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Letters To The Editor

Rules for departing reps’ client communications.

To the Editor:

The August 2008 article by Halah Touryalai concerning the SEC proposal to amend Reg S-P misrepresents the position of Wachovia Securities as it relates to the independent contractor business.

Wachovia Securities Financial Network, LLC, is one of the largest independent-contractor firms in the country and an integral part of the Wachovia Securities business model, which provides multiple affiliation choices to financial advisors. Specifically, the article ignored completely Wachovia Securities' position that an exception is necessary for independent reps, because they do not fit the model for which the proposed rule is intended. While our firm supports the proposal in general for most firms, our position on this exception for independents was stated clearly and publicly in our firm's separate comment letter to the SEC. (See excerpt below.)

Contrary to the implication in the article, nothing in the joint letter of the protocol firms contradicts this explicitly stated position of Wachovia Securities. Given the importance of this issue to our own independent contractor business channel — and to all independent reps and their clients — we felt it was important to relay to your readers an accurate account of Wachovia Securities' position.
John Peluso
President, Wachovia Securities Financial Network

[For more, see the article, “What's Next For IBD Recruiting?“ in our August issue, page 25. Or, you can read it online by visiting our website:]

Regulation S-P, section 504 of the Gramm-Leach-Bliley Act, requires firms to receive the explicit consent of a client before his information is offered to a third party — i.e. an independent broker/dealer transition team.

Excerpt of Wachovia comment to SEC:

Finally, we request that the Commission change the proposal to exempt independent contractor registered representatives from the provisions applicable to employee registered representatives who changed broker/dealers. Independent contractor registered representatives typically operate as small “doing business as” (or “DBA”) firms comprised of 1 to 3 registered individuals who contractually own their client relationships, but who choose to associate and are registered with a larger broker-dealer. These independent contractors do not “change firms,” as the DBA firm for the customer remains the same. Instead, the independent contractors change the broker-dealer with which they are associated and registered. The customer information stays with these small DBA firms throughout the process of changing registrations.

The Commission should interpret the rule to conclude that the representative has not transferred firms when he or she becomes associated with a new broker-dealer, and therefore, the independent contractor register[ed] representative should be deemed to be exempt from the limitations on transferring customer information in this situation. The newly affiliated broker-dealer firm is, of course, also regulated by the Commission and Financial Industry Regulatory Authority such that the privacy protections would continue to flow to the customer from the DBA firm's new affiliation. Any customer who desires not to continue to be served by a particular independent contractor registered representative who has become associated with a new broker-dealer would have ample opportunity to transfer to any other broker-dealer or to refuse to sign the documents that are required to transfer the customer's account from one broker-dealer to another broker-dealer. Without an exemption, the proposed rule would have to change in several respects to acknowledge some of the physical and conceptual impossibilities attendant to the independent contractor registered representative's legal status.

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