The Broker Protocol is out of date and we should change it

These are exciting times for financial advisors seeking independence in wealth management. Rising capital markets, increased consumer demand, innovative technologies and products and creative practice management models have created a surge in demand for advice.

The bad news is that unclear, antiquated rules surrounding ownership of client data make the journey to independence more treacherous than it should be.

There’s no debate on who owns the relationship with the client — the financial advisor. They have demonstrated the expertise and delivered the performance. They have asked the tough questions in order to thoroughly understand the client’s financial and life goals. In a time where trust in financial services remains near the bottom of all industry segments, high-performing advisors have successfully overcome client retention challenges, driven satisfaction and earned trust.

But while advisors own the relationship with the client, industry rules and regulations place ownership of client data with the broker-dealer, wirehouse or the provider with which the advisor is affiliated.

In today’s digital world, data rules. Lawmakers at the federal level, and in states such as Virginia and California, are closely examining legislation on customer data. IBDs have adjusted protocols, innovated processes and invested significant capital safeguarding this data from bad actors at home and abroad. But they just should not be the only voice driving the conversation with lawmakers and regulators. Modernizing and enhancing protections surrounding client data is a critical conversation — and financial advisors need an equal voice in it.

The Broker Protocol
While data is more important than ever before, the regulatory clash between advisor movement, portability of customer data and desire to supply clients with the highest-quality guidance isn’t new.

The Broker Protocol was established in 2004 to guide brokers and advisors on what client information and materials they can take with them when changing broker-dealers. The agreement now covers more than 1,400 firms and is maintained by a third-party administrator, Capital Forensics, which makes it easy for firms to sign up and withdraw from the agreement by filing a simple form.

Under the Broker Protocol, registered representatives can leave their current employer carrying with them only five pieces of client information belonging to clients they serviced at their previous firm: name, address, phone number, emails, and the account titles. This means vital information regarding your financial wants, needs, goals and hiccups you’ve faced are left behind.

Fintech

Merrill Lynch introduces fully digital account opening

Advisors and clients at Bank of America's brokerage can now collaboratively create multiple accounts across the firm simultaneously.

By Ryan W. Neal

May 7

Reg SP
Bringing along any additional information to assist the advisor in servicing the customer — including copies of account statements, account numbers or other client data — is beyond the scope of the Broker Protocol agreement, removes its protections from the exiting broker and potentially opens them up to Reg SP violations.

Regulation SP generally prohibits financial institutions from disclosing "nonpublic personal information" about a customer unless the customer receives proper notice and opportunity to opt out. Information is considered "nonpublic personal information" if it contains personally identifiable financial data about one or more consumers.

Names, addresses, telephone numbers, social security numbers and birth dates derived in whole or in part from information provided to a financial institution by a customer would also be categorized as “nonpublic personal information.”

Any registered person who discloses “nonpublic personal information” about a customer and causes his or her member firm to violate Regulation SP violates FINRA Rule 2010, which requires registered persons to "observe high standards of commercial honor and just and equitable principles of trade.”

With a wealth management industry experiencing unprecedented levels of M&A, massive consolidation and disruption, FINRA has been busy upholding Reg S-P compliance and enforcing stiff penalties for noncompliance.

Choice, freedom and mobility
It is time for a change. The current system of regulations that prohibit advisors’ ability to enhance the quality of service and solutions provided to clients is antiquated and counterintuitive to core principles of the fiduciary standard — a steadfast commitment to customer-first philosophy and always acting in the customer’s best interest.

The wealth management industry and the regulations that guide its practices should move toward a modern framework that allows advisors to freely move to another firm and makes it easy for their clients to move with them.

The voices of the industry — regulators, customer advocates, advisors — need to come together, map out best practices and envision a marketplace that enables more choice, freedom and mobility.

More robust discussion among regulators and industry leaders is essential to find a middle ground where clients’ best interests come first and regulations provide advisors much needed certainty and clarity to best serve clients no matter what firm they choose to join.