Financial Advisers in Motion; A Primer On the Employment Issues Facing Those in Transition

Posted on April 9th, 2012 at 9:43 AM

We often consult financial advisers who are transitioning their employment to a new firm.  Financial services attorneys need to be mindful of issues unique to employees in the financial services industry.  Let’s overview the key issues.

                As background, a common scenario involves a large producer moving from a major, “wirehouse” firm to another wirehouse firm.  That isn’t always the case: advisers may choose to “go independent” by moving from a wirehouse to either an “independent” firm or even start their own investment advisory firm.  Wirehouse advisers typically have developed a client base (or “book of business”) over many years and from many sources.  They had received, and expect again to receive, a large incentive payment up-front and over time, memorialized by a “forgivable loan”.  They likely (and unwisely) chose not to negotiate their employment agreement with the current firm, which agreement has a host of provisions that naturally are designed to impede the adviser in his or her transition to a new firm.  Those impediments include broad document confidentiality clauses, restrictive non-solicitation (and sometimes non-competition) clauses, and consent to a TRO (injunction). 

                The job of a skilled financial services employment lawyer is to consult the transitioning adviser as to what he or she may do without violating the employment agreement.  Those determinations vary with state law.  Attorneys also need to be familiar with industry practices.  One very helpful industry practice is known as the Protocol for Broker Recruiting.  Originating as a mere litigation forbearance agreement between a handful of wirehouse firms, the “Protocol” has become, in many respects, an industry standard.  While courts are not uniform in interpreting it broadly to expand the rights of transitioning advisers, the clear trend in authority points in that direction.

                Consequently, lawyers need to be aware of its provisions.  In simple terms, and notwithstanding an employment agreement to the contrary, transitioning financial advisers can take with them certain client information (client name, address, phone number, email address and account titles of clients serviced), and can solicit clients to join their new firm.  While no court would refuse to grant those rights to an adviser moving from one Protocol signatory firm to another Protocol signatory firm, the good news for advisers (and their clients wishing to keep doing business with them) is that the courts have extended Protocol rights in cases not involving Protocol signatory firms. 

                Another major area of focus is counseling with respect to a transitioning adviser’s current promissory note obligation and negotiating the promissory note that he or she will agree to with the new firm.  Here is how the typical promissory note agreement works.  The adviser acknowledges receipt of a large amount of money paid to him or her upon arrival to the new firm, and that he owes that money to the firm.  Subsequent payments are common, which again are acknowledged in a subsequent promissory note agreement.  However, in the promissory note agreement the firm and the adviser agree that his employment service to the firm, over some number of years, will serve to forgive the note balance pro rata on an annualized basis.  The typical promissory note agreement has, over time, carried a longer term; today, we see larger deals carry as much as a 12-year term “of servitude”. 

                Consequently, lawyers need to be aware of the provisions of the forgivable loan, and know what can or should be negotiated.  For example, one may be able to negotiate monthly, not annual, forgiveness of the debt, include scenarios (like death and disability) which operate to void the note obligation, and reduce the number of years of servitude.  More sophisticated counsel can identify certain, unfavorable trends in the language of promissory notes (such as waiving the right to bring a counterclaim within a promissory note collection action), and attempt to negotiate to remove that language.

                Another major area of focus is counseling advisers in the mechanics and strategies of their actual transition (such as, when can I ask my sales assistant to join me at the new firm, how should my relocation announcements read, and so forth), and in negotiating the new firm’s employment agreement.  We have negotiated deals involving anywhere from single adviser $100 million asset deals to multiple member team $12 billion asset deals, and everything in between.  There is one common truth: every proposed employment agreement is negotiable, and every proposed employment agreement needs to be negotiated!

                We have witnessed some disturbing trends that counsel needs to be aware of in negotiating the proposed employment agreements.  For example, we have seen expanded restrictions in non-solicitation provisions.  We also have seen the often disfavored “non-competition” provision come in the “back-door” through various means, including non-contact provisions.  We have seen restrictions broadly cover prospects.  We have seen an expanded use of what advisers cannot do to solicit clients.  Some bank-owned financial services firms have attempted to implement “Garden Leave” provisions, which effectively are a death spiral to an adviser’s career.  Also, we have seen an increasing use of “clawback” provisions when advisers do not bring over sufficient assets to justify their up-front incentive payments.  Finally, we have seen firms attempt to restrictively define what are “qualifying assets” for purposes of subsequent incentive payments.

                As one can see, financial services employment lawyers have their work cut out for them in doing the ever more important job of negotiating for advisers in transition!


Return to Archive



Jim, Stephany and the whole team were a God send.  We felt like we were put into a situation where we had no advocate. Jim’s team came in with a strong, well laid out strategy on how to get our story heard. Where our outside compliance company had no ability to help, our Broker Dealer was impenitent, and the regulators were aggressive pursuing vague rules, Jim came like a barricade against an assault we did not understand. Though you pay member dues to be affiliated with FINRA and a B/D, you have no voice. The only thing that is truly heard in this un-level playing field is a bulldog’s bark like Jim’s. I would encourage anyone to call Jim and his team to find a real ally in the tough and complicated world of securities regulation. They are truly the best.

Greg P.


October 27, 2021
Former LPL Advisor Suspended For Completing 22 Trades Absent Client Consent

The Financial Industry Regulatory Authority (FINRA) has suspended and fined a former LPL advisor who allegedly completed 22 trades on behalf of a client without obtaining written consent. FINRA has issued a $5,000 fine and has suspended Michael Hartlett for 10 days.

October 26, 2021
Former Advisor Fails To Reverse Bar After Alleged $1 Million Theft From RBC

A former RBC Wealth Management advisor lost his bid to reverse an industry bar, according to an appellate decision issued by the Financial Industry Regulatory Authority (FINRA).

October 25, 2021
Firms Walk Thin Regulatory Line In Referring Self-Directed Clients To Advisors

While online trading platforms have surged in popularity during the pandemic, brokerage firms view self-directed investors as a source of new clients.