As the Protocol for Broker Recruiting gets ready to mark its first decade, Dennis Concilla, an expert on the agreement, talks to Associate Editor Mason Braswell about the origins of the agreement, the monster it has unleashed and the possibility of a Protocol version 2.0.

1. Where did the idea for the Protocol come from?
People think firms adopted the Protocol because they were tired of lawsuits and wanted to cut legal fees. That essentially was the result, but the reason was people wanted to control the information that departing brokers took from the firms. The upside of Protocol for the broker was if you didn't steal the confidential information, and if you only took a list of the names, addresses and phone numbers, then you wouldn't get sued. In 2004, three big companies—Merrill Lynch, Smith Barney and UBS—got together in a conference room to agree on this. Morgan Stanley joined a few months later. Today there are almost 1,100 members, but the perception in 2004 was that these three firms had created a club. After considering antitrust rules, they decided to say that anybody can join. You had to send a letter to a lawyer in New York to get added to the list. But then the flood gates opened, and it got to the point that the lawyer couldn't handle it anymore. Now the Securities Industry and Financial Markets Association maintains the list.


2. Has Protocol ever changed?
People bring up things they want to change or fix. But how do you do that? You now have 1,100 members of this literally page-and-a-half document. It wasn't thought of as some fancy legal document. It was thought out as a working document between three or four firms where all the lawyers were on a first-name basis. In a perfect world, we could clarify some things or make it 10 pages instead of two. People even have said we could create Protocol 2.0 to flesh it out a bit, to make it more detailed and thoughtful.


3. What are some of the issues that you would fix?
They're not big issues, but there have been issues. For example, many feel the Protocol shouldn't cover management because management has special duties to the firm. If that's the case, then they should have jotted it down in the margin because there's nothing in here that says it doesn't relate to managers. There are all those nuances that nobody really completely thought through.


4. Did Protocol make it too easy for brokers to change firms?
It did. Absolutely, it did. There have been deals up to 300% of trailing 12-month production. If anybody wants to give me 300% of trailing 12, then—as much as I love my law firm—I'm out of here. And, if I were moving to a Protocol firm, why not? It's a very easy move to make. There's no question that in the old days, you would have thought long and hard about if you wanted to do it. Now, sometimes if I happen to look at the divorce notice in the paper and see a broker listed, you can almost bet dollars to donuts that they're going to make a move soon for a big check. Now that Protocol has become so prevalent, some people try to argue that it is a standard in the industry and therefore you should be able to take advantage of it even if you're not a member. The courts reject that routinely.


5. How often do firms refuse or resign from Protocol?
Some firms will probably never join Protocol just because of their business model. If I join J.P. Morgan as a young broker, and they hand me 100 accounts, is it really fair that I would be able to leave with that information? In my view, no firm can prevent a client from moving his or her account. I can show you a thousand contracts that say you can't accept business or talk to clients once you move, but FINRA has said in Rule 2110-7 that nobody can interfere with the right of the client to move. There's a general acceptance of that view, even among those who have contracts that say you can't accept that business. You can resign from the Protocol at any time, but it's a very small group of people that do that. Of 1,100 members, I think there have been less than 25 to 30 withdrawals.

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