An insurance company contracts with an agent to sell their policies. The agent is successful and over time has a long list of customers that have purchased the carrier’s policies. Who owns that list of customers–the carrier or the agent? The historic answer is the customer list belongs to the party that brings the most effort to obtaining and keeping the customer.
A couple decades ago I owned a broker/dealer that put registered representatives in bank lobbies. We did nothing to obtain that customer and made no claim, so the owner of the customer list was usually the bank since almost all of the investment business resulted from referrals from bank employees. Occasionally we brought in a broker with an existing book of business (customer list), and in these instances a contract was drawn up saying the broker retained those clients but any new ones were the bank’s.
In the insurance world the question was usually decided by whether the agent was independent, or captive whereby they received branding and other support from the carrier. Independent agents were usually treated as owners of the customer lists, even when the agent made little effort to keep the customer. I experienced this first hand from several annuity carriers when proposing the carrier undertake direct to policyowner marketing campaigns that bypassed the agent. The consistent answer was that the carrier would not do anything that didn’t include the agent. However, the securities world is less consistent.
Every few months there will be a story of a registered representative or advisor leaving a firm for another and the old firm suing to keep the customer list. The advisory firm or B/D’s argument is they say they made the most effort to obtain and keep the customer. My personal feeling is unless the old firm generated the leads, such as the bank setup, or is one of a few firms that is so well known that it carries its own cachet in attracting customers, that the rep/advisor/agent owns the customer—but my feelings don’t carry any weight. The reality is, as time passes, it will be more likely that the firm will claim and be awarded ownership of the customer list.
A reason is more agents in the life and annuity area are also registering as reps with broker/dealers. In the past agents could keep their fixed life/annuity business separate and distinct as long they let the B/D know they were doing it, and the notification of the Outside Business Activities of Registered Persons was as simple as writing a sentence on letterhead saying “I also sell fixed annuities and life insurance.” In recent years, due to shall we call it “suggestions” from FINRA, broker/dealers have generally ramped up their supervision and the degree to which they’ll permit and monitor outside activities. If the B/D has the list of life and annuity customers, they are more likely to say they are expending the most effort to get and keep the customer. If the financial institution aspect of the Department of Labor fiduciary rule revision goes fully into effect, the financial institution taking responsibility for the annuity sale will be able to exert an even greater claim that the customer is theirs.
Who owns the customer list is an old topic in the securities world, but may not even be thought of by the agent hooking up with a B/D or advisory firm. To avoid misunderstandings down the road, any agreement should clearly state who owns the list of insurance and annuity customers.
