Brokers like anyone else enjoy making money the old fashioned way . . . . by inheriting it. Although everyone wants to inherit business, a recent Investment News article highlighted the pitfalls associated with agreements to acquire the business of a retiring broker.
Indeed, intra-industry disputes, such as those involving the acquisition of a book of business from a retiring broker, represent approximately 30% of all cases before FINRA. So what are the pitfalls?
For one, the acquiring broker may have ongoing financial obligations to the retiring broker that could last for years. Such provisions may, in turn, restrict the acquiring broker from moving to another firm because the agreement may not be in conformity with the Protocol for Broker Recruiting; an agreement between firms that gives a broker the ability to move client information to another firm without the threat of being sued.
The transportability of a book of business may ultimately depend if it was truly inherited without any prior connection between those clients and the acquiring broker. If the acquiring broker had worked with the acquired clients before inheriting them, there is a greater chance that the Protocol may insulate the broker who then wants to transfer these clients to a another firm.
There is one pretty clear takeaway from the Investment News article. If you acquire a book of business from a retiring broker, make sure you have a solid agreement; one that gives you the ability to transfer to another firm while satisfying any financial obligation you may have to the retiring broker.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
