Financial Advisors and Non-Competes in a Brave New World

After Bank of America ("BofA") purchased Merrill Lynch it put on the full-court press to keep one of Merrill's most important assets, its brokers. What has resulted is "The Advisor Transition Program ("ATP")", which provides financial incentives for brokers who remain following the merger. Reportedly, if a broker leaves during the seven year term of the ATP, he or she has to return all customer information and records and can be enjoined from disclosing such records. This provision has raised some questions.

Merrill and other large brokerage houses are members of the Protocol for Broker Recruiting (the "Protocol"). A district court in Iowa recently described the Protocol as an agreement between signatories that allows for "reciprocal 'poaching' of registered representatives and the registered representative's clients from the former firm, apparently on the assumption that they will gain as much as they lose in the exchange." Though a broker's employment agreement, at Merrill for example, may contain a non-disclosure, Merrill had essentially agreed not to enforce the provision as long as the departing broker moved to another Protocol member.

So when BofA took over, the question became whether it intended to enforce the terms of the non-disclosure contained in the ATP? Merrill stated last week, "The Advisor Transition Program does not change any of the rights or obligations that exist for our financial advisors under the [Protocol]. 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."

So the answer for now appears to be that the Protocol is alive and well at Merrill. Nevertheless, as a non-signatory of the Protocol, BofA could potentially still enforce a non-compete or non-disclosure. The enforceability of the non-disclosure in the ATP will vary from state to state and what BofA will do on down the road remains to be seen. Today's news indicates that many brokers are unhappy with the ATP's financial incentives.

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