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What Happens When a Broker Leaves a Firm?

In a regulatory notice dated April 5, 2019, FINRA announced guidelines regarding how investment firms should communicate with clients when brokers leave a firm. While FINRA stated that “registered representatives move with some frequency between member firms and across financial firms,” they acknowledged that such movements may confuse account holders.

Member firms have “flexibility” in how they communicate information to clients, but they should “provide timely and complete answers, if known, to all customer questions resulting from a departing representative,” according to FINRA Regulatory Notice 19-10. This ensures that consumers stay well-informed and able to exert agency over their financial affairs.

The notice goes on to state that a member firm should “communicate clearly, and without obfuscation, when asked questions by customers about the departing registered representative.” They may clarify that a customer can work with their newly-assigned broker, enlist the services of a different representative at the same brokerage firm, or switch to a new firm altogether. They may provide the client with contact information for the former broker if that broker has provided it.

When proper firm-client communications do not occur, clients may be left in the dark about a broker’s activities, leading to potentially devasting consequences.

Before you head out to a new restaurant in your neighborhood, you might check out reviews on websites like Yelp. So why aren’t you looking up information about your potential or current broker? This is easy to do with BrokerCheck, a free online resource provided by FINRA. The information in this searchable database comes from the Central Registration Depository (CRD®). It contains the broker’s qualifications and the broker’s employment history—both in and outside of the securities industry— for the past ten years. It also contains disclosures of criminal, regulatory, civil judicial, or customer complaints. Brokerage firms also have BrokerCheck reports, which contain a firm profile, a section on the firm’s history, information about the firm’s operations, as well as any disclosures.

If a broker does leave a firm, their firm is required to fill out Form U5, the Uniform Termination Notice for Securities Industry Registration. If the reason for termination is an “involuntary termination,” then the firm must describe what led to that decision, and this information subsequently appears on BrokerCheck. Thus, it’s important for clients to review a broker’s BrokerCheck report.

When your broker changes firms and you are considering following them, weigh this decision carefully, asking questions along the way.

6 Questions to Ask When Your Broker Changes Firms

  1. Why is your broker leaving your current firm?
  2. Are there financial incentives involved for your broker? If so, could these create a conflict of interest?
  3. Will you be able to transfer all of your holdings to the new firm?
  4. What will the short-term and long-term costs be if you change firms?
  5. How do the new firm’s investment products compare to those at your current firm?
  6. Will you be able to receive the same level of service?

As always, all firm-client communications should be “fair, balanced, and not misleading.” If you believe you’ve been misled about your current or former broker’s reasons for leaving a firm, contact Fitapelli Kurta at (877) 238-4175 or info@fkeswq.com.