WASHINGTON -- Should changes within an SEC's consumer privacy regulation come to fruition, they could negatively affect brokerage business at credit unions and banks, said the Credit Union Financial Network, an investment services CUSO.
The regulation in question is Regulation S-P: Privacy of Consumer Financial Information and Safeguarding Personal Information. At issue is the protocol when a registered representative leaves one brokerage firm for another. The representative is referred the bulk of their business by the bank and credit union and such information is often treated as trade secrets with the representative acknowledging that the representative does not own the book of business, he said.
In a May 7 SEC comment letter, Michael Prior, president of CUFN, asked SEC to consider the different broker-dealer models. CUFN provides investment and trust services to several Arizona credit unions.
With independents, for instance, it is acknowledged the adviser "owns" the client relationships, Prior said. Transferring client data from one independent broker-dealer to another should be easy with little impact to the client, as the client would not have a relationship with the broker-dealer but rather with the adviser. Typically, the adviser is responsible for all of their expenses as they build their book of business, Prior explained.
Wirehouse broker-dealers are typically the same as independents with the adviser usually responsible for all or a portion of their expenses as they build their book of business, Prior said.
The adviser and client relationships at credit unions and banks are completely different, he pointed out. The advisers are given full access and support to help the financial institution build a book of business for the enterprise. The adviser typically has little or no out of pocket expenses and in most cases is an actual employee of the institution, Prior said. The advisers also acknowledge when they take the position that the clients and all related information are the property of the financial institution.
"The financial institutions bare great expense in developing their book of business as it relates to salaries, bonuses, marketing, hardware, software and licensing for the adviser," Prior wrote. "It would not be fair ethically or contractually to allow the advisers to work for a financial institution for five years and then transfer the financial institution's book of business to another firm."
NACUSO General Counsel Guy Messick has said it is fine to permit this limited disclosure for the purpose of implementing the agreed protocols between broker-dealers but the permissive sharing of information between consenting parties does not supersede the right of other parties to prevent the sharing of information that the parties agree are trade secrets or is otherwise deemed such by applicable law. The association said it would not object to a requirement that the bank, credit union or newly affiliated broker-dealer would have to provide the representative's contact information upon request by the investor, provided the representative has supplied contact information.