Background of the Broker Protocol

In August 2004, three prominent wirehouses—Merrill Lynch, Citigroup Global Markets, and UBS Financial Services—established the Broker Protocol to alleviate the legal disputes that frequently arose during advisor transitions. Prior to this agreement, the typical transition process often involved abrupt resignations followed by frantic efforts to secure clients before the previous firm could intervene. Such scenarios typically necessitated legal action, resulting in the involvement of attorneys who would seek restraining orders or pursue litigation over allegations such as breach of contracts and trade secrets. In a bid to curtail these costly disputes, the Founding Members created a framework designed to streamline transitions and allocate resources more effectively.

Does the Broker Protocol Apply?

Over the years, the Broker Protocol has transitioned and expanded significantly, now encompassing a wide array of broker-dealers and registered investment advisors. Initially entered into by just three firms, membership has grown to over 2,000 signatories as of August 2020. It's crucial to note that firms can join or withdraw from the Broker Protocol at any time; hence, it is vital for advisors to ensure that both their current and prospective firms are members during their transition period. Only in these scenarios can advisors benefit from the protections and advantages offered by the Broker Protocol.

Properly Undergoing a Broker Protocol Transition

At its core, the Broker Protocol is a collective agreement that governs the use of client information when advisors transition between signatory firms, ultimately aiming to safeguard client privacy while allowing freedom of choice. Participating firms must adhere to specific procedures regarding client data transfers to avoid potential litigation. Advisors can only take a limited set of client information—namely names, addresses, phone numbers, email addresses, and account titles—to their new firms, ensuring that both their former and new firms remain compliant with the protocol's stipulations. To formalize their resignation under the Broker Protocol, advisors must provide written notice, detailing the specific client information being transported while maintaining strict adherence to the established criteria. Non-compliance could expose both the advisor and their new employer to legal repercussions.

1. Act in good faith and you’ll be okay:  

We speak with wirehouse advisors who get nervous and concerned about Protocol and others who take it more in stride as part of the business. While following Broker Protocol should be taken extremely seriously by the advisor, if you act in good faith and follow the procedures, you’re going to be okay.

2. Only 5 kinds of client info you can take

To be safe only take this information from clients you personally acquired, developed, and brought to the firm.

• Names

• Addresses

• Phone numbers

• Email addresses

• Account title of the clients that they serviced while at the firm

Don’t take copies of monthly statements, flash drives, client files or any other client documents (paper or electronic files). Don’t take copies of client account numbers or details. Don’t print from the office or email your personal email address client information.

3. Discretion Direction

“Don’t tell anyone” is the discretion direction Protocol brokers should follow. If the “word” gets out it can lead to your manager to take preemptive action against you through termination or a surprising and sudden compliance issue leading to an unsettled disclosure. Telling your friends, peers, assistants, and even family about your move prematurely can have serious consequences.

4. Both firms should be members

Both the departing AND receiving firms must BOTH be members of the Broker Protocol for the departing advisor to receive the protections granted by Protocol. While there are 1598 current members as date of this Blue Paper don’t assume the firm you are joining is a member of Protocol.

5. Resignation letter and list copies

Your resignation letter should be in writing and personally delivered to the branch manager. Don’t pine on about all the good reasons you are resigning. The longer it is the more likely you are to get yourself in trouble. Include two lists with the letter: Copy of list of allowable client information (name, address, phone number, email, and account title) you’re taking. Copy of list of account numbers for the clients you serviced. However, the account number list is only for the manager and this copy you do not take home.

6. When you’re on a team

It’s common for wirehouse advisors to be on teams and if you are on a team there are different aspects to consider. If you’re currently on a soon to be “left behind” team you’ll want to find your team agreement. The agreement should spell out client rules and usually are restrictive to a departing team member. The team agreement should also be given to your legal council advising you on Protocol. If there is not a written team agreement and you have been on the team less than 4 years then Protocol only protects the clients you brought to the team. If you have been a producing advisor on a team for 4 years or more, all team clients are fair game.

7. You need an experienced attorney

Advisorbox strongly advises advisors engage a Protocol experienced attorney to ensure that all requirements are followed. Advisorbox is not a law firm and does not provide legal advice. This overview is provided for general information purposes only. Find Protocol experienced attorneys on the Advisorbox Directory.

ADVISOR RECRUITING & TRANSITION FINANCING

Loan Usage:

• Ideal for covering recruitment and transition expenses (e.g. transitioning from wirehouse to independence).

• Working capital offers financial support during an advisor's move to a new platform.

Transaction Specifics:

Funding available for recruitment and acquisition in a single transaction.

Recruiting Transition Loan

Advisors focused on acquisitions are often simultaneously in recruitment mode. Many Registered Investment Advisors (RIAs), Office of Supervisory Jurisdictions (OSJs), and independent broker dealer principals aim to expand their businesses by recruiting advisors to join their teams. They receive a payout from the broker dealer or custodian, then offer a reduced payout to the advisors they bring on board, retaining the difference for the services they provide.

Most advisor business owners are unable or unwilling to match the 10% to 20% (or higher) transition deals that breakaway brokers negotiate when affiliating directly with a broker dealer. To address this challenge, we provide recruitment transition loans. These loans empower recruiting advisors and firms to offer more competitive incentives to attract top talent and provide financial support to new recruits during their initial months of transitioning clients.

Recruiting Note Payoff Loan

We offer assistance not only to breakaway brokers seeking to settle their recruiting debts but also to independent advisors looking to transition smoothly without financial burdens. Whether moving from independent broker dealers or firms, we provide solutions to pay off existing recruiting notes. Advisors who initially received a recruiting note while operating as 1099 can benefit from refinancing options with both SBA and conventional lenders. For those who weren't aware of financing options and covered costs themselves, we offer working capital loans to cover transition expenses and revenue losses. Our aim is to support advisors in their moves by providing tailored financial solutions.

Breakaway Broker Recruiting Loan

Breakaway brokers, a term used in the industry to describe advisors from wirehouses like Merrill Lynch, Morgan Stanley, UBS, and Wells Fargo, are professionals who transition from the employee model of wirehouses to become independent business owners of their financial practices.

Over the past decade, there has been a consistent trend of advisors shifting from employee status to independence. It is anticipated that in the coming years, the number of independent advisors in the industry will surpass that of employees.

When employee advisors opt for independence with an independent broker dealer, they usually receive a modest transition package and payouts ranging from the high 80s to low 90s, officially taking ownership of their practices. On the other hand, those establishing a Registered Investment Advisor (RIA) with a custodian forego the transition package but enjoy full 100% payouts.

Wirehouse advisors manage some of the most substantial and top-quality practices in the industry. They are the custodians of client relationships, with clients valuing their advisor more than the name of the broker dealer on the business card.

We provide financing for breakaway brokers to address various financial needs when transitioning to independence. This includes covering expenses such as settling existing recruiting note balances with wirehouses, funding new office setup and renovations, purchasing furniture, computers, systems, and technology, as well as covering marketing, promotional costs, and working capital to manage income loss and client transition expenses during the initial months.

The traditional firm (W-2) model recruiting notes are perceived as personal loans by the Small Business Administration (SBA) and commercial banks because they were granted to employees, not business owners. Our loan transforms these personal notes into tax-deductible business notes, facilitating easy refinancing as a business loan once the advisor has broken away and transferred their clients.

Recruiting Transition Loan

Advisors focused on acquisitions are often simultaneously in recruitment mode. Many Registered Investment Advisors (RIAs), Office of Supervisory Jurisdictions (OSJs), and independent broker dealer principals aim to expand their businesses by recruiting advisors to join their teams. They receive a payout from the broker dealer or custodian, then offer a reduced payout to the advisors they bring on board, retaining the difference for the services they provide.

Most advisor business owners are unable or unwilling to match the 10% to 20% (or higher) transition deals that breakaway brokers negotiate when affiliating directly with a broker dealer. To address this challenge, we provide recruitment transition loans. These loans empower recruiting advisors and firms to offer more competitive incentives to attract top talent and provide financial support to new recruits during their initial months of transitioning clients.

Recruiting Note Payoff Loan

We offer assistance not only to breakaway brokers seeking to settle their recruiting debts but also to independent advisors looking to transition smoothly without financial burdens. Whether moving from independent broker dealers or firms, we provide solutions to pay off existing recruiting notes. Advisors who initially received a recruiting note while operating as 1099 can benefit from refinancing options with both SBA and conventional lenders. For those who weren't aware of financing options and covered costs themselves, we offer working capital loans to cover transition expenses and revenue losses. Our aim is to support advisors in their moves by providing tailored financial solutions.

Breakaway Broker Recruiting Loan

Wirehouse advisors manage some of the most substantial and top-quality practices in the industry. They are the custodians of client relationships, with clients valuing their advisor more than the name of the broker dealer on the business card.

There are financing options for breakaway brokers to address various financial needs when transitioning to independence. This includes covering expenses such as settling existing recruiting note balances with wirehouses, funding new office setup and renovations, purchasing furniture, computers, systems, and technology, as well as covering marketing, promotional costs, and working capital to manage income loss and client transition expenses during the initial months.

The traditional firm (W-2) model recruiting notes are perceived as personal loans by the Small Business Administration (SBA) and commercial banks because they were granted to employees, not business owners.

AdvisorBox assists advisors with the intel, templates, and recruiting guidance but we are not a recruiting firm and do not provided direct recruiting services. We do have our vetted recruiting vendor portal for advisors to connect with recruiting firms on AdvisorBox.