FINRA Guidance begins to turn the tide in customer’s favor

By William K. Flynn

Last year I wrote about problems that happen when a registered representative (a “broker”) leaves the firm and heads for the seemingly greener pastures of a different broker-dealer, or gets out of the wire house merry-go-round and sets up shop with a registered investment adviser. Foremost among these issues is the tug-of-war over the departing broker’s “book” and whether he or she can contact existing customers to announce the change.

The earlier discussion focused on how the Protocol for Broker Recruiting attempts to address these questions by giving departing brokers access and use of limited customer information, provided he or she follows the strict procedures of the Protocol, and provided the departing broker goes to another Protocol member firm. The usefulness of the Protocol has been somewhat diluted through aggressive enforcement by member broker-dealers, as well as some high-profile wire house defections from the Protocol such as Morgan Stanley and UBS. I ended by remarking that Wall Street should prioritize the customer first, and specifically the customer’s right to continue a relationship with the financial professional of his or her choosing. The situation is not unlike a doctor-patient or attorney-client relationship. Knowing where your broker is employed is the first step in being able to maintain that relationship.

Recently, the Financial Industry Regulatory Authority (FINRA) issued regulatory “guidance” to its member broker-dealers (Notice to Member 19-10) that firms, “when asked,” should “clearly and without obfuscation” tell customers where their broker is located and that customers have the right to transfer their assets to that firm if they choose. This guidance does not have the force of legislation and is a somewhat diluted, but still important, step in the right direction.

Rather than telling the former broker-dealer it has to notify customers on its own, the guidelines require the customer to ask the broker dealer for the departed employer’s information. The broker-dealer can share the information with customers if the departed broker has given consent. While this still isn’t optimal, the guidance from FINRA reflects an important public policy that securities industry customers should be unimpeded from following their brokers when they leave for another shop, and brokers should therefore be able to freely remain in contact by reaching out to their customers. The playing field just tilted a little bit more in favor of the customer.