WealthManagement Magazine

Smith Barney Asserts Ownership Over House Accounts

Smith Barney brokers who want a crack at the accounts of departing brokers are being asked to sign a one-page "account referral agreement."The agreement stipulates that any accounts that are reassigned from a departing broker belong to the firm--along with any new accounts that are generated through referrals from these assigned accounts. The agreement, a copy of which was obtained by this magazine,

Smith Barney brokers who want a crack at the accounts of departing brokers are being asked to sign a one-page "account referral agreement."

The agreement stipulates that any accounts that are reassigned from a departing broker belong to the firm--along with any new accounts that are generated through referrals from these assigned accounts. The agreement, a copy of which was obtained by this magazine, is almost identical to the language Merrill Lynch has used in its training agreements for years, right down to the all-caps key phrase:

"In the event I breach any of the covenants ... I agree that Smith Barney will be entitled to injunctive relief. I recognize that Smith Barney will suffer immediate and irreparable harm and that money damages will not be adequate to compensate Smith Barney or to protect and preserve the status quo. Therefore, I CONSENT TO THE ISSUANCE OF A TEMPORARY RESTRAINING ORDER or A PRELIMINARY or PERMANENT INJUNCTION ordering [that] all records relating to the Assigned or Related Accounts whether original, duplicated, computerized, handwritten, or in any other form whatsoever" be returned.

The agreement also invokes a non-solicitation period of one year. And if a broker transfers any of these "assigned or related" accounts to a new firm, the agreement stipulates that he or she will be enjoined "for a period of one year, from accepting business" from any such "assigned or related account."

What happens if a client finds out where you've gone and transfers anyway? Smith Barney senior vice president Michael Schlein did not respond to repeated requests for an interview with the firm on the subject. Therefore, it's not clear when and how the decision to introduce this agreement was made, how it will be interpreted, or whether branch managers have some discretion in implementing it.

The contract appears to apply only to reassigned accounts, but toward the bottom of the page, the agreement reads: "I also acknowledge that Smith Barney reserves the right to reassign to another FC [financial consultant] at any time any of the Assigned Accounts, Related Accounts, or any other accounts for which I am the FC of record."

Reps don't have to sign the agreement, but if they don't, they don't get any more house accounts, say the brokers who have seen the agreement introduced in their offices.

Some Smith Barney brokers say they haven't seen it or heard anything about it, while others say the agreement has set off a near-riot in their offices.

Controversy seems to erupt, says one broker, when "someone big leaves, and people want to get those big accounts; that's when they apply the agreement. If someone is in an office where no one has left recently, they might not have seen it yet."

The broker says that in his office, that's exactly what happened--a big producer left, and the branch manager broke out the form for the first time. Out of approximately 50 producers, roughly a third refused to sign it, the broker says, including himself.

According to one broker who just left Smith Barney, new client agreements that get printed off the firm's new NextGen workstation include a clause stating that "you as a broker acknowledge that this is a Smith Barney client." Smith Barney would not confirm or deny this rumor, and the broker's old Smith Barney office didn't have NextGen. The NextGen system is still in the early stages of being rolled out, and RR was unable to confirm whether new account agreements printed from the system contained the rumored language.

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