THOUGHTS FOR BREAKAWAY ADVISERS AND BROKERS
By David Abell, Esq. Abell Law, Ltd. Co.
When a broker or adviser decides to go independent, one of the most important considerations is business continuity.
Your first questions should be, “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?”
As a fiduciary, you must consider the interests of your clients - how can you best serve their needs and their desire to move with you if that's their desire.
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 how to play the game.” Playing the game means understanding the scope of your obligations to your current firm.
Your firm may have 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 may have glanced over when you first joined the firm. It was the language you were told was “standard” and to not worry about. At separation, that “boilerplate” becomes critically important - and can create immense difficulties for you 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. The firm likely asserts that it “owns” them and gets to keep them when you leave. They are firm property.
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. A slip-up can cost you tens of thousands in legal fees, and hundreds of hours of time and lost business opportunities.
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 understanding how to play by their rules).
Professionals prepare themselves. The most successful advisors 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 advisors 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 advisor and the new RIA.
Going independent can be a smooth and uneventful process. We help you navigate the minefield.
About Abell Law Ltd. Co.
David Abell is recognized nationally as a leader in the financial services legal industry. He maintains and active FINRA arbitration practice representing registered representatives to provide the highest caliber legal advice to brokers and advisors during their transitions between firms or into their own independent RIAs.
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