RIA Compliance Blog
On October 24, 2017, Morgan Stanley declared that it has decided to withdraw from the Protocol for Broker Recruiting (“Protocol”). Morgan Stanley stated that the Protocol is “replete with opportunities for gamesmanship and loopholes” and that the Protocol is “no longer sustainable.” It believes that leaving the Protocol will be beneficial for its growth as a company. However, it is expected that Morgan Stanley’s withdrawal from the Protocol might bring significant consequences to the investment management industry, including potentially the end of the Protocol itself.
The Protocol was established in 2004 and created a set of guidelines that firms and registered representatives must follow when a registered representative is moving from one firm to another. Under the Protocol, a registered representative is only permitted to take the following client account information: client name, address, phone number, email address, and account title of the clients he or she served while working for his or her old firm. The registered representative is also obligated to deliver a written resignation to local branch management and copy of any client information that the registered representative intends to take with him or her. The registered representative’s new firm must agree to restrict the use of client information taken to the solicitation of the registered representative’s former clients and must not allow the client information to be used by other registered representatives or for any purpose other than solicitation of former clients. The old firm must agree to “forward to the new firm the client’s account number(s) and/ or most recent account statement(s) or information concerning the account’s current positions within one business day, if possible, but, in any event, within two business days, of its receipt of the signed authorization.”
Since the Protocol’s passage, the amount of litigation that occurs after a registered representative moves from one firm to another has sharply declined. Morgan Stanley’s departure from the protocol has caused some to speculate that its departure is the beginning of the Protocol’s end. It is expected that large firms who might follow in Morgan Stanley’s footsteps could find themselves in a situation where they may deem it necessary to offer large producers some of the post-termination rights that the Protocol offers and where they will encounter larger costs of litigation.
Given Morgan Stanley’s withdrawal from the Protocol, its registered representatives will now be required to comply with relevant client non-solicitation restrictions and confidentiality obligations, such as limitations on taking client information. The extent to which this withdrawal retroactively applies to contracts signed by Morgan Stanley representatives is unclear. If this situation impacts you, Parker MacIntyre can help you determine what options are available to you.
Parker MacIntyre provides legal and compliance services to investment advisers, broker-dealers, registered representatives, hedge funds, and issuers of securities, among others. Our regulatory practice group assists financial service providers with complex issues that arise in the course of their business, including compliance with federal and state laws and rules. Please visit our website for more information.