Wells Fargo Advisors to Tell Customers They Can Keep Data from Brokers
(Corrects seventh paragraph to remove Wells Fargo’s initial erroneous statement that the privacy notice applies to FiNet clients.)
Wells Fargo Advisors will begin telling customers of its private client group (PCG) today that they can prevent their brokers from taking contact information with them if the advisors leave the firm.
The seemingly paradoxical decision to call attention to a broker’s potential departure was prompted by a Securities and Exchange Commission examination that found Wells out of compliance with a consumer information privacy rule, according to sources briefed on the new policy last week. The SEC’s Regulation S-P allows consumers to prohibit companies from sharing their nonpublic personal and financial information with other companies or with other businesses within a financial institution.
The updated privacy notice will be sent to new account holders as of this week, and to all customers of the firm’s approximately 9,500 PCG brokers in the third quarter as inserts to account statements. Both notices will include a toll-free phone number that customers must call to exercise their opt-out choice. Brokers will have access to a new “Protocol List” report on their workstation that shows whether particular clients have chosen to opt out.
“The notice will inform clients that they are able to choose whether you can take their contact information with you should you decide to leave the firm,” according to a “Check your clients’ information privacy election” notice reviewed by AdvisorHub. Field managers were updated on the new policies during a conference call last week.
The decision appears to diminish the protections that brokers have enjoyed under the Protocol for Broker Recruiting, which allows brokers to take client names, addresses, phone numbers, email addresses and account titles when moving among firms that are Protocol signatories. Rapidly informing customers of procedures to move their accounts is key to jump-starting practices since firms mobilize brokers left behind to retain the clients, often by offering discounts and fee waivers.
“This is further erosion of the Protocol,” said David T. Harmon, a partner at the law firm of Norris McLaughlin & Marcus in New York. “Other Protocol member firms who don’t have it in place already will move to get ahead of any possible future SEC action and update their privacy notices.”
Shea Leordeanu, a Wells Fargo spokeswoman, said that the new policy merely enhances Wells’ privacy notices with the toll-free number. It will also apply to bank-based brokers in the firm’s Wealth Brokerage Services channel.
A spokeswoman at the Securities and Exchange Commission declined to comment on whether the agency has informed other firms of Reg S-P lapses, or is widely examining Protocol-related privacy procedures.
The Protocol was created in 2004 by three large broker-dealers seeking to reduce the high costs of suing each other over broker exits, but has been under pressure. Morgan Stanley and UBS Financial Services exited the pact late last year, claiming it had lost its value since more than 1,500 smaller firms who joined were using it as a one-way street to draw talent. Citigroup withdrew in January, and the firms have in some cases gone to court to seek temporary restraining orders to prevent brokers from calling former cleints.
Wells Fargo has reiterated its commitment to the Protocol for most, but not all, of its more than 15,000 brokers. The commitment comes amid a broker exodus in the aftermath of the fake bank-account and credit scandals that have tarnished the reputations of Wells Fargo Bank and its parent company. Leordeanu on Monday repeated Wells’ intent to remain in the Protocol.
A spokesman at Merrill Lynch, which remains in the Protocol, said he could not comment on the firm’s privacy notification policies. Spokespeople at Ameriprise Financial Services, Raymond James & Associates and LPL Financial, other large Protocol firms, did not return requests for comment about whether they are examining or have changed their privacy-disclosure policies.
While no firm wants to publicize internal dissent with its employees, Wells Fargo could turn the opt-out disclosure to its advantage, some lawyers said.
“It gives Wells the defense that now they’re being as upfront about data privacy and client confidentiality as they can be,” said David Gehn of Ellenoff Grossman & Schole in New York.
—Jed Horowitz contributed to this story.