing broker, the bank claimed that clients expressed surprise that the advisor had been able to contact them on their home phone numbers, questioning how the broker had access to that information.

But this development creates complications for brokers, who obviously cannot go to their compliance department to inquire as to which client's contact information they can take with them should they switch employers, Ash notes.

3. Trade secrets: Firms have also increasingly sought temporary restraining orders against departing brokers on the basis that by taking client contact information, they have taken important company trade secrets. That has raised red flags with regulators who want to inquire with a broker as to what trade secrets they may have taken, Ash says.

"Think about that for a minute. You are involved in a private dispute with your former employer and now a regulator is asking questions about how you handled private data," she says, noting that the departing broker may not have even had time to answer his former employer's lawsuit.

But how this all plays out in a courtroom setting can vary widely, Hamburger says. It partly depends on the judge and the jurisdiction.

"We also have to look at a firm's litigation history. How litigious is the firm you are leaving? How protective is the firm that you are going to? We also have to look at state laws, because there are state-by-state issues," Hamburger says.

But it's not all doom and gloom.

Plenty of advisors switched firms pre-protocol, and advisors will continue to do so, Hamburger says. It's just a matter of careful planning and execution.

Raymond James & Associates President Tash Elwyn recently called on his industry counterparts to create a Broker Protocol version 2.0, saying that the accord is essential to preserving client choice.

Of course, firms are still joining the protocol too, with regional BD Hilliard Lyons the most recent brokerage to sign on.

There have also been calls for regulators to step up in order to protect client privacy and choice.

"You're putting the client in the crosshairs of what is essentially an employment dispute," Ash says. "There's no reason that the client should be there."