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Clients Should Be Given the Power to Decide Between Firm or Advisor

By Rita Raagas De Ramos April 2, 2018

As far as consumer advocate Barbara Roper is concerned, there should be no debate on what happens to client accounts when advisors leave broker-dealer firms because the choice of where their loyalty lies should be left entirely to the clients.

“Investors get caught in the middle, and that shouldn’t be the case,’ says Roper, Pueblo, Colo-based director of investor protection at the Consumer Federation of America. “It ought to be up to the individual investor to decide whether they want to stay with the firm or with the individual broker-dealer representative.”

It’s unfair for clients to get caught up in legal battles between broker-dealer firms and former advisors and be at the mercy of that process, Roper says.

Thomas Potter, a lawyer with Burr & Forman in Nashville, Tenn., agrees. “At the end of the day, the person who’s disadvantaged is the customer.”

In its motions for TROs against departing advisors, Morgan Stanley, which exited the Protocol for Broker Recruiting in November, has argued that a critical component of its continued success is building and retaining relationships with clients, particularly high-net worth individuals. The company says it spends considerable time, money and resources to identify, service and maintain clients; to secure personal and financial information; and to generate new leads for prospective clients.

When broker-dealer firms win a TRO against a former advisor, that typically means the advisor is barred by the court from benefiting from any client information the advisor already took from the company’s records, unless the parties reach some form of settlement before the case closes in court or in an arbitration forum, according to Potter. While a TRO is in place, the client accounts remain with the broker-dealer company and are typically assigned to another advisor, he says.

Even among firms that are signatories of the broker protocol, “it can take forever to transfer the clients’ assets from the old firm to the new firm, and some firms can make that transfer more difficult than it needs to be,” Roper says.

The broker protocol lets registered representatives who move from one firm to another take the following account information, as long as both firms are signatories to the broker protocol: client name, address, phone number, email address and account title of the clients they serviced while at the firm. The pact also lets registered representatives who comply with the agreement solicit customers they serviced while at their former firms – but only after they have joined their new firms.

The advisory industry should make it easier for clients “to have the ultimate say” on whether their relationship stays with the broker-dealer firm or with the advisor who serves their account, according to Roper.

Meanwhile, giving clients the power of choice must come with an assurance that their privacy is protected, she says. There is merit to the argument put forward by broker-dealer firms who say that they don’t allow advisors to take client information because of privacy concerns, she notes.

“Customer data and privacy liability can complicate the process,” she says. “That’s both a reason and an excuse. I think it is being used cynically in this debate, but I also think there is enough truth to it that you can’t just ignore that.”

Citing an example, she asks: “What if you have an individual who was justly fired from a broker-dealer firm for misconduct? How generous do we want to be in making it really easy for that individual to stay in contact with former customers?”

Barbara Roper

Raymond James Financial is an example of a broker-dealer firm that’s sticking to the broker protocol because it believes in the “freedom and power of choice” for advisors and clients alike, according to Tash Elwyn, president of Raymond James & Associates private client group.

The firm’s “longstanding position” is that “the client relationships belong to the advisor, not the firm.”

RBC Wealth Management is another example of a firm that is respectful of the advisor-client relationship, according to Patricia Baum, an Annapolis, Md.-based advisor who has been with the firm since 1998.

“Our leadership tells us they recognize that relationship,” she says. “There’s a mutual understanding that our (advisor-client) relationship is more important.”

Baum says RBC Wealth Management’s respect for the advisor-client relationship helps incentivize her to remain loyal to the firm.

“I’m lucky because I’ve always worked at a firm that cares about the clients’ interest … and that’s the only way I would feel comfortable working,” she says.