Jump, Raid, & Jive: How Registered Representatives Dance In The Brokerage Industry

INTRODUCTION

The brokerage industry is extremely competitive. In such a competitive environment,

many controversies emerge between brokerages. The most relevant controversy for clients is

their ability to stay with the registered representative (financial advisor) of their choice.

Unfortunately, competition for ‘assets under management’ or AUM is fierce with

different brokerage firms stealthy recruiting financial advisors from other firms. Countless

publications in the financial planning industry commonly report an individual or a team of

advisors moving from Brokerage A to Brokerage B with headlines of hundreds of millions of

dollars switching firms. With such amounts on the line, litigation occurred often.

Historically, the methods of recruiting sparked litigation almost every time a financial

advisor changed firms. Former employing brokerage firms would seek injunctive relief as well as

temporary restraining orders as quickly as possible to assert their rights - often the day of the

financial advisor’s resignation. Former employing brokerage firms would seek to enforce

contractual non-solicitation and non-compete agreements (restrictive covenants) to prevent

the moving financial advisor from contacting prior clients.1

Eventually, this continuous litigation caught the eye of federal and state regulators. The

regulators recognized that something was being lost in all of this litigation. These court orders

1 http://www.thebrokerprotocol.com/articles Page 3.

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had the effect of preventing clients’ rights in the selection of their financial advisor and left

clients in limbo between the old and new brokerage firms. 2

The first recognized response to this controversy was organized by the Financial Industry

Regulatory Authority (‘FINRA’) when it adopted FINRA Rule 2140. Rule 2140 made it a rule

violation to ‘interfere with a customer’s request to transfer his or her account in connection

with a change in employment of the customer’s financial advisor.’3 Rule 2140 was successful in

reducing the amount of court orders to block movement of client accounts. However, Rule

2140 was not successful in reducing concomitant litigation expenses.

After years of haggling, fighting, and litigation, 3 of the largest brokerage firms came

together to stop the non-sense. In 2004, Citigroup, Merrill Lynch, and UBS drafted and executed

what is now commonly known as the ‘Broker Protocol’ (EXHIBIT A). The Broker Protocol has

been ‘generally described as a limited forbearance agreement, or covenant not to sue.4 The

Broker Protocol outlines specific steps that brokerage firms can use to recruit financial advisors

without the fear of litigation.

Since the initiation of the Broker Protocol, over 1,000 brokerage firms have signed the

Broker Protocol. In effect, financial advisors can now move between firms that are signatories

to the agreement and take client lists and solicit their clients. The result is now every day

2 See Id. at 3.

3 See id at 3.

4 http://www.jdsupra.com/legalnews/brokers-switching-firms-the-protocol-an-3996\ Page 1.

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financial advisors switch firms without the fear of litigation. The best interests of clients no

longer plays second fiddle to this brokerage house game.

However, in a stunning move, one of the original signatories, Merrill Lynch has begun to

slowly drift away from the spirit of the Broker Protocol. Merrill has recently started to require

registered representatives to sign agreements stating the registered representative cannot take

client names or contact information with them despite the existence of the Broker Protocol.5

This can be interpreted as a breach of the Broker Protocol’s good faith provision. The fear is

now other major firms will withdraw from the Broker Protocol – creating havoc to a somewhat

stabilized industry.

This paper is dedicated to a review of the litigious past in order to show why brokerage

firms should not exit the Broker Protocol, a more detailed discussion of the Broker Protocol in

light of litigation, and a look at the pros and cons of the Broker Protocol as it affects financial

advisors, brokerage firms, and most importantly, the client.

A COMPLEX HISTORY OF LITIGATION

The history of financial advisors ‘jumping’ from one brokerage firm to another has

developed as common law. The types of claims argued for by brokerage firms vary. The most

common types of litigation fell under injunctive relief, temporary restraining orders, trade

secret law, restrictive covenants and non-competes, and other causes of action such as breach

of good faith and fair dealing and intentional interference with contracts. In addition, other

5 http://www.shufirm.com/blog/bank-of-america-merrill-lynch-planning-protocol-exit

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arguments have included torts of conversion, unfair competition and breach of the duty of

loyalty. 6

INJUNCTIVE RELIEF AND TEMPORARY RESTRAINING ORDERS

Federal Rule of Civil Procedure Rule 65 – Injunctions and Restraining Orders – states, in

pertinent part, the court may issue a temporary restraining order without written or oral notice

to the adverse party or its attorney only if:

specific facts in an affidavit or a verified complaint clearly show that immediate and

irreparable injury, loss, or damage will result to the movant before the adverse party can

be heard in opposition.7

Potential arguments for against injunctive relief are: the matter belongs in arbitration, the

matter will likely not win on merits, the matter is violative of NASD rules denying public

customers the right to exercise their own investment decisions and money damages can

adequately address the purported harms.8 Any loss of business to the brokerage may be

adequately redressed with money damages for breach of contract. The only possible

irreparable result would be some vaguely defined loss of business momentum but courts have

found this to be unrealistic in the securities field.9

6 Household Group v. Fuss, 2008 WL 2891052, (N.D. Cal. July 22, 2008) Page 4.

7 765 ILCS 1065/2 (West 1992). 8 Morgan Stanley DW Inc. v. Rothe, 150 F.Supp. 2d 67 (D.D.C. 2001) Page 4.

9 Morgan Stanley DW, Inc. v. Frisby, 163 F.Supp. 2d 1371 (N.D. Ga 2001) Page 5.

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When brokerages hired brokers from its competitors, the brokerage commonly took the

completely opposite position. Brokerages vigorously defended the same hiring practices that

they challenged in other cases.10

Rather than trying to prove immediate and irreparable injury, loss, or damage before

the adverse party can be heard in opposition will save time and money as lawyers will no longer

have to run to get an injunction or temporary restraining order the day the financial advisor

resigns. Avoiding this type of intra-office tension will create a fairer playing field. More

importantly, a playing field that does not disrupt the client’s confidence in the investment

process. Otherwise, clients may start to question the legitimacy of the entire brokerage

industry.

TRADE SECRET ARGUMENTS

The Uniform Trade Secrets Act defines trade secret as information, including a formula,

pattern, compilation, program, device, method, technique or process that both; derives

independent economic value, actual or potential, from not being generally known to, and not

being readily ascertainable by proper means from its disclosure or use; AND is the subject of

efforts that are reasonable under the circumstances to maintain its secrecy should hold.11

Under the Illinois Trade Secrets Act (‘ITSA’) a trade secret includes the following: a list of

potential customers or suppliers, is sufficiently secret to derive economic value, actual or

potential from not being generally known to other persons who obtain economic value from its

10 See id. at 5.11Stampede Tool Warehouse, Inc. v. May, 272 Ill. App. 3d 580, 659 N.E.2d 209 (Ill. App. Ct. 1995) Page 4.

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disclosure or use, and is the subject of efforts that are reasonable under the circumstances to

maintain its secrecy or confidentiality.12 The ITSA provides that misappropriation of a trade

secret means disclosure or use of a trade secret of a person without express or implied consent

by another person to at the time of disclosure or use knew or had reason to know that

knowledge of the trade secret was acquired under circumstances giving rise to a duty to

maintain its secrecy or limit its use.13

Customer lists are a trade secret that is protectable under the ITSA.14 The question then

becomes was the trade secret misappropriated. Actual misappropriation of the trade secret

information can established when there is intentionally copying or memorization of the

customer list.15 ITSA does not require a plaintiff to prove actual theft or conversion of physical

documents embodying the trade secret information.16 Although an employee may take general

knowledge or information he or she has developed during their employment he or she may not

take any confidential information, including trade secrets.17

Given that client contact information was deemed to be trade secret, both brokerages

and financial advisors would benefit by agreeing by private contract that client contact

information will not be pursued as a trade secret. In the case of private contract, the Broker

Protocol is triggered and both parties have a clear direction of where to go in the future.

12 See id. at 6.13 765 ILCS 1065/2 (West 1992). 

14 See Stampede at 5. 15 See id.16 See id.17 See id.

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RESTRICTIVE COVENANTS AND NON-COMPETE’S

As a general rule, Illinois courts are reluctant to enforce restrictive covenants.18 Illinois

courts have long been hostile toward restrictive covenants as restraints on trade and contrary

to sound public policy.19 Nevertheless a restrictive covenant may be enforceable if the terms

are reasonable and necessary to protect a legitimate business interest of the employer20

Covenants not to compete are, in effect, restraints on trade and will be carefully

scrutinized to ensure that their intended effect is not to prevent competition.21 The basic test

applied by Illinois courts in determining the enforceability or restrictive covenants is whether

the terms of the agreement are reasonable and necessary to protect a legitimate business

interests of the employer and will turn on the facts and circumstances of each case.22 The

question of whether a restrictive employment agreement is enforceable is one of law and

depends on the reasonableness of its terms.23 Contracts of adhesion are not usually found

especially when the parties are professional.24

PROTECTED INTEREST

18 Del Monte Fresh Produce, N.A., Inc . v. Chiquita Brands Int'l Inc., 616 F.Supp.2d 805, 810 (N.D.Ill. Mar. 19, 2009) Page 11.

19 See id.20 See id.21 McRand, Inc. v. Beelen, 138 Ill. App. 3d 1045, 486 N.E.2d 1306 (Ill. App. Ct. 1985) Page 6.22 Office Mates 5, North Shore, Inc. v. Hazen, et al., 234 Ill. App. 3d 557, 599 N.E.2d 1072 (Ill. App. Ct. 1992) Page 9.

23 See id.24 See id. at 9.

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Under Illinois law, a protected interest is determined by a two-part test that requires

the employer have a near permanent relationship with its customer, and that, but for the

employment, employee would not have had contact with the customers.25 Trade secrets are

not necessary in order to establish a protectable interest in an employer’s customers.26

Generally, the near permanency test turns in large degree on the nature of the business

involved and certain businesses are just more amenable to success under it.27For example

plaintiffs engaged in a professional or pseudo-professional practice enjoy a relatively high

degree of success under the test.28

Where the nature of the plaintiff’s business does not engender customer loyalty as with

a unique product or personal service, and customers utilize many suppliers, simultaneously to

meet their needs, plaintiffs in such business achieve a lesser degree of success under the near

permanence test.29

The Illinois cases reviewing customer relationships reveal many objective factors a court

may consider when determining whether a near-permanent relationship exists:

25 See id.

26 See id.27 Office Mates 5, North Shore, Inc. v. Hazen, et al., 234 Ill. App. 3d 557, 599 N.E.2d 1072 (Ill. App. Ct. 1992) Page 9.

28 See id.29 McRand, Inc. v. Beelen, 138 Ill. App. 3d 1045, 486 N.E.2d 1306 (Ill. App. Ct. 1985) Page 6.

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1. Number of years it takes the employer to develop clientele indicates the parties

intention to remain affiliated indefinitely30;

2. The amount of money invested in developing a clientele31;

3. Indications of the employers’ intention to retain the customer relationship

permanently the difficulty involved in the process of developing the clientele32;

4. Personal customer contact by the employee33;

5. Extent that the length customer has been associated with the employers depends on

the length of time the company has been in business, or the number of contacts a

company has with a client over relevant time period and much time passes in

between each contact34;

6. Another factor indicating a long-standing relationship is the continuity of the

relationship with the customer35.

The second part of the test which determines whether a protectable interest exists in

customer relationships asks, whether, but for the job with but for the job, the employee would

have come into contact with the customers.36 If a protectable interest is established, irreparable

injury is presumed to follow if the interest is protected.37

30 See id.31 See id.32 See id.33 See id.34 See id.35 See id.36 See id. at 7.37 See id. at 8.

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Other Illinois courts have enforced restrictive covenants entered into after the

employment began where the employee continued in the job for a substantial period.38

Continued employment for substantial consideration supports the employment agreement.

A restrictive covenant will be enforced where the former employee learned trade secrets or

acquired other confidential while in plaintiffs’ employments and subsequently attempt to use it

for his own benefit.39 However, courts will void and deem unenforceable any trainee agreement

or other instrument signed by the brokers in favor of the former firm that purports to preclude

him from retaining copies of client records or from soliciting his customers.40

Clients should be free to deal with the broker of their choosing and not subjected to the

turnover of their accounts to brokers associated with the firm but unfamiliar to the client unless

the client gives informed consent to the turnover. 41

REASONABLE & NECESSARY

The modern prevailing common law standard of reasonableness for employee

agreements not to compete applies a 3-pronged test. A restrictive covenant is reasonable only

if it is no greater than is required for the protection of a legitimate business interest, does not

impose undue hardship on the employee and is not injurious to the public.42 The United States

38 See McRand at 9.39 See Office Mates at 11.40 See Morgan Stanley DW, Inc. v. Frisby at 9.41 See id. at 9.42 See Reliable Fire Equipment Co. at 4.

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Supreme Court has stated that the mere loss of income, no matter how great, does not

constitute irreparable harm.43

So once again the probability of litigation between brokerages and financial advisors is

high without the Broker Protocol. Near permanence is determined by the facts and

circumstances of each case. Although near permanence is generally found in the case of

professional and pseudo professional occupations like financial advisory, it is still unclear at the

time of the financial advisor’s resignation whether or not near permanency exists. And courts

have stated that if the information taken by the financial advisor is deemed a trade secret, then

the restrictive covenant is valid. However, the same courts argue for the client’s right to the

financial advisor of their choice. . The Broker Protocol eliminates this inconsistency.

BROKER PROTOCOL: ANALYSIS

The Broker Protocol is a document that must be followed exactly according to its terms

in order to prevent litigation. The Broker Protocol contains some provisions that stand out more

than others as being important. However, moving financial advisors must use extraordinary

detail on even the seemingly smaller points.

The following is a list of the most important points written into the Broker Protocol.

1. Client interests of privacy and freedom of choice is the goal;44

2. If protocol is followed there is no monetary liability to the financial advisor;45

43 Morgan Stanley DW, Inc. v. Frisby, 163 F.Supp. 2d 1371 (N.D. Ga 2001) Page 5.

44 http://www.thebrokerprotocol.com/read-the-broker-protocol/item/read-the-broker-protocol45 See id.

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3. The protocol does not bar actions for so-called ‘raiding’ by the new firm;46

4. Client information to be taken is limited to: client name, address, phone

number, email address, and account title at previous firm;47

5. Resignations must be in writing to the branch manager;48

6. If the old firm and financial advisor disagree on the lists, then the financial

advisor is deemed in compliance if good faith was exercised;49

7. The new firm will limit the use of client information only for solicitation by

the new financial advisor;50

8. Client information must be transferred to the new firm within 2 business

days electronically or by fax;51

9. Financial advisors can only solicit clients AFTER the financial advisor has

joined the new firm.52

10. Prior to resignation, financial advisors may provide the new firm with

account information so long as that information doesn’t reveal client

identity;53

11. Financial advisors that are a team or partnership agreement shall be subject

to that agreement’s provisions upon resignation;54

46 See id.47 See id.48 See id.49 See id.50 See id.51 See id.52 See id. at 2.53 See id.54 See id.

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12. If a departing team member has been with the team for 4 years or more,

then the departing team member may take team client information and

solicit these clients;55

13. If a departing team member has been with the team for less than 4 years,

then the departing team member may only take client information for those

clients that the departing team member introduced to the team;56

14. If the departing financial advisor has serviced accounts inherited from a

retired financial advisor, then the available client information will be

determined by the contract between the departing financial advisor, retiring

financial advisor and the firm.57

A few of these 14 critical points can be further analyzed. Client interests are put first to

remind signatories to the Broker Protocol that this is really about the client and not lawsuits.

Second, the issue of ‘raiding’ must be described and distinguished from ‘jumping’, which is

when the financial advisor chooses to leave of their own volition.

Generally, raiding is described as a strategic recruiting process where the new brokerage

firm attempts to poach financial advisors with large AUM. Unfortunately, raiding cannot be

defined with bright lines and clear rules and is not clearly described in the Broker Protocol.58

The Broker Protocol does not apply to raiding. 59

55 See id.56 See id.57 See id.58 http://www.jdsupra.com/legalnews/brokers-switching-firms-the-protocol-an-3996\ Page 2.59 See id.

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Raiding is distinguished from ordinary recruiting by the intent of the brokerage firm. If a

brokerage firm intends to steal financial advisors away for the purpose of harming another

brokerage firm, then raiding is more obvious. However, trying to prove intent would be difficult.

On the other hand, if a brokerage firm is simply opening up discussion of potential employment

with a new financial advisor, then raiding probably is not occurring.

Raiding comes in 2 forms. The first form of raiding occurs where non-competes are

present.60 In these cases, plaintiff brokerage firms will seek to win on a claim of tortious

interference.61 The second form of raiding is when non-competes are not present.62 In these

cases, brokerage firms will seek to win an unfair competition claim.63

The major issue in raiding is trying to prove intent. There is no clear answer whether

raiding is just a few financial advisors switching firms or whether a certain number of advisors

or branches is required to prove raiding. Since there is no clear rule, both brokerage firms and

financial advisors need to be aware that the Broker Protocol does not apply to raiding, Thus,

reopening the complex litigation process.

A simple observation also requires transmission of client information electronically or by

fax. This is an example of where detail must be followed. It is these types of details that can

cause an otherwise smooth transition from taking place.

60 See id.61 See id.62 See id.63

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A similar observation is that financial advisors may only solicit clients after arriving at

the new firm. It is critical that no solicitation occur prior to arriving at the new firm. Solicitations

earlier than this can invalidate the application of the Broker Protocol.

An interesting twist to this solicitation rule that is not specifically covered in the Broker

Protocol is when a financial advisor is terminated instead of voluntarily jumping to another

firm. The issue in this case is that the financial advisor is usually unaware of being fired until the

last moment. This leaves no time for the financial advisor to organize client lists and the like.

A terminated financial advisor typically would not have another new firm lined up for

employment yet.64 And thus no sponsoring firm to be in compliance with the Broker Protocol. It

is advised that a terminated financial advisor should consider sending a copy of the customer

list to the previous employer with a letter indicating that the financial advisor plans to use the

information in the future for solicitation purposes only.65 No client information should be

retained beyond the information protected by the Broker Protocol.66 This will support the

financial advisor while trying to find a new sponsoring firm. The financial advisor must be

careful to join a new firm that is also a signatory of the Broker Protocol. If the financial advisor

joins a non-protocol firm, then the financial advisor loses the protection of the Broker Protocol.

In addition to client interest, proper communication, and raiding, there is the situation

where a financial advisor is leaving a team of financial advisors. Financial advisors often work in

teams or partnerships to take advantage of synergies of knowledge and diversifying the client

64 http://www.thebrokerprotocol.com/articles

65 See id.66 See id.

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base. Fortunately, the Broker protocol has specific language listed above to deal with this

common situation.

So there is a lot of detail in the Broker Protocol. The above list of requirements listed

above are not exhaustive. Attention to detail is paramount.

BROKER PROTOCOL: PROS AND CONS FOR THE FINANCIAL ADVISOR

The pros for the financial advisor under the protocol are many. Financial advisors will no

longer be held hostage to restrictive covenants. This is important because as the financial

advisor’s book of business grows, it will likely change and different brokerages have different

advantages for particular books. The Broker Protocol provides a sense of certainty and will

leave financial advisors more at ease. This is especially true when the financial advisor and the

new brokerage firm agree on the amount of AUM that will be moving to the new firm. If the

assets aren’t protected by the Broker Protocol, then financial advisors could lose assets to move

and ultimately be rejected by the new firm.

There aren’t many cons under the Broker Protocol for financial advisors. However, there

are instances in which the financial advisor might prefer to not be subject to the Broker

Protocol. For example, in a team partnership agreement, the financial advisor may not like the

objective 4 year rule. The financial advisor may have been with team for less than four years yet

still be the highest producer on the team. In this case, the financial advisor may lose some

assets to transfer to the new employing firm. Another disadvantage is that the Broker Protocol

only applies between firms that are both signatories to the agreement. If the financial advisor is

moving from a protocol firm to a non-protocol firm, then the financial advisor loses the

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protection of the protocol and may be held hostage to restrictive covenants and non-competes

or lose assets. Finally, the protocol firm always has the option of leaving the protocol. This

leaves some uncertainty for financial advisors.

BROKER PROTOCOL: PROS AND CONS FOR THE BROKERAGE FIRM

The biggest advantage for a brokerage firm to join the protocol is the savings on

litigation. Firms will no longer have to stand-ready to sue without notice. This also provides

more certainty for the brokerage firm. Another advantage for a brokerage firm under the

protocol is the firm can now more easily recruit financial advisors since financial advisors will no

longer have the threat of litigation for jumping. This will allow more flexibility to the

recruitment and hiring process. Also, the firm can choose to leave the protocol at any time

without penalty,

The biggest disadvantage firms under the protocol have is they can no longer participate

in raiding legitimate targets. Most financial advisor recruiters are used to being able to raid

other firms with confidence in the jump because of a perceived competitive advantage.

Although raiding does not have a bright line definition, the concept of being accused of raiding

increases uncertainty for brokerage firm’s recruiting process.

BROKER PROTOCOL: PROS AND CONS FOR THE CLIENT

The first line of the Broker Protocol states that the protocol was created to protect

clients’ interest in privacy and freedom of choice in choosing their financial advisor. The client’s

information is now more carefully dealt with by financial advisors and brokerage firms. The

Broker Protocol has specific instructions on how client information should be treated. Clients

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will no longer be the innocent victim of Wall Street’s carnage. Clients can also now be more

confident that their financial advisor is truly representing the client’s best interest by finding a

firm more aligned with the client’s interests.

There aren’t many cons for the client as the Broker Protocol was designed with their

interests in mind. Financial advisors getting ‘jump’ happy is the largest risk. Clients grow

comfortable with their financial advisor and the brokerage firm as well. If financial advisors get

‘jump’ happy, it is possible that client interests of a few may be put ahead of the remaining

clients.

CONCLUSION

It is clear that the Broker Protocol should be retained as the operative document

governing the movement of financial advisors between brokerage firms. The litigation prior to

the Broker Protocol was costly and uncertain. There is simply no need for the brokerage

industry litigate these disputes on a consistent basis.

In conclusion, there are several steps that a departing financial advisors may take to

ensure consistency with the Broker Protocol. Financial advisors should always seek competent

counsel.67 The problems with obtaining competent counsel are usually the result of the financial

advisor not following legal advice and not the attorney’s understanding of the Broker Protocol.

67 http://www.thinkadvisor.com/2012/05/09/7-protocol-essentials-for-breakaway-brokers?page=3 Page 2

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It is also critical to comply with the entire Broker Protocol. Financial advisors and

brokerage firms must comply completely or lose the protections of the Broker Protocol.68 It is

also very important that no solicitation of client business occurs before the transition.69

Financial advisors should also never pre-announce plans for departure to clients or non-clients

to avoid inadvertent disclosure of the financial advisor’s intent to jump to a new brokerage

firm.70

Financial advisors should also be careful to turn over any information to the prior firm

that is not covered by the Broker Protocol.71 This includes technology such as tablets, external

hard drives, and flash drives. Although not discussed above, the promissory note held by the

prior brokerage firm should be paid as quickly as possible.72 The reason that the promissory

note should be repaid is to avoid litigation with the prior brokerage firm over a breach of

contract.73 In most cases, the prior brokerage firm simply wants to be paid back and does not

want to get involved in unnecessary litigation.

Finally, financial advisors are advised not to defame or otherwise talk negatively about

their former firm.74 The purpose of the Broker Protocol is to prevent litigation. The airing of

pointless attacks on any party will portray the brokerage industry as unprofessional and overly

litigious. The Broker Protocol will help the brokerage industry stay professional in the eyes of

the client, which is the most important factor in signing the Broker Protocol in the first place.

68 See id.69 See id. at 3.70 See id.71 See id.72 See id.73 See id.74 See id.

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APPENDIX A

The principal goal of the following protocol is to further the clients' interests of privacy and freedom of choice in connection with the movement of their Registered Representatives ("RRs") between firms. If departing RRs and their new firm follow this protocol, neither the departing RR nor the firm that he or she joins would have any monetary or other liability to the firm that the RR left by reason of the RR taking the information identified below or the solicitation of the clients serviced by the RR at his or her prior firm, provided, however, that this protocol does not bar or otherwise affect the ability of the prior firm to bring an action against the new firm for "raiding." The signatories to this protocol agree to implement and adhere to it in good faith.

When RRs move from one firm to another and both firms are signatories to this protocol, they may take only the following account information: client name, address, phone number, email address, and account title of the clients that they serviced while at the firm ("the Client Information") and are prohibited from taking any other documents or information. Resignations will be in writing delivered to local branch management and shall include a copy of the Client Information that the RR is taking with him or her. The RR list delivered to the branch also shall include the account numbers for the clients serviced by the RR. The local branch management will send the information to the firm's back office. In the event that the firm does not agree with the RR's list of clients, the RR will nonetheless be deemed in compliance with this protocol so long as the RR exercised good faith in assembling the list and substantially complied with the

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requirement that only Client Information related to clients he or she serviced while at the firm be taken with him or her.

To ensure compliance with GLB and SEC Regulation SP, the new firm will limit the use of the Client Information to the solicitation by the RR of his or her former clients and will not permit the use of the Client Information by any other RR or for any other purpose. If a former client indicates to the new firm that he/she would like the prior firm to provide account number(s) and/or account information to the new firm, the former client will be asked to sign a standardized form authorizing the release of the account number(s) and/or account information to the new firm before any such account number(s) or account information are provided.

The prior firm will forward to the new firm the client's account number(s) and/or most recent account statement(s) or information concerning the account's current positions within one business day, if possible, but, in any event, within two business days, of its receipt of the signed authorization. This information will be transmitted electronically or by fax, and the requests will be processed by the central back office rather than the branch where the RR was employed. A client who wants to transfer his/her account need only sign an ACAT form.

RRs that comply with this protocol would be free to solicit customers that they serviced while at their former firms, but only after they have joined their new firms. A firm would continue to be free to enforce whatever contractual, statutory or common law restrictions exist on the solicitation of customers to move their accounts by a departing RR before he or she has left the firm.

The RR's former firm is required to preserve the documents associated with each account as required by SEC regulations or firm record retention requirements.

It shall not be a violation of this protocol for an RR, prior to his or her resignation, to provide another firm with information related to the RR's business, other than account statements, so long as that information does not reveal client identity.

Accounts subject to a services agreement for stock benefits management services between the firm and the company sponsoring the stock benefit plan that the account holder participates in (such as with stock option programs) would still be subject to (a) the provisions of that agreement as well as to (b) the provisions of any account servicing agreement between the RR and the firm. Also, accounts subject to a participation agreement in connection with prospecting IRA rollover business would still be subject to the provisions of that agreement.

If an RR is a member of a team or partnership, and where the entire team/partnership does not move together to another firm, the terms of the team/partnership agreement will govern for which clients the departing team members or partners may take Client Information and which clients the departing team members or partners can solicit. In no event, however, shall a team/partnership agreement be construed or enforced to preclude an RR from taking the Client Information for those clients whom he or she introduced to the team or partnership or from soliciting such clients

In the absence of a team or partnership written agreement on this point, the following terms shall govern where the entire team is not moving: (1) If the departing team member or partner has been a member of

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the team or partnership in a producing capacity for four years or more, the departing team member or partner may take the Client Information for all clients serviced by the team or partnership and may solicit those clients to move their accounts to the new firm without fear of litigation from the RR's former firm with respect to such information and solicitations; (2) If the departing team member or partner has been a member of the team or partnership in a producing capacity for less than four years, the departing team member or partner will be free from litigation from the RR's former firm with respect to client solicitations and the Client Information only for those clients that he or she introduced to the team or partnership.

If accounts serviced by the departing RR were transferred to the departing RR pursuant to a retirement program that pays a retiring RR trailing commissions on the accounts in return for certain assistance provided by the retiring RR prior to his or her retirement in transitioning the accounts to the departing RR, the departing RR's ability to take Client Information related to those accounts and the departing RR's right to solicit those accounts shall be governed by the terms of the contract between the retiring RR, the departing RR, and the firm with which both were affiliated.

A signatory to this protocol may withdraw from the protocol at any time and shall endeavor to provide 10 days' prior written notice of its withdrawal to all other signatories hereto. A signatory who has withdrawn from the protocol shall cease to be bound by the protocol and the protocol shall be of no further force or effect with respect to the signatory. The protocol will remain in full force and effect with respect to those signatories who have not withdrawn.

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