Stock broker wants me to switch account to their new employer

It depends on her employment agreement. Some specifically state she would not be permitted to go after her old clients. Whether it's legal really isn't your issue, the safety of the new broker is your first concern and her value-added to you, second. What has her track record been for you? Is she meeting your goals?

Joe

Customer lists are one of the most valuable pieces of intellectual property an employer has. Most will get very upset about a previous employee making off with them or anything valuable in writing. Employers love patents, trademanrks and copyrights. One of my first employers told me "You can probably (not absolutely) leave with anything in your head."

You like the work she does for you?

Legal or not is her problem and probably depends on her employment agreement, if any. It does not affect you except as a trust issue. That said, I've had brokers do this a couple of times. If I liked the broker and the brokerage they were going to, I switched. Otherwise, no.

-- Doug

Whether it's legal has no quick answer - that would make a nice law school final exam question. Registered Representatives (the licensing term for a stockbroker) routinely change firms without leaving all of their clients behind, and can usually do so legally. And whether they have some kind of signed agreement with the firm may have little impact, depending on where you are. I am being intentionally vague by saying "usually" and "all of" and "may", because in an extreme example a RR could sign up old clients in a way that inspires their former broker-dealer to take them to arbitration, and win enough money to drive them out of the business.

Why the RR left the old firm, and whether it was on agreeable terms, and the differences in services and costs between the two firms, are fair questions from a customer being asked to move their accounts. A question to ask yourself is which you value more: the RR or the firm. And what are the costs of moving, how do commissions/offerings vary, etc.? Does a move contemplate selling all of your old investments and buying new ones and if so...why, and what are all the costs (including taxes)?

-Tad

I am not endorsing or encouraging a switch, just providing a little insight from the other side, if you will.

As a registered representative or investment advisor or whatever you want to call us, we all are affiliated with a Broker/Dealer (or BD). The BD is who provides what we call "back office" support for us who are independent and they provide full support for captive reps. In either case every rep has a BD they work with. The BD is the one the checks are made out to when you pay for advisory services and the BD is the one the investment companies pay the commission to. The BD then splits the fee with the individual rep. The fee split is based on the level of money the rep brings in - in our world we call this GDC or Gross Dealer Concessions. The more money I generate as a rep the bigger the cut the BD will give me.

There are only so many paying clients in the world and every BD wants to get them. The easiest way to get more clients is to recruit a rep away from their current BD. BDs are always courting us reps, trying to get us to switch from where we are to them for one reason or another. The two most often touted reasons I see are 1) a bigger share of the GDC; and 2) better office support. There are other reasons reps change - maybe their current BD is hard to work with, maybe they're closing a local office and trying to transfer the rep, maybe the rep wants to start a new office in a better location but the BD won't support the move, maybe the rep has a favorite product that the BD won't offer - the possibilities are endless. BUT make no mistake, the biggest reason a rep moves is to get a bigger cut from the BD.

It is very common for a BD to contact reps of other BDs and offer them a bigger piece of the pie to try to get them to switch. At any rate, BDs know that while their agreement with the rep may make the client the customer of the BD it is the REP who has the relationship with the customer. The fastest way to increase a BDs book of business is to get a rep with a good client base to switch - so they court us, hoping that if we switch that all of our clients will come over with us.

Most of the time the client has no real hard relationship with the company, it is the personal service that you get from the rep that matters to you (usually). One of the most touted things you'll hear at seminars is that we are NOT in the financial services business, we ARE in the relationship business. My clients don't come to me because they think I'm the smartest, brightest financial genius to every walk the face of the earth (even though I am !). No, they come to see me because of the personal relationship and trust that has been built over the years. So if I were to change BDs tomorrow I can all but guarantee you that 99.999% of my clients would move with me. Like or not, this is how it works.

The likelihood is that your rep has changed BDs for financial reasons. There is nothing wrong with that, we all want a raise and most of us will do whatever we can to get what we feel we're entitled to. Your rep has asked you to maintain the relationship with them, NOT with the BD they were affiliated with. This is a common practice.

You should check out the BD thoroughly before moving. You may also want to ask why the rep changed BDs, they may have a very good reason for doing so. If you're paying advisory fees now may also be a good time to try to renegotiate those fees BUT only if you are completely comfortable with changing BDs. After all if the rep is going to make more money off of you by changing perhaps you're entitled to some consideration for the move as well.

Ask a lot of questions. Changing BDs is just like changing investments - don't do anything you don't understand.

Good luck, Gene E. Utterback, EA, RFC, ABA

Gene, that was a helpful post but I have to reply to this statement above. Investment advisers and RRs are not the same thing! While registered reps are (by definition) affiliated with a broker/dealer, registered investment advisers aren't. Unless they're also RRs, anyway.

Sure, some of the same issues come up for advisers who change firms, just as they do for an accountant or lawyer who changes firms. But one difference that can be significant is that RRs/B-Ds are regulated by FINRA, while investment advisers are regulated by the SEC and state regulators. That means a dispute about "poached clients" follows very different paths. I read about this issue and hear about it from stockbrokers - where B/Ds can in effect use the FINRA arbitration and "blemish-reporting" process to make life difficult for RRs who leave. That's something that could affect a client, and it isn't quite the same for an investment adviser who changes firms.

-Tad

Switching brokerages will increase your paperwork when preparing taxes.

If the stockbroker does a good job for you, make the switch.

-- Ron

Excellent Point.

For clarity, I was trying to make the point that most financial professionals do not personally own the company they work for (or through) and that it is common in the industry for a financial professional to change their company affiliations from time to time.

I got the feeling that the OP seemed concerned that something untoward was happening because their financial professional had changed firms. My intent was let them know that this happens from time to time and by itself it doesn't necessarily mean anything bad.

Gene E. Utterback, EA, RFC, ABA

Agreed, Gene.

I wonder if there's some variation among firms - independents vs. the wirehouse reps. Today's Investment News email newsletter has a piece about a wirehouse suit of the type I'm thinking of:

"Smith Barney slaps four ex-reps with restraining orders

Smith Barney, facing a rising number of broker departures from its branches, this month hit four ex-reps and a rival broker-dealer with a lawsuit seeking the return of the reps? client information...

The complaint alleges the four brokers took with them "customer files and information, despite their written assurances that they had complied with the 'protocol for broker recruiting', which expressly prohibits them from taking such files...The agreement allows reps to carry a limited amount of client information ? including clients? names, addresses, phone numbers and e-mail addresses ? to their new firm." Investment News, 2/24/09

It seems clients could get left in limbo while the B/Ds and reps sort it out. If I understand the issue correctly, in some cases the reps may be unable to do business at all, until the matter is resolved.

-Tad