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Merrill Lynch Says Broker Protocol Still Intact, Clarification Forthcoming

Merrill Lynch financial advisors put off by non-compete language in the retention package they received last week—and must now decide whether to sign—are getting assurances from Merrill that it’s not as bad as they think.

Merrill Lynch financial advisors put off by non-compete language in the retention package they received last week—who must now decide whether to sign it—are getting assurances from Merrill that it’s not as bad as they think.

In a prepared statement, a Merrill spokesperson wrote, “The Advisor Transition Program does not change any of the rights or obligations that exist for our financial advisors under the Protocol for Broker Recruiting. It has no impact on the Protocol. Suggestions to the contrary are likely the product of those who want to recruit our financial advisors to other firms.” But attorneys suggest that whether it has an impact on the protocol or not, it could have an impact on an advisor’s ability to take clients with him if he switches firms because a contract is a legal document.

A person with ties to management said the firm intends to issue a “clarification” to FAs very soon explaining the fact that the retention package won’t have any impact on the protocol, either today or in the next couple days. But a signed contract is always going to take precedence over a “clarification” in a court of law, attorneys say. The person with ties to Merrill management did not know if the language in the contract would change.

Currently, the retention contract states that the signing FA—should he decide to leave during the seven-year term of the contract—“agrees to not recruit any Bank of America employee, either directly or indirectly,” and also to “return to Bank of America all customer info and records in any shape or form and to be enjoined from using or disclosing all such records.” An FA who doesn’t abide by these rules could face a temporary restraining order, according to the contract.

One top Merrill advisor said that this part of the contract bothers him, and he is “considering all his options” before signing it. But, he also expressed some amusement at his own predicament, saying, “Only in America do you get a payout to stay where you are.” Since the deal was announced, many FAs have shared their anger and concern with management over the wording of the retention contract. Some say they’ve heard similar assurances from management, including that Bank of America is planning to sign the Broker Protocol. But they are still uncomfortable signing a contract that says they might face a TRO if they leave and take either client data or immediate team members with them.

Up until now, and because Merrill Lynch is a member of the so-called broker protocol, most Merrill advisors have operated under the assumption that they could take basic client information—like names, phone numbers and addresses—with them when switching firms, without fear of legal reprisal. But a signed employment contract with language requiring advisors not to use or disclose “all customer info and records in any shape or form” could take precedence in court, helping the employer’s case in a court of law, says Daniel Frith, an attorney with Frith Law Firm, which specializes in non-compete agreements.

Complicating the issue is the fact that the broker protocol may be at odds with state laws about non-compete agreements, says Frith. Under such laws, advisors are not allowed to take “proprietary” information with them when they move. What constitutes proprietary information varies from one state to the next, but can include client information lists. “You would guess that state law would take precedence,” says Frith.

Still, non-compete agreements are difficult to enforce in certain states, like California, says Frith. Many states enforce them only when they meet a so-called three-part test. First, from the perspective of the employer, was this non-compete necessary to protect a reasonable business interest? Two, from the employee’s perspective, is this non-compete so onerous and over-broad that it prevents the employee from finding gainful employment? And three, does the agreement violate public policy. (Non-competes that meet number three are pretty rare.)

The source close to Merrill management said that any FAs who leave Merrill and bring fellow employees with them will probably be reviewed on a case-by-case basis and a determination will be made about whether the FA was actively recruiting his former colleagues or the employees left without encouragement, of their own will.

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