Back in 2013, I wrote of a heightened and ever-changing regulatory environment catching even compliant advisors in its crosshairs. Two years later, we find advisors managing even greater levels of scrutiny, with high-profile terminations commanding attention in the media, causing unrest and downright fear for even the most compliant of advisors.
In September, Merrill Lynch fired an advisor duo managing $2.5 billion in assets, Stephen Brown and James Goetz. Then in March, Tom Buck—a top-ranked Merrill Lynch advisor who managed $1.2 billion in assets—was terminated. What starts off as a typical day and a routine meeting with regional managers can quickly turn into a sudden line of uncomfortable questioning, termination without notice, and a security escort to the door.
When that happens, advisors find their entire careers and relationships with clients are in jeopardy. FAs are often completely unaware that their activities or those of their team were actually non-compliant with FINRA or with their firm’s policies and procedures.
Get a Lawyer
One of the most important barometers of future success lies within the Form U-5 that must be filed by your employer or employing broker/dealer within 30 days of your termination. This obligatory regulatory filing through FINRA’s Central Registration Depository (CRD) is a public disclosure that will contain the reason for termination.
“A terminated advisor should immediately retain an attorney to negotiate the specific disclosure language regarding the basis for their termination on their Form U-5 before his Form U-5 is filed,” says Barry R. Lax of Lax & Neville LLP, a New York City litigation firm that specializes in the financial services industry. “Prior to the filing, there are many instances where a broker/dealer is open to a recommendation of the reason for termination and the disclosure language as long as the disclosure remains truthful.”
Choose a lawyer who specializes in litigation and arbitration in the financial services industry. They need to be fully versed in the specific laws regarding the Form U-5, and possess an intense understanding of the regulations, as well as the key players.
“If your attorney has a sound working relationship with these firms, he can often secure the opportunity to make any comments or provide additional alternative language to the language they (the firm) proposed and any justification for it they may choose to offer,” says Brian Hamburger, an attorney with Englewood, N.J.-based Hamburger Law Firm, LLC.
Make no mistake: This is a negotiation process with a finite expiration. Once the door closes (i.e., when the firm files the Form U-5 or the expiration of 30 days, whichever comes first), it’s a difficult door to reopen.
“Form U-5 disclosures must be truthful and accurate, and are completely within the control of the terminating firm,” Hamburger says. “However, it puts the advisor in the best position possible for future employment if the U-5 goes no further than the facts; and if there are issues that are speculative in nature, they [can] be omitted.”
What to Do?
Essentially, you have 30 days to explore your options, but you must jump into exploration mode immediately. Certain employers have different thresholds and tolerances, and exploring all of the options is key to landing in the right place.
It can be most efficient to work with a recruiter or consultant who knows the industry landscape. They should know what options are most realistic and how each firm in your market will react to your termination and the facts surrounding it. They will coordinate efforts with legal counsel to move the process forward in a timely manner; this is extremely important, as each day that goes by increases the potential for losing clients. And as the U-5 language becomes available, the consultant will work with you and legal counsel to pinpoint the appropriate next steps.
In some cases, depending on the reasons for termination (sales-practice violations being most toxic), major firms may not be able to hire you. And while a firm’s local manager may express initial interest in you, it may take days or weeks before you learn that their compliance department has vetoed the hire. At that point, you may have to meet with what you consider “second-tier” firms.
Best-case scenario: You took meetings that were unnecessary. Worst-case scenario: In order to salvage your career, you land at one of these second-tier firms. Truth be told, this does not have to be the death knell to working with high-net-worth clients. Many advisors who ended up at second-tier firms have done quite well, because open architecture makes it possible for them to continue to serve those clients as they had done previously.
Terminated advisors may also want to evaluate RIA options, because an investment advisor has greater control than a broker at a wirehouse. They would also no longer be subject to an employer’s criteria, only to regulatory thresholds. RIAs have the freedom to tailor the investment strategy, asset allocations and products they offer to meet their clients’ individual needs. And RIAs are not currently regulated by FINRA.
So what do you do to protect yourself?
- Seek counsel at the first sign of anything out of the ordinary.
- Always keep your eyes and ears open, and get educated about the industry landscape.
- Have a Plan B at the ready.
- Make certain that the way you run your business is approved by management, so there are no surprises.
- Be open to good counsel from trusted advisors.
In hindsight, termination is rarely a complete surprise. Many times there are warning signs in the weeks or months leading up to the termination; the firm starts interviewing clients or staff, for example. Unfortunately, many ignore their own instincts and accept assurances from management that “everything will be fine”—that is, until that fateful meeting.
Should you find yourself in this situation, being proactive and gathering the right team that will work together on your behalf will ensure that the career you have built will not be torn down completely. It will also help you find a new chapter to build upon.
