Can a Terminated Adviser Invoke the Broker Protocol?

The Protocol’s Plain Language

Turning to its plain language, the protocol repeatedly uses the term “departing RR” (where RR stands for “registered representative”) and references RRs who move from one firm to another — without limiting itself to voluntary departures. Consider these provisions, with emphasis added:

"If departing RRs and their new firm follow this protocol, neither the departing RR nor the firm that he or she joins would have any monetary or other liability to the firm that the RR left..."

"When RRs move from one firm to another and both firms are signatories to this protocol, they may take only the following account information..."

A terminated advisor is still, in the ordinary sense, a departing advisor who moves from one firm to another.

To be sure, the protocol does use the word “resignation.” While it references departing and moving advisors numerous times, it uses the word "resignation" only twice: It says resignations must be in writing and include a copy of the client information being taken, and it also says that it is not a violation of the protocol for an RR, prior to resignation, to provide another firm with certain information about the RR’s business, so long as client identity is not revealed.

"Resignations will be in writing delivered to local branch management and shall include a copy of the Client Information that the RR is taking with him or her."

"It shall not be a violation of this protocol for an RR, prior to his or her resignation, to provide another firm with information related to the RR's business..."

It may be a reasonable argument that the protocol’s two references to resignations are procedural and address common departure scenarios, rather than limiting the scope to voluntary departures. The first use of the term just says that a resignation must be in writing. The second use allows for pre-resignation information sharing. Neither expressly restricts the protocol to resignations.

If the drafters intended it to apply only upon resignation, one might assume they would have said so directly. The protocol does not say that its protections hinge on a voluntary resignation, and a court may treat that type of omission as intentional. This is a straightforward textualist argument, and one that courts often find persuasive in the absence of contrary language.

The Counterargument

As already noted, this issue not free from doubt. The counterargument to the above points is that the structure of the protocol — and especially its mechanics around written resignation — assumes a voluntary departure followed by an immediate move to another protocol firm.

One could reasonably argue that the two references to resignation imply that the drafters assumed a voluntary departure as the typical scenario and core fact pattern. Under that view, the protocol was drafted with voluntary resignation as the baseline scenario.

This also appears to be a common industry assumption. For example, consider this law firm FAQ:

Question: "I have been fired or suspect I will be fired. Can I leave my firm and seek the protections of the Protocol?"

Answer: "If you are fired, the Protocol does not apply to you, and you cannot invoke the benefits of the Protocol. If you suspect you will be fired shortly, you are strongly advised to seek legal counsel to explore your options. In most cases, you may still avail yourself of the Protocol and its protections if you resign before you are fired."

The FAQ does not offer authority for this proposition, but the authors may very well have supporting authority that they simply left out for ease of reading. In any event, their position appears to reflect a common industry assumption — and that assumption itself may inform how a court interprets the protocol. Courts sometimes look to industry practice as context, particularly where contractual language is ambiguous.

Case Law

Unfortunately, there isn’t extensive case law addressing this question, but there is at least one insightful reference point: Archford Capital Strategies, LLC v. Davis (2023, Appellate Court of Illinois). In that case, an advisor was terminated for cause, joined a new RIA about a month later, and relied on the protocol to move his clients.

In the lower court, the old firm tried to enforce the advisor's nonsolicit. The firm essentially argued that the protocol doesn't apply when an advisor is separated for cause and has a gap in employment. The lower court rejected this argument, and that ruling was not disturbed on appeal.

On appeal, the old firm conceded that it was not trying to enforce the nonsolicit at all. Rather, it was only attempting to enforce the separate "pay-for" clause, which required the advisor to pay for each transferred client. The lower court dismissed this claim as a matter of law, but the appeals court held that the enforceability of the pay-for clause was a question of fact and sent the matter back to lower court.

For our purposes, the key point is that the trial court rejected the argument that the protocol does not apply where an advisor was terminated for cause and had a gap in employment before joining another protocol firm. This part of the decision was never appealed. On appeal, the old firm conceded that it was not attempting to enforce the nonsolicit.

This isn’t exactly a clean appellate holding on the involuntary-termination issue, but it is still a meaningful data point. At least one court did not treat termination for cause along with a gap in employment as automatically fatal to moving clients under the protocol. However, the absence of a direct ruling leaves the issue unsettled.

Conclusion

An advisor who is involuntarily terminated should not assume the Broker Protocol is off the table. The text supports a good-faith argument that a terminated advisor can still qualify as a “departing” advisor who moves from one Broker Protocol signatory firm to another.

Archford also suggests that courts may be open to that position even where the advisor was terminated for cause and had a short gap before joining the new firm. At the same time, advisors should proceed cautiously, given the lack of definitive authority and the persistence of contrary industry views. It will be interesting to see if future case law squarely addresses this question.

Read more by Isaac Mamaysky here:

• Paying Advisors: Considerations Surrounding Cash Compensation
• Regulation S-P & Sharing Client Data in Anticipation of Moving Firms
• Understanding Restrictive Covenants and Current Challenges to Noncompetes

Isaac Mamaysky is the cofounder and COO of QuantStreet Capital, a New York-based RIA that focuses on systematic asset allocation and offers investment management, compliance, and operational support to advisors.

In addition, Isaac is a partner at Potomac Law Group PLLC, where he founded the firm’s Investment Advisers & Asset Managers practice. He writes the RIA Law Blog and welcomes readers to connect with him on LinkedIn.

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Read more articles by Isaac Mamaysky