Playing hopscotch from one firm to another, without losing all of your clients, may soon get a little easier. That is, if the SEC's proposed amendment to privacy policy rules, also known as Regulation S-P, is approved. The SEC made the proposal on March 4, and has opened it up for 60 days of comment.
Reg S-P restricts financial institutions from sharing clients' non-public personal information (or “personally identifiable financial information,” including investment details) about its customers with non-affiliated third-party firms without clients' explicit consent. The SEC's proposed changes would, among other things, allow departing reps to take client data — including the customer's name, address, telephone number and e-mail — and to provide general descriptions of accountsnd products held by those clients to a new firm. (The proposed changes would also require firms to create more comprehensive information-security programs.)
“The SEC doesn't want privacy policies to interfere with advisors reaching out to their clients and letting them know that they're leaving,” says one industry attorney. “If the amendment becomes a rule, it would make the Broker Protocol the industry standard of conduct.” In the wirehouse world, the proposed amendments expand on this so-called Protocol, which many employee firms have mutually agreed to. It allows reps to move to a new firm with their clients' basic information without fear of being hit with a Temporary Restraining Order to keep them from contacting clients.
The amendments come two years after the SEC told an independent b/d post-audit that it had violated Reg S-P when it accepted client information from incoming reps, and used that information to fill new account forms before the reps had officially joined the firm — without client consent. The SEC's reaction to the transfer process put independent b/ds on edge, since the practice of collecting client information prior to a rep's official hire is common in that part of the industry. After that, many independent b/ds adjusted their client-privacy notices to say reps can take investor information with them upon departure from the firm.
