Broker Protocol Still in Effect at Wells Fargo for Now, but Firms and Advisors Should Prepare for the Worst

A recent Wells Fargo Memo raised questions for some of the firm’s brokers about the firm’s commitment to the Protocol for Broker Recruiting (“Broker Protocol“). The Broker Protocol found itself in the news again earlier this year when major firms UBS and Morgan Stanley both suddenly pulled out of the voluntary agreement that has been embraced by many major and smaller firms since its inception in 2004.

The Broker Protocol was put into place by Citigroup (then Smith Barney), Merrill Lynch to enable more efficient transitions of advisers and their clients between member firms. At its core, the Broker Protocol originated because firms grew tired of suing each other every time a financial adviser left for a competing firm and took their client details and information along with them.

While there is always a question about who is entitled to retain a client’s contact information, the Broker Protocol did much toward reducing lawsuits relating to adviser transitions (while subsequently helping financial advisers to feel comfortable at a firm or comfortable leaving when recruited).

The Wells Fargo Memo led some to believe that Wells Fargo would be leaving the Broker Protocol, which, understandably raised some serious concerns among advisers still at the firm.

There are many legal and regulatory compliance considerations that must be taken into account when an adviser transition looms. If member firms continue to depart from the Broker Protocol, a lawsuit from a previous employer may become a more likely event as it was in the past.

Wells Fargo Quick to Allay Fears, but Smart Advisers Should Hedge Their Bets

Though Wells Fargo was quick to state that the memo, which was allegedly sent out as a result of a change to Wells Fargo’s privacy policy, was simply required by regulations (Wells Fargo added a toll-free number for clients to call if they want to prevent their advisers from taking their details if they leave Wells Fargo) and that they remain committed to the Broker Protocol. However, some commentators feel that the decisions by both Morgan Stanley and UBS to depart throws the Broker Protocol itself into question.

The departures of large institutions from the Broker Protocol serve to shake the foundation a bit. The long term impact, if any, is not clear. The savvy adviser will take notice of these changes and take all necessary action to protect themselves if a career opportunity at another firm arises so that the way the transition is handled does not increase the risk of legal action.

Transitioning Advisers May Need Legal Assistance

Generally speaking, no one wants to burn bridges with previous employers or spend money on a lawsuit against a former employee, but, with the Broker Protocol up in the air (and even with it firmly in place), having a knowledgeable legal team on your side can make a successful career transition and/or the protection of your business information a more dependable outcome.

Contact us to learn more about considerations for advisers and firms alike when it comes to transitions in the modern era.

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