Understandably, the losses of brokerage clients have gotten all the headlines. But the truth is that the bear market has also devastated many careers in the investment advisory business. As investors headed for the sidelines, many brokers saw their incomes plummet to levels they never imagined possible.

The situation is particularly dire for brokers who switched firms in the late 1990s in search of large upfront checks. Those brokers have seen their upfront money dissipated by investment losses and expenses (new cars, homes, etc.) incurred in headier days.

Brokers who received upfront money are now paying the price, as the “loans” securing the upfront payments are gradually forgiven. With each year of forgiveness the broker incurs a tax liability, which most firms withhold from the broker's monthly paycheck. Now, many find that net of tax withholding, they are working solely to pay taxes on upfront money they no longer have.

They want to stop the treadmill. Families have to eat, kids need to go to college and mortgages must be paid. Many brokers are simply opting to close up shop and leave the business. While the wisdom of abandoning your career is debatable, there are several considerations for those heading in that direction. Most important, a departure from the firm may trigger the obligation to repay the unforgiven portion of the loan.

Negotiate Your Departure

Your sparkling personality and quick wit aside, the firm hired you for your asset base. You are under no obligation to help the firm retain that asset base. Even nonsolicitation agreements do not require you to actively help the firm keep the clients you brought in.

So, you have something of value to bargain with. Speak with your manager about negotiating an agreement specifying that the firm will not come after you for the loan in exchange for your assistance in keeping the clients. Make the point that the firm has more to gain in the long run from keeping the business you have built, than collecting a few dollars from you. If you strike a deal, get it in writing.

Sell Your Book

Some firms will allow you to “sell” your book to another broker in the office. The “sale” can take many forms, depending on a variety of factors such as firm policy and state law. Some firms let you sell the book for a lump sum, while others will permit specified payments over time. Generally, firms will not allow a “commission sharing” arrangement if you no longer are employed at the firm. The price for your book is hard to estimate, but a stable, diversified book of fee-based clients should garner more than a book concentrated in a few trading accounts.

Early Retirement

Many firms offer early retirement packages to brokers who meet certain age and length-of-service requirements. These packages require that you leave your book behind and don't work for a competitor. Depending on the wording of your loan documents and your firm's policy, taking the early retirement package may not trigger loan repayment. The added advantage of early retirement at most firms is the vesting of stock options and other incentives. Check out the early retirement package very carefully, since the packages vary greatly from firm to firm.


For many, it may be necessary to employ this legal device for wiping out your debts, including the loan from the firm. Consult with a lawyer who specializes in bankruptcy to determine if your financial picture qualifies you for bankruptcy, and what the effect will be on the loan. An employer cannot retaliate against you for filing bankruptcy, so this may be an option even if you remain at the firm.

Additionally, consult your attorney or accountant as to the tax benefits of bankruptcy, since wiping out the loan through bankruptcy is not a taxable event, whereas forgiveness of the loan under the other options above may create a tax liability. I am not advocating bankruptcy, but you owe it to yourself to look into this option if all else fails. (Pending legislation could make it more difficult to escape debts through bankruptcy.)

No one likes to think of a career coming to an end. But, if you plan it right, you can minimize the damage to your overall financial health.

Writer's BIO:
William A. Jacobson is a Providence, R.I., attorney, representing securities industry employees in employment disputes. wjacobson.com