Retired Broker Programs

Are you a branch manager who has a broker heading towards retirement and you want to keep the revenue from that broker’s customer accounts in your branch?

Are you a broker considering retirement but don’t want to give up all the revenue from the customer accounts you have serviced for years?

For several years, FINRA has permitted brokerage firms to create “financial advisor succession” or “financial advisor business transition” programs. Under these programs, the firm, a retiring broker and receiving broker (or brokers; there can be more than one) enter into an agreement whereby the firm transfers the customer accounts of the retiring broker to a new f/a number. The receiving broker then services those accounts immediately upon the departure of the retiring broker. The brokers agree to a commission split, typically for two or three years. Usually, the commission percentage paid to the retiring broker declines during the term of the agreement.

There are various requirements, however, that must be agreed upon by the brokers and the firm in order for the agreement to comply with FINRA rules:

• there must be a written agreement signed by the retiring broker, the receiving broker and the firm;
• both the retiring broker and the receiving broker must have been employed at the firm for a minimum number of years (although there are exceptions);
• both the retiring broker and the receiving broker must have good (good, not perfect) compliance records;
• the retiring broker has to agree, in writing, that she will no longer work in the securities industry and that she will not engage in any type of securities activity relating to her former customers. She must agree to this at the outset of the agreement and certify her compliance with this requirement at least once per year during the term of the agreement;
• the firm must send a letter out to all the clients advising of the arrangement and that their former broker is not permitted to contact them for the purpose of conducting securities business;

Lastly, the firm must contact a representative sample of the transferred customer accounts once a year during the term of the agreement to insure that the retired broker has not conducted any securities business with her former clients.

There are additional factors for all parties to consider before entering into a retired broker agreement. What happens if the receiving broker leaves the firm before the term of the agreement ends? What happens if a significant number of customers transfer their accounts from the firm after the retired broker leaves the firm?

Given the above, if you are entering into such an agreement, you should consult with legal counsel to discuss your rights and obligations, and the possible repercussions for you, prior to signing the retired broker agreement. The attorneys at Lubiner, Schmidt & Palumbo are here to help and guide you through this process to insure that your rights are protected and to counsel you on how best to approach this type of program.