Which firms are joining the Broker Protocol, and how your firm gets on the list

Editor’s Note: This story is slightly outdated. For the latest info on joining the broker protocol, read how SIFMA has taken over its administration by clicking here

Summit Alliance Investment Group is a perfect example of the kinds of firms that are joining the explosion of signatories to Broker Protocol. The number of signatories to the document, which is essentially a no-fault recruiting tool, grew by 19 between Feb. 4 and March 8. The total now numbers 443, as you can see here.

Dallas-based Summit joined because it anticipates growth in its independent broker-dealer and, even more so, in its RIA. A broker who leaves one Protocol member company to join another Protocol member company is permitted to take his or her client list along, as long as certain strict rules are followed.

By joining the Protocol, Summit is opening the door in advance for high-producing brokers, most likely from larger companies, who want a new home.

“We just wanted to market ourselves in that way,” said Stan R. Hall, chief compliance officer for the two firms.

Summit is also upping its appeal to brokers by adding a group of alternative investments to its platform, including the Strata Fund, an oil and gas fund. It’s also creating some real estate funds in-house.

Brokers are interested

“(Alternative investments) are something a lot of brokers are interested in,” said Hall.

Summit has about 80 registered reps in its IBD, and about $600 million in AUM in its RIA, managed by investment advisory firms that have been joining the platform. Some of the firms keep their own branding, while others come under the Summit name.

Summit plans to be “very picky” about who joins on either side, Hall said.

Summit is among the companies on the updated list of Protocol members that RIABiz has posted on the directory home page. The link to the list is in the upper right hand corner; we update the list regularly.

Quick explanation

Since RIABiz first began posting the list a month ago, we’ve had a number of requests from advisors for a quick explanation of how to join.

So, here goes.

First, the basics: Established by the wirehouses to cut down on employment-litigation among themselves, the Protocol has evolved into a tool for RIAs that want to recruit advisors from the wirehouses. If a breakaway broker follows the Protocol to a T, then it is possible for the broker to take his or her clients along on the departure.

The number of signatories has leaped from 380 last November, though the Protocol is growing more complex as a few companies add caveats to their signatures. See RIABiz’s previous story here.

Joining the Protocol is simple, say several lawyers who work on employment-related matters for RIAs. The list of signatories to the Protocol is kept by the law firm of Wachtell, Lipton, Rosen & Katz, one of the most prestigious law firms in the nation.

To join, a firm simply has to call Richard Kim, the partner at Wachtell, to request a copy of the joinder agreement. His number is 212-403-1354.

No fees, no recommendations required

According to Rob Ross, senior counsel at New Jersey-based Hamburger Law Firm, an RIA signs the joinder agreement and sends it back to Kim in order to be added to the list of signatories, which is distributed every few weeks.

“There are no fees; you don’t have to be recommended for membership,” Ross says.

In part, the joinder agreement reads:

“The undersigned company hereby joins and becomes a party to the Protocol for Broker Recruiting and agrees to be bound by the terms of, and perform its obligations under, the Protocol for Broker Recruiting.”

Ross and attorney Patrick J. Burns suggest, however, that RIAs consult attorneys to help figure out exactly how to follow the rules in the Protocol.

Breakaways were sued

“I have seen where firms have joined without any legal counsel and not properly transitioned advisors,” says Burns, who is based in Beverly Hills. Not following the Protocol leaves a firm open to litigation — and in fact, before the wirehouses established the Protocol in 2004, breakaways were sometimes sued.

Ross also notes that it’s important for an RIA to be aware that the Protocol could conflict with existing employement contracts. An RIA could conceivably lose an employee to a competitor that was also a signatory, and, having signed the Protocol, would in essense have given the employee carte blanche to take client information to the competitor.