INITIAL CONSIDERATIONS FOR BREAKAWAY BROKERS AND ADVISORS

When a broker or adviser decides to go independent, one of the most important considerations is business continuity.

As a wealth manager you may ask, “How many of my customers will choose to follow and transfer assets to my new RIA? How do I maximize the number of customers who transfer and how quickly will they transfer?”

Your breakaway plan is critical in the short term – and highly valuable long-term.

For the losing firm, protecting customers is equally important. As much as the breakaway advisor wants transfers, the predecessor firm expects retentions. This sets the stage for a post-termination battle between you and your old firm. It’s a battle you can win if you know the rules and understand nuances specific to the financial services industry.

The firm has created barriers to curb the loss of revenue – trade secrets, confidentiality, non-competes and non-solicitation agreements. These are buried in the “boilerplate legalese” that you ignored when you first joined the firm. It was the language you were told was “standard” and to not worry about. At separation, that “boilerplate” can get you into a lot of hot water if you’re unprepared.

Chances are that you agreed not to call your customers and promised not to ask them to move their business to your new firm.

“What? But they’re good friends!”

It doesn’t matter, your old firm wants to be friends with them too. Absent a specific agreement, you don’t own your customers. The firm “owns” them and gets to keep them when you leave. They are firm property.

And yes, you may be smart and sophisticated. But even as smart and sophisticated as you think you are, you will not find a clever way to outsmart the firm’s attorneys or the computer algorithms that look for fleeing assets.

If you breach your agreement, your old firm may seek a temporary restraining order against you or file a claim with FINRA. In the mind of an aggressive firm, where there’s smoke, there’s fire. Your “honest mistake” is indicative of many more problems – breaches of your agreement. That slip-up can cost you a hundred thousand dollars in legal fees, and hundreds of hours of time and lost business opportunities.

And your old firm is keeping an eye on you. Firms aggressively enforce confidentiality and non-solicitation agreements. Firms investigate each broker’s post-resignation activities – interviewing customers, monitoring the web, emails, phone calls and transfer activity – looking for evidence that brokers are contacting or soliciting their customers. You can’t escape big brother… but you can beat them at their game (by playing by the rules).

Professionals prepare themselves. Brokers and advisers prepare by using the administrative and regulatory resources of firms like Dynamic Wealth Advisors to ensure a smooth transition. The most successful advisers invest in expert legal counsel to understand their obligations, so they can complete the process successfully – maximizing customer transfers while minimizing the risk of a costly legal battle.

I encourage all brokers and advisers who are going independent to retain legal counsel who specialize in FINRA matters and the financial services industry. Experienced attorneys are invaluable to the professional who wants to protect their book, comply with employment obligations and avoid trouble with their old employer. Good counsel is the most affordable insurance policy for both the adviser and the new RIA.

Going independent can be a smooth and uneventful process. We help you navigate the minefield.

Originally published November 27, 2018 at https://www.dynamicwealthadvisors.com/do-you-have-a-plan-to-break-away-from-your-current-firm/