Will More Brokers Switch Firms this Year?


The number of brokers switching firms is expected to be higher than average this year for a number of reasons.  Among the reasons is a proposed new rule requiring brokers to disclose signing bonuses to clients, which is viewed as very likely to be approved.  If brokers switch firms before the rule becomes effective, they will not have to tell clients about the incentive bonuses they receive to switch firms.  A conversation with clients along those lines could be awkward in that it could raise questions about the conflicting interests that permeate the broker/adviser-client relationship.

Nonreligious holidays, such as President’s Day, are said to be perennial favorite times for brokers to move to a new firm.  The typical three-day weekend gives brokers plenty of time to contact clients and advise them about the move (“Broker Moves May Pick Up Over Long Weekend,” by Corrie Driebusch, Wall Street Journal).  In prior years, having the office closed for three days was an important advantage in avoiding a temporary restraining order that former firms often filed to block access to the firm’s clients.  Since 2004 a protocol-recruitment agreement governs such matters, and the three-day weekend is not as important, according to the article.

The Financial Industry Regulatory Authority (FINRA) is soliciting public comments for its proposed new rule requiring departing brokers to disclose recruitment bonuses to clients whom they ask to come along with them.  Any “enhanced compensation” of $50,000 or more, by whatever name it is called, would trigger the disclosure obligation. For the so-called “big producers” – brokers who are among those that generate the most commission and fee revenue at a firm – a recruitment bonus may be many millions of dollars.  Clients of such brokers may ask for their own bonuses when they begin to see how they are viewed as valuable assets.

Page Perry is an Atlanta-based law firm with over 150 years of collective experience maintaining integrity in the investment markets and protecting investor rights.