The NASD’s new ruling on client account transfers “is a clear victory for brokers and customers,” securities attorney Jim Eccleston said today.
The NASD announced Wednesday that it will bar member brokerage firms from blocking customers from transferring accounts to their brokers after they have switched companies. The NASD also said that brokerages should not use the courts to stop customers from following their brokers to new firms--and threatened to fine them if they did.
But, according to Eccleston of the Chicago-based firm Eccleston & Associates, firms can still sue brokers for damages if the rep signed a contract stipulating that he or she cannot take their book with them if they defect to another firm. “But now you won’t see a customer’s account hanging in the balance while the broker and firm fight a TRO,” he says.
The impact of this ruling is huge, as it “shifts the balance of power in the favor of brokers and clients,” according to a Merrill Lynch producer.
“In the two to four weeks following a brokers’ departure from a firm, TRO actions effectively stopped brokers right in their tracks,” Eccleston says. “With this new regulation, the firms have clearly lost this battle. The client is now free to chose whether they want their account to move with the broker or whether they want to remain with the firm. What this rules does is protect the customer from getting hung up in a dispute between broker and firm.”
Firms have 30 days to comply with the new ruling. Calls to several major firms over the last two days have not been returned.
According to the NASD, “it is a fundamental right of an investor to choose with whom he or she does business, and the fact that a broker changes firms should not affect an investor's ability to continue to access his or her account and to do business with that broker.”
“This is great news; we’ve been fighting this battle for years and years,” says an West Coast-based UBS PaineWebber rep who was formerly with Merrill Lynch. “When I left Merrill, my clients had to wait months and months before their accounts were transferred--and in between the transfer, they made phone call after phone call and wrote letter after letter. It became a big joke.”
The movement that resulted in the NASD’s ruling Tuesday began when state securities regulators threatened to bring regulatory action against firms for blocking customer account transfers. Several U.S. state securities regulators expressed concern that investors were harmed by legal disputes between competing firms. Merrill Lynch and the state of Utah were embroiled in a recent dispute, prompting the firm (and later Morgan Stanley and Salomon Smith Barney) to pledge to stop blocking customers from transferring accounts.
“The NASD’s ruling makes complete sense because customers are not pieces of property owned by one of the parties,” says a West Coast-based Prudential Securities producer.