Leaving the Wirehouse: The Client List, the Brother-in-Law, and the Hamper
Devon has been a registered representative at a FINRA member broker-dealer for eleven years and leaves next month for an independent RIA. Her current firm is a signatory to the Broker Protocol; the new firm is not. Over the years she has kept a spreadsheet of 240 client names, addresses, and phone numbers, plus notes on grandchildren, risk tolerances, and which clients 'hate the market' - stored in her personal iCloud account and synced to her personal phone. She also wants to: (a) manage $300,000 for an existing client in a private fund run by her brother-in-law that pays her a 1.5% trailing fee; (b) accept a $450 holiday hamper from a mutual fund wholesaler; and (c) serve as executor of a long-time client's $2.2 million estate for a $45,000 fee.
1. Advise Devon on what she may take, how she may store it, and when she may contact clients. Address the notes specifically.
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What the Protocol permits. A departing representative at a signatory firm may take only five data elements: client name, address, phone number, email address, and account title. Nothing else. Account numbers, statements, cost basis, holdings, and any firm-created analysis stay behind.
The notes are the problem. 'Grandchildren's names,' 'risk tolerance,' and 'hates the market' are not among the five. Whether they are her personal knowledge or the firm's records is precisely the question a court answers in a trade-secret suit, and firms routinely obtain temporary restraining orders on facts like these. It cuts against her that the notes sit in personal iCloud and on a personal phone: firm policy almost certainly prohibits storing client non-public personal information off the firm's systems, which is a separate supervisory and Regulation S-P problem she has already created.
What to do. Let counsel handle the resignation and the Protocol notice. Take only the five elements. Do not copy, email, or text anything to the personal device, and do not delete anything from it - spoliation will hurt her far more than the notes help. Let the firm image the device if asked, and cooperate fully with the exit interview.
Timing of contact. Solicitation is permitted only after she has left and is registered at the new firm. Pre-departure client contact - even 'I'm thinking of moving' - breaches her duty to the current firm and can be enjoined regardless of the Protocol.
One more thing. The new firm is not a signatory, so the next time she moves she will have no Protocol protection. That is a fact to weigh now; it is not a problem for this move.
2. Analyze whether Devon can accept the 1.5% trailing fee for placing a client in her brother-in-law's fund, and what she must do if she proceeds.
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This is a private securities transaction. The fund is not on her broker-dealer's shelf and she is being compensated, so FINRA Rule 3280 applies. She must give prior written notice describing the transaction, her role, and the compensation, and the firm must approve it in writing before she participates. If the firm says no, she cannot do it while associated there - and 'the client asked me' is not an exception.
Two hats. If she is also an investment adviser representative at the new RIA, the RIA is the one recommending the fund, so the fiduciary duty runs there too:
- Reasonable-basis and customer-specific suitability for an illiquid private fund: confirm accredited-investor (and any qualified-purchaser) status and that the client can bear a total loss.
- Written disclosure of the family relationship and the 1.5% trailing fee in ADV Part 2A and in a separate conflict disclosure, with informed consent.
- If she or the RIA can move money to or from the fund, custody Rule 206(4)-2 is implicated and a surprise examination or qualified custodian is required.
Why the conflict is severe. A trailing fee paid by a manager controlled by her brother-in-law is not arm's-length. She has an incentive to recommend the fund and an incentive not to notice underperformance. Even fully disclosed, the cleanest answer is often to decline the fee or decline the recommendation.
If she proceeds. Written broker-dealer approval, written RIA approval, written conflict disclosure, a documented suitability file, and a written record that less-conflicted alternatives were considered and rejected. Missing any one of those puts both her licenses at risk.
3. Address the $450 hamper and the executorship. What rules apply and what should she do?
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The hamper. FINRA Rule 3220 caps gifts and gratuities to persons whose business the member solicits at $100 per person per year. The rule is drafted as a limit on giving, but firms apply the same threshold to receiving and require disclosure of anything of value from a vendor. A $450 hamper from a wholesaler is over any reasonable threshold. She should decline it or turn it over to the office per firm policy, and log the offer either way - the offer itself is a compliance event. Accepting it while she is choosing which fund families go into client accounts is a conflict she does not need on her record.
The executorship. Serving as executor for compensation is an outside business activity under FINRA Rule 3270, so she needs written notice to and written approval from her firm before accepting. The $45,000 fee makes this compensated, not a family favor. Once approved:
- She is a fiduciary to the estate and a registered representative. She cannot steer estate assets into her own book, cannot take undisclosed commissions on estate trades, and must not commingle estate funds.
- If the estate is a firm client, the firm's own fiduciary-appointment policy applies and may require another representative to handle the account.
- State law may require a non-resident executor to appoint a local agent; if any beneficiary is a client, the conflict must be disclosed and consented to.
- If the client's capacity is in question, or the family is already disputing the will, she should decline.
The pattern. The client list, the brother-in-law's fund, the hamper, and the executorship are one question asked four ways: what do you do when your interest and the client's diverge? The answer is notice, written approval, disclosure - and, where the conflict cannot be managed, no.