 Starting a new job can be very exciting, but it can be nerve-racking too. Not only do you have to think about keeping your book intact, but there’s also the persistent fear: Will I be sued? Of course there are no guarantees, but here are some pointers to help keep you on solid legal footing as you change jobs. Know what you’ve signed.
Many brokers don’t have a copy of their employment agreement and have no idea what it says. This can make leaving much trickier. If you don’t have a copy, try to get one from someone who joined the firm around the same time you did. The agreements typically don’t change much from year to year, and it’s important to know what you agreed to, especially when it comes to non-compete and solicitation clauses. If you can’t get hold of an agreement, plan for the worst case scenario, which is that the firm will severely restrict your ability to solicit clients and provide services to clients after you’ve left, said Peter A. Savarese, general counsel with National Compliance Services Inc., a Delray Beach, Fla., consulting firm that works with advisors and broker-dealers. And when you join your next firm, make sure you keep a copy of this critical document. Know what you owe.
When they leave many reps still owe money to their firms as a result of the large sign-on bonuses they received in the form of forgivable loans. Typically these loans are forgiven in stages over a period of years, but if you leave prematurely, the firm can demand full payment. What happens if you no longer have the money? Or you’re being asked to pay it back over a time frame that doesn’t work for you? “People who have these obligations need a realistic expectation of what would need to be paid back and on what terms,” said Patrick J. Burns, Jr., an attorney in Beverly Hills, Calif., who helps advisors go independent. Be aware of your firm’s privacy policy and what it says about contacting clients after you’ve left.
A lot of reps assume that their clients’ information belongs to them so they want to take documents such as account statements and more. But the courts have deemed the information belongs to the clients and firms, not the advisor. “You can’t walk out with boxes full of account documents,” said Daniel Bernstein, director of professional services at MarketCounsel in Englewood, N.J., a regulatory and compliance consulting firm. Indeed, privacy policy violations give firms “additional ammunition to possibly be successful if they choose to sue,” Savarese said. Plan ahead.
Many reps run into trouble because they don’t think of all the issues that can come up from both a regulatory and a business perspective. “Everything is about preparation,” Bernstein said. Say, for instance, you want to set up your own RIA. You can’t run an outside business while you’re employed by your firm, and even setting up the entity in your name while you are employed could be a problem. Of course, there are workarounds, but the process can be complicated and requires a lot of planning. For example, you may have someone else form the entity for you such as a friend or a spouse. If you’re part of a group, someone could leave first to handle all the leg work. “The less that the individual who is employed is involved the better…but it’s not always easy,” Bernstein said. When you are planning a move, it’s also best to keep things as quiet as possible because things have a way of getting back to employers. Be careful of water cooler talk and even telling people at the firm you’re very close to and might want to take with you. “You can find yourself out before you’re really ready to go,” Bernstein said. Another thing to consider is how much risk you’re willing to take. Do you want to risk violating your employment contract and take the chance you’ll be sued? Or do you want to make sure you never get a letter from an attorney telling you you’ve done something wrong? Know whether the firm you’re joining has signed the broker protocol.
If it is, you’ll likely have an easier time transitioning clients. The pact stipulates that signatory firms will refrain from taking legal action against advisors who take basic client data with them when they move to another signatory institution. While the agreement doesn’t cancel out any of the privacy regulations, it may negate the non-solicit clauses you signed. Approach clients with caution.
While you might be tempted, don’t tell clients in advance that you are leaving. Doing so has lots of potential downsides. For instance, you could be violating common law duties owed to your employer or breaching the terms of your employment agreement, thereby increasing the odds you’ll be sued. To be sure, there are ways to maximize client retention, but you have to go about it tactically. “There are all kinds of strategies that can be utilized, but the worst part is taking for granted, or underestimating, the adverse consequences of not doing it property or without a strategy in place,” Savarese said. Even after you leave your firm, contacting clients can be tricky. Every state, for example, has different employment regulations which define what soliciting means. Some allow you to do some type of tombstone ad, for example, while others are more or less restrictive, Bernstein said. Get a good lawyer
While having an attorney doesn’t eliminate the risk of getting sued, it can be invaluable in trying to wade through the murky legal waters. It is particularly important if you’re a big producer, since the larger the book, the more potential there is that you’ll be sued. Firms are “going to miss the bigger producer more than the smaller producer,” said Burns who heads the firm in Beverly Hills. Good legal advice is also especially important if your employer has a reputation of going after advisors who leave. If that’s the case, “the red flag should be up, and [advisors] need to be very sensitive to their approach with regard to their potential departure,” said Jeffrey Morton, a partner with the Washington-based ACA Compliance Group. “Getting experienced and competent counsel and advisors involved is invaluable to the process.”  
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