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The Broker Protocol Update-Who's In-Who's Out

By Erwin J. Shustak, Esq. of Shustak Reynolds & Partners, P.C. posted on Thursday, December 7, 2017.

Erwin J. Shustak, Esq.
619.696.9500 ext. 109
[email protected]

As we wind down 2017, there has been a flurry of news over the Broker Protocol which began with Morgan Stanley’s announced departure from the group of over 1,500 financial institutions that have signed onto the Protocol since it was first adopted in 2004 by Smith Barney, UBS and Merrill Lynch.  Those firms, which had been fighting for many years over which firm lured which brokers from which competitor, decided to put behind them the days of TRO’s and injunctions and allow departing brokers, leaving a Protocol firm for another Protocol firm, to take five categories of specified information when they left- including name of customer; title of account; phone, email and other contact information.

In October, after deciding it no longer wanted the smaller, independent firms that had joined the Protocol to acquire immunity to poach and lure brokers from Morgan and other wire houses, Morgan Stanley announced it would be leaving the Protocol and gave its soon to be captive brokers a one-week window to either jump ship or get locked into the castle.  As soon as it departed the Protocol, Morgan moved quickly to let it be known it would have a zero tolerance for brokers who leave the firm and take with them “confidential client information”- exactly the same information the Protocol allowed those same brokers to take when leaving a Protocol firm.  Within the first week after leaving the Protocol, Morgan brought two actions against brokers who left and took with them any client information.  The courts agreed and issued TRO’s restraining those unfortunate, departed brokers from soliciting or servicing their former clients.

Then, in November, UBS, one of the original three signers back in 2004, announced it also would be leaving the Protocol at the end of November, also making all of its almost 7,000 advisors somewhat captive employees.

That left only Merrill, the last of the original three signers, still in the Protocol.  Merrill announced, however, that it intends, at least for now, to remain part of the Broker Protocol, representing a parting of the ways with its original co-signers.  According to Andy Seig, Merrill’s head of wealth management, while Merrill is continuously evaluating the competition, it has no current plans to leave the Protocol.   According to Seig, Merrill is focused more on ensuring that its “thundering herd” of brokers are happy and have what they need to be successful, rather than exiting the Protocol and using it as a way of retaining advisors.

Shustak Reynolds & Partners, P.C. focuses its practice on securities and financial services law and complex business disputes. We represent many broker-dealers, registered representatives, investment advisors, investors and businesses. For more information, or if you or your company require counsel in these areas, contact us today for a confidential, complimentary consultation.

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