We’re hiring some registered reps from a bank’s trust department. They don’t have non-compete or non-solicitation clauses, but we’re concerned about privacy issues. Can they bring their client lists?

—W. S., N.Y.

Regulation P of Gramm–Leach–Bliley governs privacy of non-public customer information for financial institutions. It defines “nonpublic personal information” as information not publicly available that was provided by a consumer to a financial institution, results from a transaction between a consumer and a financial institution, or that a financial institution otherwise obtains about a consumer. Information is publicly available if an institution reasonably believes it’s lawfully available to the general public. For example, information in a phone book or publicly recorded document such as a mortgage is considered public information. But there are special rules regarding lists. Publicly available information is treated as non-public if it is included in a list derived from non-public personal information. A list of names and addresses of a financial institution’s depositors is non-public personal information because it pertains to people who have deposit accounts with the institution, which is not public. But if the relationships are a matter of public record, such as a list of mortgage customers whose mortgages are on public record, any list of these relationships is considered public.

So if the customer lists in question are “non-public personal information,” and if your new hires give you these lists, you could be found to be aiding and abetting, a violation of Reg P. If the bank notified clients that former employees might take the accounts with them and gave those clients an opportunity to opt out of that arrangement, the former employees could give you the list of clients who did not opt out. Otherwise, all you can do is send a generic mailing to everyone in the area or advertise in a local paper, hoping to attract your new reps’ former clients.

What are your thoughts on FINRA’s response to the Public Investors Arbitration Bar Association’s comments regarding release of brokers’ test scores?

—R. D., Fla. 

In February 2012, FINRA requested comments on ways to increase investors’ use of BrokerCheck, FINRA’s public disclosure database where investors get information on brokers and brokerage firms. The request noted that the SEC had recommended that FINRA add broker exam scores to BrokerCheck. But at FINRA’s conference that May, chairman and CEO Rick Ketchum said, “That’s not the type of information we’re interested in disclosing.” Then, on March 6, 2014, PIABA published its findings on certain aspects of BrokerCheck, including the absence of exam scores. Although the public can obtain a rep’s exam scores in some states, that data is not available everywhere. PIABA said the “quality of the disclosure you get about brokers should not depend on which state you live in.” FINRA responded by noting that BrokerCheck provides information regarding names and dates of all exams a broker passed and indicated that there’s no evidence to support a correlation between test scores and broker competence.

While it appears FINRA is in no rush to release test scores, the SEC has often said information material to a client’s decision to hire an investment adviser must be disclosed. And while a rep’s score may not correlate to ability, it’s likely the SEC will have the last say. 

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