How Stockbrokers Protect Accounts When Switching Brokerage Firms

Stockbrokers should memorialize in their employment agreement with the brokerage firm clarifying and defining who the customer belongs to and the scope of solicitation.

It is worthy to note financial rules, industry customs, broker-protocol relationships might be different when leaving a firm from when one began employment. 

Many questions may arise, which could lead to legal action. Ownership of customer accounts?  Does the stockbroker own the accounts which transferred into the brokerage firm, or does the firm take exclusive possession of the accounts?  For example, a stockbroker begins employment at ABC brokerage firm and transfers 500 accounts to the firm.  In the future, stockbroker transfers to 123 brokerage firm.  What is ABC’s position vis-à-vis the 500 accounts?  Is ABC willing to let the stockbroker solicit the accounts?

How does one treat accounts that were opened at ABC, but their origin was from one of the 500 accounts?  A legacy customer opens an additional account at ABC.  Who owns this account?  What about when a legacy customer refers a friend to a stockbroker at ABC?  Who owns this account? 

Many times, stockbrokers obtain accounts without utilizing a firm’s leads and prospect lists.  For example, stockbrokers create and/or pay for leads independent from their employing brokerage firm.  In this situation, who owns the account when the stockbroker switches firms?

Broker-Protocol – Assume when a stockbroker switches to firms, both the old and new firms belong to the Broker Protocol.  What happens if the new firm elects to drop out of the Broker Protocol?  Who owns the customer accounts?

How do stockbrokers protect themselves, so the above issues are resolved?  One answer is to memorialize the outcome of these scenarios in the employment agreement prior to working at the new firm.  Prior to employment could be one of the most advantageous times for a stockbroker to negotiate working terms, especially when the firm is actively recruiting.  To illustrate, I have seen agreements state all accounts opened within one year of employment belong to the stockbroker.  Other agreements allowed the stockbroker to solicit all clients upon departure.  Agreements vary and it is important for stockbrokers to address these issues, which more likely than not, will come up.

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