The Federal Trade Commission's (FTC) recent decision to ban non-compete clauses in employment contracts is set to bring significant changes across various industries, particularly in financial services. In a recent article, I shared my insights on how this rule could impact advisors and brokers, especially those within wirehouses and banks.
Summary of the FTC Non-Compete Ban
The FTC's ban aims to eliminate non-compete clauses that prevent employees from moving to competitors within the same industry. This comprehensive move affects existing non-compete agreements and prohibits future ones, potentially impacting about 30% of American workers. FTC Chair Lina Khan highlighted that this change would enhance economic dynamism, foster innovation, and provide workers the freedom to pursue better opportunities.
An important note - the FTC's ban DOES NOT impact non-solicitation obligations - which are generally the most common (and most significant) restrictions on departing advisors and brokers.
Impact on Financial Advisors and Brokers
In the financial services sector, the ban is likely to affect advisors in banks and wirehouses more than those in registered investment advisors (RIAs). While many large firms have started moving away from including non-compete clauses due to questions about their enforceability, there are still thousands of agreements in place. These agreements often serve to restrict advisors from seeking better opportunities, thereby impacting their career growth and mobility.
As an attorney with a national FINRA and SEC regulatory practice, I have seen firsthand how non-compete clauses are used, especially by banks, to tie the hands of advisors. These clauses instill uncertainty and fear in advisors, discouraging them from leaving even when such agreements might not hold up in court. The financial burden of contesting non-compete clauses can be substantial, keeping many advisors locked into their current roles.
I am currently managing numerous FINRA and financial services related arbitrations and disputes across the country, including in Alaska, Indiana, New York, New Jersey, California, Texas, South Dakota, New Mexico, North Dakota, Maryland, Tennessee, and Florida. Additionally, I am litigating novel arbitration law issues before the 10th Circuit Court of Appeals. These experiences underscore the widespread impact non-compete agreements can have on advisors' careers and the broader industry.
The FTC's ban could pave the way for a new era of advisor mobility, allowing professionals to seek environments that better align with their goals and client needs. This increased freedom can lead to a more dynamic and competitive market, ultimately benefiting both advisors and clients.
The Future Landscape
While the FTC's rule marks a significant shift, its future remains uncertain due to potential legal challenges. The Chamber of Commerce has already filed a lawsuit to stop the ban, which could delay its implementation. Despite this uncertainty, the industry's adaptation to this new regulatory environment will be crucial.
For advisors, the ban could mean greater freedom to move between firms without the fear of restrictive covenants. This mobility will encourage firms to create more attractive work environments to retain top talent. Rather than relying on non-compete clauses, firms will need to focus on fostering positive workplace cultures and offering competitive benefits.
From my perspective, as an attorney representing financial advisors nationwide, the FTC's ban represents a significant step towards greater freedom and fairness in the industry. Advisors should be empowered to pursue the best opportunities for themselves and their clients without being hindered by outdated and restrictive agreements.
In conclusion, the FTC's non-compete ban could bring about transformative changes in the financial services sector. While legal challenges may lie ahead, the potential for increased advisor mobility and improved employment practices offers a promising future for the industry. Firms actively recruiting advisors and brokers should seek legal counsel to ensure transitions are conducted in accordance with post-employment obligations, particularly since non-solicitation obligations are not impacted by the FTC rule. For assistance, call us at Abell Law for guidance.
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