An Open Letter to the
Financial Industry Regulatory Authority
Board of Governors:
Chairman and Public Governor: William H. Heyman / The Travelers Companies, Inc.
FINRA CEO: Robert W. Cook
Carol Anthony (John) Davidson / Retired
Shelly Lazarus / Ogilvy & Mather
Joshua S. Levine / Kita Capital Management, LLC
Brigitte C. Madrian / Harvard Kennedy School of Government
Eileen Murray / Bridgewater Associates
Charles I. Plosser / Former President and CEO, Federal Reserve Bank of Philadelphia
Hillary Sale / Washington University in St. Louis School of Law
Leslie Seidman / Former Chairman of the Financial Accounting Standards Board
Luis M. Viceira / Harvard Business School
Elisse B. Walter / Former Commissioner and Chairman of the Securities and Exchange Commission
Susan Wolburgh Jenah / Former President and CEO of the Investment Industry Regulatory Organization of Canada
Stephen M. Cutler / JPMorgan Chase & Co.
Andrew S. Duff / Piper Jaffray
Stephen A. Kohn / Stephen A. Kohn & Associates, Ltd.
Brian Kovack / Kovack Securities, Inc.
Joseph M. Mecane / Citadel Securities
Robert A. Muh / Sutter Securities, Inc.
Kathleen A. Murphy / Fidelity Personal Investing
Joe Romano / Romano Wealth Management
John W. Thiel / Merrill Lynch Wealth Management
Amy L. Webber / Cambridge Investment Research, Inc.
As reported in "Finra to Breakaway Brokers, Firms: Fight It Out" (Barron's, Jan. 5, 2018) https://www.barrons.com/articles/finra-to-breakaway-brokers-firms-fight-it-out-1515185626 :
Finra is apparently going to let brokerages and breakaway brokers fight it out over the issue of who owns the client.
A spokeswoman for the regulator tells FinancialAdvisorIQ that it takes no position on the debate, and adds that Finra isn't involved in the broker protocol. Finra has arbitration rules to handle disputes, but no who-owns-the-customer rule.
Similarly, as reported in "Finra Refuses to Get Embroiled in 'Who-Owns-the-Customer' Debate" (Financial Advisor IQ, January 5, 2018) http://financialadvisoriq.com/c/1843923/211733 :
Finra isn't going to intervene in the "who-owns-the-customer" debate that's resurfaced in the financial advisory industry because of the three high-profile exits of Morgan Stanley, UBS and Citigroup from the Protocol for Broker Recruiting.
The broker protocol "is an agreement between the firms, so Finra is not part of it," a Finra spokeswoman tells FA-IQ in reaction to suggestions received by the publication about the regulator's role in defining who owns the customer - the broker-dealer firms or the advisors.
The spokeswoman adds that Finra doesn't have a position on this particular debate.
FA-IQ's straw poll of advisors shows 91% believe they themselves own the customers, their account information and the right to service their assets. The rest believe the firm owns them.
The preamble to the "Protocol for Broker Recruiting"
http://www.thebrokerprotocol.com/index.php/authors states the following:
The principal goal for the following protocol is to further the clients' interests of privacy and freedom of choice in connection with the movement of their Registered Representative ("RRs") between firms. If departing RRs and their new firm follow this protocol, neither the departing RR nor the firm that he or she joins would have any monetary or other liability to the firm that the RR left by reason of the RR taking the information identified below or the solicitation of the clients serviced by the RR at his or her prior firm, provided, however, that this protocol does not bar or otherwise affect the ability of the prior firm to bring an action against the new firm for "raiding." The signatories to this protocol agree to implement and adhere to it in good faith.
When RRs move from one firm to another and both firms are signatories to this protocol, they may take only the following account information: client name, address, phone number, email address, and account title of the clients that they serviced while at the firm ("the Client Information") and are prohibited from taking any other documents or information. Resignations will be in writing delivered to local branch management and shall include a copy of the Client Information that the RR is taking with him or her. The RR list delivered to the branch also shall include the account numbers for the clients serviced by the RR. The local branch management will send the information to the firm's back office. In the event that the firm does not agree with the RR's list of clients, the RR will nonetheless be deemed in compliance with this protocol so long as the RR exercised good faith in assembling the list and substantially complied with the requirement that only Client Information related to clients he or she serviced while at the firm be taken with him or her. . .
The Protocol for Broker Recruiting is a document drafted by management in an effort to constrain the post-employment conduct of former employees. No registered representative is a signatory to the Protocol. No public customer is a signatory to the Broker Protocol. Accordingly, in my opinion, the Broker Protocol's assertion that its "principal goal" is to "further the clients' interests of privacy and freedom of choices" is self-serving nonsense. Not that I have an opinion about the issue.
Notwithstanding its flaws, the weakening and possible demise of the Broker Protocol will inevitably return the FINRA community to:
Finra needs to convene an industry conference to finally be able to decide on what's a workable definition of who owns the customer . . . there's got to be a better way of doing this than TROs and arbitration.
In response to this existential threat, an unidentified "Finra spokeswoman" says that the "who owns the customer" issue and the Broker Protocol are little more than a pedestrian "agreement between the firms," which renders the issue something that FINRA is "not part of," and something about which the industry's self-regulatory-organization "doesn't have a position on."
Does that purported unidentified FINRA spokeswoman speak for FINRA's Board of Governors?
Were you Governors informed of the developing renunciation of the Broker Protocol by some of its most important signatories -- and were you polled as to the self-regulatory-organization's now public position of not having a position on the issue?
Are you Governors aware that if past is prologue, that the inevitable result of ending the flawed but somewhat utilitarian industry understanding in the form of the Broker Protocol will be an increase in litigation -- which traditionally sidesteps mandated intra-industry arbitration and plays out amid the clamor for restraining orders and injunctions in state and federal courts?
Is a return to time-consuming and expensive civil litigation truly the direction in which the FINRA Board of Governors wishes to steer the FINRA member community?
Contained on the "About FINRA" webpage of your organization is, in part, this high-minded and laudatory mission statement:
FINRA is dedicated to investor protection and market integrity through effective and efficient regulation of broker-dealers.FINRA is not part of the government. We're a not-for-profit organization authorized by Congress to protect America's investors by making sure the broker-dealer industry operates fairly and honestly.
FINRA RULE 2010: Standards of Commercial Honor and Principles of TradeA member, in the conduct of its business, shall observe high standards of commercial honor and just and equitable principles of trade.