A broker who moved from Fidelity Investments to Morgan Stanley Smith Barney has been temporarily barred in a settlement from calling his former clients to ask them to follow him.
Fidelity accused Stephen Beatty of soliciting his ex-clients after he resigned in November. It is not unusual for brokers to do this, but a legal case ensued in part because Fidelity is not a member of the Protocol for Broker Recruiting, an agreement that aims to minimize legal wrangling among brokerages when advisers switch companies.
According to the terms of the settlement, Beatty must wait until the one-year anniversary of his resignation at Fidelity before he can solicit former clients or potential new clients he became aware of through his job at Fidelity. He can only send cards announcing his job change to certain former clients he has not yet contacted.
He is allowed to receive calls from clients who initiate contact with him, and he can reach out to customers he knew before working at Fidelity. Documents with details about the settlement were recently made available by the Financial Industry Regulatory Authority, Wall Street's self-regulatory watchdog. Beatty could not be immediately reached for comment. Fidelity and Morgan Stanley Smith Barney both declined to comment.
Beatty resigned from his job at Fidelity's Park Avenue investor center on Nov. 12, moving to Morgan Stanley Smith Barney the same day, according to court documents related to the case. After Beatty left, Fidelity said it heard from numerous clients that Beatty was trying to persuade them to transfer their business to him at his new company.
Three days before Beatty resigned, he accessed confidential information for 124 Fidelity customers, including "home addresses and phone numbers, Social Security numbers, invested assets, investment goals and financial net worth," Fidelity's lawyers said in court filings. "Customers have expressed concern to Fidelity that they considered it a breach of their privacy for Beatty to take their information and for Beatty and MSSB to use it without their consent."
Beatty contended the client records he accessed in the days and weeks before his resignation "were for the sole purpose of conducting business for Fidelity."
He took no confidential information, he said in filings, but "I did, consistent with my understanding of well-accepted securities industries practices, create a list of some of my clients' names and contact information."
Beatty likely would not have encountered a legal problem if he had been moving between firms that had both signed on to the recruiting protocol. The pact, signed by more than 600 companies, delineates what client information brokers can and cannot take with them when they move to a new employer.
Fidelity is not likely to become a signatory because it has more of a sense of ownership of its clients than many other companies, Scott Smith, an associate director with Cerulli Associates, said.
Fidelity, for example, is able to generate customers for its brokers thanks to massive advertising campaigns, while other companies rely more on advisers to generate new business, through methods like cold-calling.
Fidelity prohibits its advisers from cold-calling, according to the court documents filed in the Beatty case.
