NYSE Cautions Investors on Following Brokers to New Firms

The NYSE has issued a release advising investors to be careful about following their brokers to new firms at a time when there’s been a big jump in the number of advisors moving from one brokerage house to another.

The NYSE has issued a release advising investors to be careful about following their brokers to new firms at a time when there’s been a big jump in the number of advisors moving from one brokerage house to another.

The release is part of the “Informed Investor” series developed by the NYSE Regulation to better educate investors. “To protect your interests, you should ask questions and make a well-informed choice before agreeing to transfer your account when your broker moves to another firm," says Richard G. Ketchum, chief executive officer, NYSE Regulation, Inc.

The announcement comes at a time when more reps are choosing to switch firms than at any time since 2002. Over 9,000 reps chose to jump ship in 2005, an 18 percent increase from the previous year, according to the NYSE.

The influx in moves may leave clients with some questions, and Bill Singer, a regulatory lawyer, warns that the NYSE’s advisory can mean more trouble for advisors. In fact, this friendly information can potentially find its way into arbitration proceedings by a client who feels his/her advisor did not abide by this industry standard. “Anything that finds its way into an SRO a claims attorney will latch onto it and use it against an advisor.”

Receiving a sign-on bonus from a potential firm may now become a burden as advisors’ clients may be asking, on advice of the NYSE, if their bonus is based on a percentage of newly generated commissions. Also, advisors need to be ready to answer any questions about termination fees that the old firm may charge clients, or the consequences of non-transferable proprietary products.

However, one Smith Barney advisor says as far as termination fees go, he’d never move to a firm that wouldn’t agree to pay the fees on his clients’ behalf.

Although he acknowledges that the new firm may expect the rep to maintain a certain amount of activity after signing on, he says that it’s no reason for a client to worry about an abundance of transactions because “the advisor will usually go on about his routine and meet the requirements regardless.”

He adds, “As long as the client is comfortable and trusts the advisor, those other things don’t add up to much.” And the NYSE seems to agree, to some extent, “Although a good relationship with a broker who understands your objectives and your investment experience is extremely valuable, you should protect your interests and be sure you are making a well-informed choice when your broker asks you to follow him or her to a new firm.”

TAGS: News
Hide comments

Comments

  • Allowed HTML tags: <em> <strong> <blockquote> <br> <p>

Plain text

  • No HTML tags allowed.
  • Web page addresses and e-mail addresses turn into links automatically.
  • Lines and paragraphs break automatically.
Publish