May 12, 2008
Mr. Lou Denton
FINRA Small Firm Advisory Board
Securities and Exchange Commission
100 F Street, NE
Washington, DC 20549-1090
RE: File Number S7-06-08
Dear Mr. Denton:
I am writing in reply on the Commission’s request for comment, to Regulation S-P modification. Specifically, we wish to comment on section D, the exception for limited information disclosure when personnel leave their firms. I am the owner of Phillips & Company, a small firm located in Portland, OR. We have strong proprietary trade secret, non-solicitation agreements in place signed at inception of employment. We appreciate this opportunity to reply to the Commission’s proposed rule.
First, we feel that allowing the transfer of client contact information (name, address, and phone number) would create the misunderstanding in the industry that it would be okay and permissible to breach the existing employment agreement. That could be devastating in terms of cost to small firms and could potentially harm those reps and agents wanting to transfer to other firms. We feel at a minimum it should be noted that in no way does this proposed rule change impact and supersede their existing employment agreements and/or state law. For example, in the State of Oregon, we have very strong trade secret agreements including name, address, and phone number which also applies in case law to the memorization of such information.
Secondly, the issue is not merely a transfer of name, address and phone number information that could be considered everyday common data. The issue is about which specific names, addresses and phone numbers that they want to take with them and in fact that is the breach. The agent generally selects the names, addresses and phone numbers of those clients that are most valued. That data, meaning the most valued data, is derived from private sensitive protected information like net worth, liquid net worth, and trading patterns which is clearly protected information. Although your proposed rule might say it is okay to transfer name, address, and phone numbers, behind that is a breach of trade secret information as to what names, addresses and phone numbers we most value and that selection criteria is based on very private information that the client has in their protected relationship with our firm.
Lastly, if this in any way allows the bigger firms to continually interfere with everyone’s work agreement as they do as a matter of practice, it could be devastating to our firm from a cost standpoint. In fact it could relegate small firms to the “minor league” in the financial services industry. If bigger firms feel that they can simply allow the small firms to develop young talent, put time, resources and energy into developing new talent, and then feel they can come in and recruit the young talent away, which is their right, but also take the client base with them, which is not in their rights, according to our agreements. We become a minor league training ground for bigger firms and the core of our economic value is diminished greatly.
Our concern would be that this Regulation SP modification would indicate and suggest that while it is okay for firms to recruit, which is in their right, it would also encourage those departing reps to take that information with them which is not acceptable. This would again relegate small firms to being minor league clubs training employees for the bigger firms. At minimum, our request would be that it is emphasized in the Regulation that prior work agreements and state laws protecting trade secrets can not and must not be violated. At best, we request that private information (name, address, and phone number) not be allowed to be transferred because due to the fact that this is at the core of material trade secret information around trading patterns, purchasing habits, liquid net worth and very sensitive financial data.
Phillips & Company