Investors should study ‘broker protocol’ for their protection


It’s 4 p.m. on a Friday, and out of the blue you get a phone call from your brokerage firm — but it’s not the trusted advisor with whom you have worked for 20 years. Instead, it’s a new voice from a person you don’t know, who tells you that your former advisor has left the firm and your account has been reassigned to him.

Of course, you ask where that trusted advisor has gone; does this person have his phone number? The guy on the other end of the call ducks the question and asks to meet you, to revisit your financial plan, to review your portfolio, and hints that he could do much better for you than your trusted advisor could. In fact, he offers to cut the fees you pay and to increase returns.

Your trusted advisor may have been a family friend or a crucial part of your world for decades. How or why would he pick up and leave without even telling you? Has he really been performing so badly and overcharging?

Later that afternoon, or perhaps over the weekend, you get a call from your trusted advisor. He informs you that he has left that management firm and joined a smaller firm. But that is the extent of his communication. Instead of being eager to have you move your accounts to with him, he seems almost meek, reluctant to engage.

The other guy, in the meantime, has called you three times, anxious and excited for the opportunity to win your business. Only when you specifically ask whether you could continue to work with him does your trusted advisor give you instructions on how to work with him going forward and tell you his reasons for what he did.

What in the world has happened?

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Even if this scenario has never happened to you, it likely will at some point. There are changes happening in the wealth management world which could put your investments in the middle of a legal dispute between your trusted advisor’s new firm and his old one.

It’s called the protocol for broker recruiting, and investors need to get a understanding of this for their own protection.

Prior to 2004, wealth-management firms would routinely sue each other when a financial advisor changed firms. The losing firm would claim that a client’s data, including his or her contact information, was a trade secret, like the formula to Coca Cola.

As recruiting heated up between these institutions, it was more and more common for the same firm with the same attorney to argue the exact opposite position in front of a judge in back-to-back weeks. When they lost an advisor, he was stealing company secrets. When they recruited an advisor, he was executing his right to work wherever he wanted with clients that he developed himself. In 2004 three of the largest wealth-management firms at the time — Merrill Lynch, UBS and Smith Barney — agreed to a “protocol” that, when adhered to, would stop this silliness.

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