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Investor Protection

Brokers vs. Broker-Dealers: Is Ownership of Client Relationships Still a Hotly Debated Topic?

August 27, 2020

[Image:  ‘Teamwork’ by Scott Maxell / Creative Commons]



by Howard Haykin



A broker, formerly with MetLife Securities and currently with Cambridge Investment Research, agreed to a $5,000 fine and a 10-day suspension to settle FINRA charges that he caused his member firm to violate the SEC’s Regulation S-P: Privacy of Consumer Financial Information and Safeguarding Personal Information. In this relatively straight-forward, ‘open and shut’ case, the broker reportedly possessed nonpublic personal information regarding at least 187 MetLife customers that he was not entitled to possess - because he had received it from MetLife as part of his employment with the Firm as a registered representative..


While the broker admitted to possessing the information, he explained that ... the information was put on a memory stick by MetLife during his tenure with that firm so that he could move info between work computers. Upon leaving MetLife in 2016, the broker took the memory stick since it also contained the files he brought to the firm – forgetting that protected information was also on it. One year later, when he came across the protected information on the stick, the broker used it to contact ‘orphaned’ MetLife customers – an action that apparently violated Regulation S-P.


‘Orphaned’ customers … are those who have accounts on the platforms of a broker-dealer or investment adviser (in this case, MetLife), but no longer have a relationship with the broker/adviser who placed them on the platform.
Regulation S-P … generally prohibits financial institutions from disclosing “nonpublic personal information” about a customer unless the customer receives proper notice and an opportunity to opt out. [MetLife policies required that brokers only use customers’ nonpublic personal information in their capacity as representatives of the firm – which, in 2017, this broker was not.]



OWNERSHIP OF A CUSTOMER/CLIENT RELATIONSHIP.    Contrary to what I initially anticipated, this case had little to do with a battle for ownership of customer/client relationships - i.e., a tale of "David and Goliath," whereby giant MetLife Securities would seek to crush this lone broker warrior, who has 18 years' experience and no prior disciplinary disclosures on his CRD records. Nevertheless, the case brought to mind many past battles that broker-dealers waged against their ex-brokers - leading me to wonder whether The Protocol for Broker Recruiting had resulted in an amicable peace arrangement. 


The arrangement appears to have been good for the industry as a whole. Though not all broker-dealers (BDs) and registered invetment advisers (RIAs) are party to the Broker Protocol, and brokers are restricted as to what client information they may bring to their new firms, by and large ...  (i) brokers have retained their client base; (ii) client investments have not been caught up in litigation; (iii) smaller firms have been able to successfully compete against larger firms; and, (iv) the incidence of lawsuits has diminished. Yet, Morgan Stanley, Citibank, UBS and other smaller firms have withdrawn from the Broker Protocol, leading to an increase in the filing of temporary restraining orders, or TROs, to prevent ex-brokers from contacting their clients. [NOTE: Given the complexity of this issue, please refer to further discussion in other publications - see list below.]



[For further details on 'Ownership' Issues, click on ... FordamLawJournal,, AdvisorHub, FinancialAdvisor.]

[For further details on the above case, click on … FINRA Case #2018058852901.]