Wall Street’s Game of “Musical Chairs” Escalates


Brokers are switching firms in record numbers. For example, Jessica Toonkel of InvestmentNews is reporting that Legg Mason’s head of U.S. national broker-dealer sales, Joe Lohrer, and head of U.S. intermediary marketing, Benji Baer, are leaving the firm, marking the latest in a wave of departures of senior salespeople from the firm. Other departures from Legg Mason since last fall include the head of marketing and product; the head of operations for the Americas; the U.S. product head; and the co-head of distribution for the retail, subadvisory and institutional business.

Broker defections are on the rise, and have been since the Great Recession. Departures of registered representatives can present serious practical and legal issues involving so-called “garden leave” policies that require departing advisors to give a 60-day notice during which they receive base pay but are unable to contact their clients, as well as restrictive covenants, up-front bonuses subject to promissory notes, and raiding, to name a few.

When brokers switch firms taking clients and information with them, they risk being in breach of contracts they were sometimes unaware they even had. Employment contracts often contain restrictive covenants, such as non-solicitation and non-disclosure agreements. If a broker runs afoul those agreements, the employer can generally sue for injunctive relief or damages, which, if granted, could damage the departing broker’s business.

Some of these potential legal problems may be eliminated if the departing broker is protected by and follows the “Protocol For Broker Recruiting.”

The Protocol For Broker Recruiting is a set of conditions which, if followed, overrides certain restrictive covenants in employment contracts and relieves the broker and his or her new firm from any liability to the firm the broker left, except for liability for “raiding,” which is expressly excluded from the Protocol.

While this is not an exhaustive list covering every detail and nuance, the conditions generally include:

? That both the former firm and new firm are signatories to the Protocol, and have not dropped out of the Protocol. More than 500 firm are signatories, according to the article.

? That the only account information the broker takes with him or her is client name, address, phone number, email address, and account title of clients he or she serviced at the former firm.

? That the broker provides a written resignation delivered to the local branch management along with a list of the client information including account numbers that the broker is taking with him or her.

? That the new firm limits use of the client information to solicitation by the new broker of his or her former clients.

? That the broker only solicits clients her or she serviced at the former firm and only after the broker has joined the new firm.

The Securities Industry and Financial Markets Associated (SIFMA) administers the Protocol For Broker Recruiting and typically provides weekly updates on Protocol members to participating firms, according to the article.

Brokers starting their own firms can establish the firm as a Protocol member, according to the article.


Possible liability for raiding and for breach of an account services agreement for stock benefits management services, and team and/or partnership agreements is not eliminated by following the Protocol For Broker Recruiting.

What constitutes “solicitation” is often not as clear as it appears. While it may be upsetting to some, the safest option for a departing broker is to not tell clients or other employees they are leaving until after they have left their former firm and joined the new firm.

Other potential pitfalls facing departing brokers can include allegations that the broker is misusing confidential information, attempts to interfere with the broker’s business opportunities, disparagement, and offers of reduced charges to a broker’s customers who remain with the firm.

There have also been reports of some firms creatively interpreting the Protocol in ways that weaken or undermine it.

Page Perry is an Atlanta-based law firm with an active practice in representing individuals in employment disputes with firms in the financial services industry. The firm is currently involved in representing employees in such disputes. In recent years, the firm has won arbitration awards for clients in employment disputes in the amounts of $1.7 and $3.9 million. For further information, please contact www.pageperry.com.