By Wendy Leung
The desire to share the news can completely derail a transition to another firm. Here’s what top attorneys recommend when it comes to communicating with clients before, during and after a move.
When considering a move, it’s natural for advisors to wonder whether clients will follow them to the new firm. As a result, an advisor may be tempted to reach out to a few top clients, simply to gauge their reactions. Yet this is exactly the kind of impulse that can derail a move and a career—since such outreach could result in litigation and, at worst, termination.
No doubt, advisors from Protocol and non-Protocol firms alike are moving successfully each and every day without litigation issues because they are doing so ensuring they have abided by any contractual obligations to their firm. Brian Neville, Esq. of Lax and Neville LLP stresses that “proper legal planning goes a long way toward lessening the litigation risk of a transition to a new firm, especially if the advisor is at a firm that has withdrawn from the Broker Protocol.”
In conversations with attorneys who specialize in advisor transitions, we found that there are some basic tenets that advisors need to consider prior to initiating conversations with clients—whether before or after a move. However, keep in mind that every advisor’s situation is unique—and while the recommendations that follow can serve as guidelines, an advisor should seek counsel from a securities attorney to learn what type of communication is – and is not – permitted in their particular case.
Before a Move: What Not to Discuss
According to Neville, “When advisors talk to me about their desire to switch firms, I counsel them that, first and foremost, they have a common law duty of loyalty to their employer to act in that employer’s best interest until they resign. That said, they are all at will employees who can take reasonable steps to interview and make arrangements for a new position, they just cannot pre-solicit any of their clients to move to a new firm. After that, they must be aware of any restrictive covenants in their existing employment agreements, such as client non-solicits and limitations on taking confidential information with them when they leave.”
So that makes it imperative for advisors to be aware of the types of conversations which are likely to be considered in breach of their contractual obligations.
- Never discuss specifics around thoughts or plans of a move;
- Never mention a list of firms and ask clients to choose;
- Never tell clients when you are moving;
- And never – EVER – ask a client if they will follow.
According to Thomas B. Lewis, Esq. of Stevens and Lee, regardless of whether an advisor moves with or without the protection of the Broker Protocol, “it is never a good idea for an advisor to hint to clients that they are leaving.” Instead, Lewis suggests advisors “be proactive, after resigning and joining the new firm, in explaining to clients that they would have liked to have discussed the impending move in advance but because of legal and contractual obligations, were not permitted to do so. This gives clients the comfort that the advisor was following their obligations and playing by the rules.”
After a Move: Protocol or Non-Protocol?
The Protocol for Broker Recruiting was established in 2004 as an industry-wide agreement designed to facilitate advisor transitions and reduce unnecessary litigation. Things changed significantly in 2017 when first Morgan Stanley then UBS dropped out of the game-changing accord. (As of this writing, Merrill Lynch is still part of the Protocol.) Now, when advisors move from non-Protocol firms, they must strictly adhere to their employment contracts—which typically contain client confidentiality and non-solicitation clauses prohibiting them from taking client information and asking clients to follow. Despite this, we continue to see substantial movement of advisors and assets out of UBS and Morgan Stanley, as well as other non-Protocol firms, making it clear that non-Protocol moves are happening successfully.
In a recent podcast interview with David Gehn, Esq., head of litigation at Ellenoff Grossman and Schole LLP, he shared, “If an advisor is at a Protocol firm, Protocol protections enable the advisor to make a list with five categories of information. You can take the name, email, address, telephone number and account type, and you can create a spreadsheet to take with you upon departure to solicit those clients.”
Yet when advisors move without Protocol protection, they cannot take any client information and cannot solicit. Instead, advisors can utilize publicly available sources to find client contact information and, with guidance from the hiring firm and their personal attorney, craft a customized strategy for announcing the move. According to Matthew Henneman, Esq. of Henneman Rau LLP, “A customized plan is the key. Every firm has a slightly different interpretation of how FINRA and SEC rules interact with a non-Protocol transition. Knowing each particular firm’s hot button issues and avoiding them before, during and, crucially, after the resignation can be the difference between an uneventful move and one mired in litigation for months or even years after the advisor’s transition.”
Post-move, and with a communications plan in-hand, it’s critical to articulate the benefits of the move to clients. Many advisors create phone scripts highlighting the advantages of the move, as well as the things that won’t change, such as the client service model, regular reviews and direct access to the advisor and key support staff. Some advisors even create “why” letters or videos—making the case for why the move is in everyone’s best interest.
The bottom line is that moving to another firm is an exciting yet stressful event. But if you’re moving for the right reasons, have an experienced attorney to guide you and a well-thought-out strategy for communicating with clients, you can feel confident that the transition – whether it be a Protocol or non-Protocol move – will be a success.
As Gehn put it, “The greatest victory is that which requires no battle. If you’re honest and you’re prepared, in the transitional context, you should be fine.”
Updated January 12, 2021