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FINRA: Merrill Lynch Adviser Cannot Solicit Former Clients for One Year

Adviser compliance New YorkAdvisers should be aware that changing firms could lead to legal headaches, particularly if you don’t plan ahead. In a recent case, the Financial Industry Regulatory Authority ruled that a former Merrill Lynch Adviser could not solicit his former clients for one year.

According to a Reuters report, Chad Roy Sillman, who now works for U.S. Bancorp Investments Inc., took large amounts of customer data and proprietary information when he left the firm in October. This prompted Merrill to file a court action in Nevada to request that he be temporarily prohibited from soliciting former clients until FINRA arbitrators ruled in the case.

Last month, the FINRA panel issued its decision, ruling that Sillman cannot solicit his former Merrill clients until October 21, 2012. The panel did state, however, that Sillman would be permitted to engage in more generalized advertising and mailings that are not directed to specific Merrill clients.

The Message for Advisers

Given that 12-13% of financial advisors change firms each year, it is important to understand the legal issues that could be involved. This case specifically highlights what can happen when advisers move between firms that have not both agreed to the Protocol for Broker Recruiting.

The Protocol is an agreement among several of the largest securities to refrain from enforcing non-competes against advisers and brokers who move from one participating firm to another. The Protocol provides a clear set of rules for departing advisers and brokers to follow and aims to avoid costly litigation.

Under the Protocol, brokers and advisers are allowed to take a list of basic information regarding their clients, including names, mailing addresses, and telephone numbers, to the new firm. Once there, they can solicit their clients to transfer their accounts. In the case detailed above, U.S. Bancorp is not a signatory to the Protocol.

Given the potential legal risks, if you are contemplating moving to a new firm, it is advisable to consult with an attorney with experience in this field.

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