Brokers Move Around a Lot
As an investor, you may have already experienced the disorientation that comes with having your financial advisor switch from one broker-dealer to another; or to an investment advisory or insurance company. The practice is not at all common, and the reasons for such switches are by no means always a bad thing for investors. Often a high-performing broker will be poached from a smaller firm by a larger one; or an ambitious broker will move from one company to another because of the higher quality of support, compliance, and information offered at another shop. That’s all well and good — but where does it leave the investor?
FINRA Provides New Guidance for Communication When Brokers Depart
Recognizing that investors can often be left out of the conversation when brokers depart a firm, the securities industry regulator, FINRA, has recently issued new guidance for registered brokerage firms concerning how they ought to communicate with investors when a broker departs. Taking into account the fact that broker-dealers operate according to different business models and thus deal with broker departures differently, FINRA has insisted that brokerages provide “timely and complete knowledge” to investors in these transitional times.
What Timely and Complete Knowledge Means for Investors
FINRA’s heart is in the right place with its guidance, but investors should bear in mind that brokerage firms will not be falling over themselves to communicate that knowledge with investors when a broker departs. In reality, investors will have to seek out the “timely and complete knowledge” themselves by asking questions. While brokerages are under no obligation to communicate with investors in these situations, the guidance from FINRA does compel them to answer investors questions as best and as quickly as they can. This means that the onus is on investors to find out what’s going on when a broker departs and to make an informed decision about whether they should keep their assets where they are, or move them somewhere else.
Brokers Switches Often Lead to Confusion
Investors who have worked with a particular broker for many years only to find themselves switched to a new one once their trusted advisor departs are often left feeling anxious and confused. They don’t really know the new advisor that well; worse, the advisor often doesn’t know them — and doesn’t take the time to get to know them. In a number of misconduct cases we’ve litigated, a new financial advisor quickly leads either to inappropriate new investment strategies in the account, or a neglect of the account — all to the detriment of the investor.
That’s why it’s crucial that investors be proactive in communicating with their brokerage when a broker departs to learn as much as possible about their options and their new advisor. At the same time, investors will also be getting the new advisor to know them and their investment profile and preference beyond what’s simply in their file. Such communications can mean all the difference in protecting assets in the long-term.
