On February 2, 2009, the Wall Street Journal published an “advisor alert” for “The World of Investment Planning.” The alert, titled “Staying Mum When Switching Firms” discusses the sensitive issues a broker faces when he/she leaves one financial investment firm for another. Although the alert correctly notes that “discussing an impending move with clients before resigning is probably the most dangerous thing you can do,” the article provides flawed advice with respect to removing the former employer’s confidential information.

Specifically, the alert discusses an initiative called the “Protocol for Broker Recruiting.” The protocol, which has been signed by companies such as Bank of America (which signed the protocol in order to retain brokers from Merrill Lynch) and Citigroup, concerns certain client information such as addresses, phone numbers, email addresses and account types. Under the protocol and despite the fact that this information is typically considered confidential/trade secret information, a broker may take this client information to his new firm. More importantly, the protocol allows the broker to use this confidential information to contact his/her former clients about transferring their accounts to the new firm. 

The Wall Street Journal alert states that brokers who are moving to or from “firms that are not part of the [protocol] should still follow its guidelines.” This advice is flawed because the advice/alert fails to inform the broker that a non-protocol firm will not excuse a broker’s removal of confidential information simply because the broker followed the protocol. Nor will following the protocol allow the broker to ignore the confidentiality and non-solicitation provisions that are likely founder in the broker’s employment agreement with the non-protocol firm. Put another way, following the Wall Street Journal’s advice when leaving a firm that has not signed the protocol could subject the broker, and the broker’s new firm, to litigation.  Such litigation could concern the breach of an employment agreement and the theft of confidential trade secret information and could lead to restraining orders and injunctions being entered against the former broker and the broker’s new firm.

In addition, firms who signed the protocol should be aware of the protocol’s impact on their ability to enforce restrictive covenants contained in their employment agreements. For example, Merrill Lynch found out in 2007 that it could not enforce its non-disclosure and non-solicitation agreements against a former broker because Merrill Lynch had signed the protocol. Merrill Lynch, Pierce, Fenner, and Smith, Inc. v. Brennan, 2007 WL 632904 (N.D. Ohio, Feb. 23, 2007). Consequently, both brokers and firms need to be aware of the protocol’s potential impact and should consult with competent counsel prior to hiring brokers.