Advice on training agreement.....

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M P R's picture
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Joined: 2008-02-27

All,I have an odd situation, and could use advice from someone who's been through it....I'm 7 months into productions , doing well (tier 1 production - barely, tier 2 assets) and like my wirehouse, manager, etc.  It's all good.However:I've been approached by the manager at morgan stanley (where I interviewed in 2006 before taking the current job) at a social event and told he's actively recruiting and would like me to consider moving.  I'm a small fry trainee - top tier in production, tier 2 in assets - but small fry due to tenure, but we both see some fit.I'm intrigued because MS is a better fit with my life, nautural market, commute, community activities I do, etc.  Plus, I was hoping to go there in the 1st place.Of course, I've got a training agreement - which the morgan stanley manager knows about - and that issue will come up in our next discussion next week (our next step).This seems like a lot of risk to me - even if I or MS pay the fee in the training agreement.Anyone got wisdom to share?Thanks,M P R

Broker24's picture
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Joined: 2006-10-12

It doesn't look good to your clients to move so quickly after starting out.  You might have a hard time moving people.  It would be even worse if you made the move and then things didn't work out at MS.  But I also don't know your current situation.

Morphius's picture
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Joined: 2007-07-21

Branch managers are virtually always "actively recruiting" brokers with existing books, much in the same way you are always "actively recruiting" new clients with assets to manage.  That's a big factor in how much BOMs are paid.Whether he will still be actively recruiting you after he learns your specific numbers remains to be seen, but if he is still interested you should absolutely make it clear you could only consider a move if he was willing to pick up all costs to you, especially the training contract costs.  If he balks at that, you better want the MS name bad enough to pay back all training costs out of your pocket, because Jones will come after you for those costs.  I would run away fast if he refuses to pick up the training costs.It seems odd he wasn't willing to extend an offer as a trainee 7 months ago but is now interested, unless he thinks you have shown yourself to be a surprise producer or - and watch out for this - he thinks he can poach you withOUT having to pay the training contract buyout costs.I assume you are also aware of market rates for incentives for bringing over your assets, so I won't go into those details.You should also be very clear on exactly what minimum production numbers he requires, as it may be much different from your Jones Tier 1, Tier 2 stuff, and after only 7 months in production you may be unpleasantly surprised at how many clients come with you.   I frankly have no idea what these tiers mean in terms of
real life or things like AUM or what type of business you do or book
you have.  I'm sure your fellow Jones people understand it perfectly,
but the rest of us - not so much.

Jonesness's picture
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Joined: 2008-02-26

He's not with Jones.

Morphius's picture
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Joined: 2007-07-21

Ah so.  My mistake.  Everything else applies equally to whatever b/d involved that uses these 'tiers' that I am not familiar with.  Where are you currently MPR?

Indyone's picture
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Joined: 2005-05-30

MPR, if "it's all good" as you say, I would be very, very hesitant to upset the apple cart and go elsewhere into an unknown situation.  You may think you know what it will be like to work for another company, but until you are there, you don't.  The MS guy may be pleasant at social functions, but may be an asshole to work for.  Likewise, he may be fine, but the other brokers in the office may be assholes.  The product offerings may not match what you're doing now, etc.,etc.,etc.
My point is, think long and hard about burning a bridge at a place where things are going well unless you can virtually guarantee that the new set-up will be better than what you have.  In my mind, it makes more sense to jump when there is a good reason to jump, such as lower grid payout, reduced product availability or conflict with management.  This may very well happen where you are, but it may be at your new employer day one.  In my mind, fewer moves are better and make you more marketable later when you really have something to sell (i.e., a substantial book).  Employers like stable long-term employees.
...and do us a favor...come back and let us know what you decided to do and how it's going.  There are plenty of people here who would be happy to learn from your experiences, both good and bad.  Good luck.

M P R's picture
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Joined: 2008-02-27

All,Thanks you for your thoughtful input....  Agree about stability, bridge burning, long term marketability, etc. - and assholes (don't think there are any in my case).Just so you know....  The allure is downtown location (in my old suburb north of chicago), proximity to my natural market, close to where I participate in community activates, and "being part of the community" (that works for me, no kidding).  Believe it or not, it's not really about assholes or grid.Most of my meager book would join me (at this point, it's the friends and family program), and I perceive that my prospecting wouldn't be too interrupted.This is where I need a reality check:  I'd expect a deal on training expenses - but what really scares me is that I'd get sued, bankrupted, my wife and 5 children would be sold as slaves, my organs harvested and my house bulldozed.  If you read the agreement, that's all possible.  And since I only have one kidney, that still leaves an unpaid balance.The big question:  What happens in the real world when people make move?  I know it happens, but what about all the stuff about proprietary information, etc.  Do I violate the agreement if I send a friend who is now a client a Christmas card (I think the answer is yes).Sorry, I'm so terribly naive - but I am.Grass always looks greener, right?  It may be filled with poison ivy.But I'm still interested in your input....Many thanks,M P R

Morphius's picture
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Joined: 2007-07-21

I still don't know exactly what you really would be gaining at one wirehouse vs. another.  You mention "proximity to my natural market"  and "close to where I participate in community activates" and "being part of the community."  Do you really think the location of your office or the sign on the door matters that much to those things?  Think of your grass is always greener comment.Maybe there is more to it than you are saying.  I hope so, because frankly nothing you have said sounds like a strong reason to jump from one wirehouse to another after 7 months.  It sounds more like you just like the idea of MS and are trying to come up with some reasons to justify an otherwise questionable move.  I'd say THAT is where you need your reality check.  And if your book is really "meager" friends and family stuff, I find it amazing the MS BOM would be willing to absorb your training costs - but that's up to him.Having said that, and realizing you probably are not likely to listen to advice you don't want to hear, generally if you get proper legal advice on exactly what you can say and when, AND you have a new b/d willing to pick up your training and transfer costs, you shouldn't have to worry about losing any organs.  People change b/ds all the time.  But do get clear advice on what you can take  from your current b/d- it's basically your "Christmas List" (names, addresses, phone numbers). 

indywanab's picture
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Joined: 2007-06-11

I'll try to answer your question...
The norm when moving between wirehouses is that the hiring firm will PAY for any outstanding training agreement $. They will settle w/ your old firm BUT make sure you discuss this w/ your manager and get it in writting if you can. Your old firm will mail you a letter asking for the $ and you will turn that over to your manager for them to deal with. If you have a non-solicit then YOU BETTER FOLLOW PROTOCOL. MS (and if you're with a wirehouse so them too) are part of the protocol program meaning you can solicit your clients as long as you only take the information according to broker transfer protocol signed by the firms.
 
That's about at there is to dealing w/ training agreements when switching from wirehouse to wirehouse. You did not mention this but I would negotiate a transition package w/ MS. If you're new into the business you're probably getting some sort of salary and believe me that MS will be willing to put you on a transition salary as a trainee in addition to covering the training agreement costs.
 
Good luck.

Milo's picture
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Joined: 2008-01-21

I recently received an offer from a major wirehouse, and the wording of the training agreement has really caused some concerns.  It states that even if I am terminated, I will be responsible for the repayment of the training costs.  Since I am new to the business I've got the pressure of succeeding in a business with a 90% failure rate but now I have to worry about repaying the training costs if I am terminated for not hitting my goals?
 
I spoke to a friend who is currently a trainee and he told me to "sign the agreement, they won't enforce it if you don't hit your goals". 
 
Can anyone give me their thoughts/opinions on this matter?

Morphius's picture
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Joined: 2007-07-21

Milo,What states is your friend licensed to practice law in?If you search old posts you'll find lots of information on this, so I'll just give you the short answer and leave it to you to do some legwork.First, the terms of the contract give the firm the right to come after you to recoup defined 'training' costs for a specified time period, even if you are terminated.  In practice, they generally won't seek to collect if you wash out and leave the business and don't attempt to take any clients elsewhere.If you stay in the business and try to take clients, absolutely expect them to come after you for the money.  Typically, you would negotiate with your new b/d to pick up these costs on your behalf as part of your negotiations, and they in turn would expect to negotiate a reduced agreement with your old firm.You are right to be concerned about this.  As Bill Singer will no doubt tell you, the best protection is to hire your own attorney to review any proposed contracts BEFORE you join/sign them.  Most people don't do that and then seem somehow surprised down the road to find out that contracts they sign turn out to be legally binding.At the end of the day, you won't have much choice if you're brand new to the business - if you want to be paid while you get trained, you'll have to accept such terms.  I'm not saying it's right, but it is standard in the industry.

Milo's picture
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Joined: 2008-01-21

Thanks for the info Morphius. 
Obivously, I doubted my friends advice and that's why I decided to get some opinions from experienced FA's.   I think it's safe to say that my friend will be in for rude awakening once he realizes he can't leave the wirehouse and start working for a bank the next day.

outofedj's picture
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Joined: 2008-04-14

I'm looking to leave EDJ well within the 3 yr training agreement. What is the best way to do this if I plan to work for a bank or a discounter? Should I just quit producing and get fired? Will Jones pursue me if I am fired and continue to use my 7?

bspears's picture
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Joined: 2006-11-08

I have no experience in leaving before the contract expires, however I doubt the best for you in the long run is to get fired.  If you decide to leave and go to a bank or another institution, I would suspect the company will try to get some comp for you leaving.  Is the new firm willing to pick up the this cost to get you?  If no...you might want to tough it out past 2 years to keep the cost affordable.  If yes...HEAD ON BROTHER!!!!! LIFE IS TO SHORT....

outofedj's picture
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Joined: 2008-04-14

Hi bspears,
 
Thanks for your response. I don't plan to stay in the industry long-term, but I need some reliable income, which the banks and discounters seem to provide. Since I don't plan to make a career of it, do you think getting fired would avoid going to arbitration for $75,000?

outofedj's picture
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Joined: 2008-04-14

Also, the banks and discounters I have talked to don't seem too willing to eat the cost of a training costs settlement, probably due my being in the industry just over a year.

outofedj's picture
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Joined: 2008-04-14

anybody? buehler?

Broker24's picture
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Joined: 2006-10-12

Out,
 
This is a strange situation you are in.  You say that you are not planning on staying in the business, but need the reliable income, and yet you are new in the business.  To me, it sounds like you should get a non-sales position in the industry, and not worry about the training costs.  If you get fired, you run a high risk of not being employable.

outofedj's picture
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Joined: 2008-04-14

Hi Broker24,
Thank you for the answer. In the article above, Bill Singer cited a case where a rep was sued for training costs and lost, even though he took a non-sales management position at a bank. Would Jones be this vindictive?
 
outofedj

Spaceman Spiff's picture
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Joined: 2006-08-08

My answer is a pure guess, but here it is.  I would guess that if you went to another finanical institution in a non sales capacity and didn't try to take your clients with you, Jones wouldn't go after you.   Their beef with going after training costs isn't for those people who get in, don't like it, and then leave the industry or at least the selling side.  Their issue is with guys going through the licensing, training, office build out, etc then jumping to some crappy firm like LPL.    (It's just a joke spears, don't get your panties in a wad.  Wait, you're b spears.  You don't wear any.) 
 
In your case I don't think you have anything to lose by calling your area leader or your RL and talking through it with him. 

bspears's picture
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Joined: 2006-11-08

ha ha

Broker24's picture
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Joined: 2006-10-12

outofedj wrote: Hi Broker24,
Thank you for the answer. In the article above, Bill Singer cited a case where a rep was sued for training costs and lost, even though he took a non-sales management position at a bank. Would Jones be this vindictive?
 
outofedj

I think not. As Spiff said, most firms just want to make sure you don't take their investment (you and the training they just handed you, along with a salary for producing nothing but a loss for the company) and run to another firm and use it. And this is the case probably for most firms, not just Jones.

outofedj's picture
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Joined: 2008-04-14

The agreement is worded so that EDJ can go after you whether or not you take a sales position.

Broker24's picture
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Joined: 2006-10-12

I've just never heard of it happening.  Doesn't mean it won't, but based on the nmber of people that come and go and don't make it, I highly doubt they will single YOU out to try and recoup training costs.  But don't take my word for it.

IsOldSpiceRightForMe's picture
Joined: 2008-04-14

I haven't really looked into it, but I've seen a few post from people leaving who've been with Jones for for more than the 3 years and have still had legal problems or at least threats.  Is that really true?  Does Jones think that once you sign up you're entire life as a FA must be with them?  Also, say you stick with them for 10 years and then go Indy, you've more than made them their money back, I don't see why you can't call your clients or send them a letter telling them how to transfer everything to your new firm. 
 
I understand the training costs within the first 3 years, I'm just curious about leaving after that.

yooper's picture
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Joined: 2008-03-27

The training cost are more of a fine than anything else. Most of your trainers are volunteers office profitablity number is almost double of what my expenses are,and i am in a fairly exspensive prop. for the area. I have never spoke to anyone who has gone to court but i would think they would need justification for there bill, other than you had to sign it to get the job.

Broker24's picture
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Joined: 2006-10-12

Old Spice,
 
Generally here's the deal: if you leave within 3 years and continue using your license at another firm, they may or may not come to you for pro-rated reimbursement (generally your new firm would/should defend you, help with legal support, and negotiate down and pay settlement).  If you do not take your license somewhere else, they will not come after you.  After 3 years, they have zero recourse.  I have NEVER heard of Jones coming after someone after their 3 year period.  Now, as with many firms, they may apply for a TRO to block you from contacting your clients at Jones for a period of time, but that's about it.
 
I think the whole "Jones coming after you" bit gets a little overblown on this site sometimes.

Morphius's picture
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Joined: 2007-07-21

IsOldSpiceRightForMe wrote:I haven't really looked into it, but I've seen a few post from people leaving who've been with Jones for for more than the 3 years and have still had legal problems or at least threats.  Is that really true?  Does Jones think that once you sign up you're entire life as a FA must be with them?  Also, say you stick with them for 10 years and then go Indy, you've more than made them their money back, I don't see why you can't call your clients or send them a letter telling them how to transfer everything to your new firm. 
 
I understand the training costs within the first 3 years, I'm just curious about leaving after that.There are two separate and distinct legal issues here.First is the training costs during the first 3 years.  You say you understand that issue so no need to say more about that.The second is the restrictive covenants, generally in the form of a non-solicit agreement.  This clause does not generally have any time frame to it, i.e. it doesn't go away after, say, 10 years.  EJ - and in fact all the main B/Ds - tend to come after some (but not all) FAs who leave and take their clients with them.  Don't let this possibility deter you, as there are steps you can take to minimize the risks and generally speaking the most likely "bad" outcome will be to negotiate a buyout of some small percentage of your trailing 12 month production.This may not seem fair, and has little to do with making their money back on you. It has to do with making a few more bucks off of you and, more importantly, maintaining leverage over other FAs who will be less likely to leave if they know they have to fear these same repercussions.  Again, this is not simply a EDJ thing - this is more or less industry standard outside the independent B/Ds.

theironhorse's picture
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Joined: 2007-03-03

I am not trying to stand behind Jones or any other firm, but think of it this way.  Contractually, legally, these clients belong to and are "owned" by Jones.  If you hired a protege or underling or whatever and paid for their licensing, rent, and devoted time and effort to his/her success, you'd be pissed too if he/she up and left and tried taking all the clients with him.  I completely understand the client gets caught in the middle, and it is all legalese, but no matter what they say, corporate views these people as THEIR clients, not ours.  I think we tend to focus way too much on Jones on this and all issues, but I understand them coming after larger producers.  Small time, nickel and dime they let walk easily.

IsOldSpiceRightForMe's picture
Joined: 2008-04-14

I completely disagree with their right to do that (even though I recognize that it is their legal right).  If I stay with Jone (or any othe company) for 10 years, run a profitable office, make them lots of money (much more than what they've put into me), and bust my ace to build a solid book of client, then I decide to leave, I feel like I owe them nothing.  Those should be my clients that I've been working with for the past 10 years.  If I was going Indy after 10 years I know it would be the clients choice, but if 90% of them want to go with me I don't see what else Jones expects from me.  It seems to me like they expect you to sign a contract and stay with them for life. 
I completely understand the 3 year contract for training costs, but coming after someone who's been made them more money than they've invested into that person for several years just because the person wants to work somewhere else seems almost communist.

snaggletooth's picture
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Joined: 2007-07-13

OldSpice,
 
Your youth is showing in your naive post.  You are an employee of a company.  Technically, it is your job to service and provide products through your firm for that client.  The clients' statements don't say, OldSpice Inc. 
 
What you believe is fair or not has little relevance to what your company believes.  Get this:  You are replacable.  Sure, you might have built a nice relationship, but you don't own any clients.
 
If you ran the company, what would you tell advisors that leave with their clients after 10 years?  "Ok, have a safe drive across the street.  Let me know if you need help carrying out copies of clients' accounts".  Don't be so naive.  You would say, "Those clients belong to us.  They have accounts with us.  If you try to take bread off of our table, we'll come after you".
 
Nobody above you really cares what you think about this.  That is not meant to be rude, just the truth.

Morphius's picture
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Joined: 2007-07-21

IsOldSpiceRightForMe wrote:I completely disagree with their right to do that (even though I recognize that it is their legal right).  If I stay with Jone (or any othe company) for 10 years, run a profitable office, make them lots of money (much more than what they've put into me), and bust my ace to build a solid book of client, then I decide to leave, I feel like I owe them nothing.  Those should be my clients that I've been working with for the past 10 years.  If I was going Indy after 10 years I know it would be the clients choice, but if 90% of them want to go with me I don't see what else Jones expects from me.  It seems to me like they expect you to sign a contract and stay with them for life. 
I completely understand the 3 year contract for training costs, but coming after someone who's been made them more money than they've invested into that person for several years just because the person wants to work somewhere else seems almost communist.No problem.  Don't sign the contract that gives them these rights, and they won't have those rights.  No one is forcing you to proceed.  Of course, you won't be hired either, but that's the price of admission.  You can complain about it, but don't waste too much energy tilting at windmills. 

IsOldSpiceRightForMe's picture
Joined: 2008-04-14

I know that's the truth, I'm just saying it sucks to think that if you get into the business and ever decide to go Indy, you could face a legal battle just to take some of your hard work with you.  I'm still going to get into the business, that's just one aspect of it that I'm not crazy about.  If I ever go Indy or change companies I'll just cross that bridge when I get there. 
 
I don't think it's naive to say something sucks and doesn't seem fair.  That's my opinion from my side, and obviously the company's opinion is different, that's the subject of my post. 
 
When did I ever say or act like I'm not replacable?  But, the company is replacable too.  And clients aren't "owned."  They may be under the company's official management and not mine, but if that client wants to leave to go with me that's his or her own decision, and if it can't be proved that I persuaded them to follow me (ie paper, e-mail, recordings) then that is something that's out of my control. 
 
If I ran the company I would be disappointed to be loosing someone who's been making me money, but I wouldn't expect that person to dedicate their life to working for me.  That's business, and I'm not going to waste my time, money, and reputation on trying to make that person's life miserable because they decided to try another route.  I'd probably send a letter to all of their clients explaining who their new FA would be and how nothing will change, maybe even ask for an appointment to meet face to face.  But, if their clients requested to move with that FA to their new firm, that sucks but that's business. 
 
Anyway, this whole debate isn't going to change the way companies do business.  As long as FA's sign then contract, which I will, it's not going to change.  That's just my opinion on how I think it should be.

Broker24's picture
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Joined: 2006-10-12

Old Spice,
They are not going to shackle you and throw you in jail.  They will send a letter re-stating the non-solicit clause in the agreement.  If you comply with it, fine.  If you start doing shady things like sending pre-filled ACAT's or something, they might send the TRO or get more aggressive.  But if you follow what your legal council tells you, and your new firm supports you (financially and legally), you will be fine.
 
So go finish senior year and stop worrying about what might happen if you might decide to leave somewhere down the road.

IsOldSpiceRightForMe's picture
Joined: 2008-04-14

haha, good point.  The whole thing got blown out of proportion.  I was just saying from what I've read it kind of sucks.  Anyway, I gotta get to class.  jk 

IsOldSpiceRightForMe's picture
Joined: 2008-04-14

That's true.

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