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FINRA Issues New Guidance Easing Broker to Client Contact in the Event of Transition

On April 5, 2019, the Financial Industry Regulatory Authority (“FINRA”) issued Regulatory Notice 19-10, which clarifies conduct regarding how brokerage firms and brokers should communicate with clients in the event a broker transitions to a new firm. FINRA Regulatory Notice 19-10 makes two key points:

  1. in the event of a registered representative’s departure, the member firm should promptly and clearly communicate to affected customers how their accounts will continue to be serviced; and
  2. the firm should provide customers with timely and complete answers, if known, when the customer asks questions about a departing registered representative.

FINRA Regulatory Notice 19-10 http://www.finra.org/sites/default/files/notice_doc_file_ref/Regulatory-Notice-19-10.pdf.

While brokerage firms have an incentive to restrict departing brokers client contact, so as to maintain assets at the firm and transition customer relationships to new advisors, brokers want to move their book of business with them, as long as they do not violate any restrictive covenants contained within their employment agreements. FINRA regulatory notice 19-10 makes it explicit to firms that clients have the right to contact departing brokers, and if clients ask for departing broker contact information it must be provided if firms have it.

The attorneys at Lax & Neville regularly assist financial advisors in transitioning between wirehouses, brokerdealers, and independent firms, in addition to helping brokers construct Registered Investment Advisory setups. The attorneys here are highly experienced in helping brokers navigate the restrictive covenants contained within their departing firm employment agreements, negotiating favorable terms in incoming firm employment agreements, and ensuring that litigation risk is minimized as much as possible during the fraught period of transitioning client accounts to the new firm. Lax & Neville carefully drafts strategic resignation letters for departing brokers, acknowledging whether the move is protocol or non-protocol, referencing how the broker intends to comply with applicable restrictions, and documenting which information if any brokers have the right to take. FINRA guidance 19-10 is an additional tool for the attorneys here to use to help brokers in ensuring clients at their departing firm are provided the ability to contact them.

The attorneys at Lax & Neville LLP have extensive experience in successfully transitioning brokers from one firm to another, without violating restrictive covenants and other legal obligations to the departing firm.  If you are considering a transition, please contact Lax & Neville LLP today at (212) 696-1999 to schedule a consultation.