Steven J.
Insel

Adviser Transitions

How poor planning and mistakes can lead to disastrous career moves (Part 2 in a series)

The Hiring Boom Is Back—But Don’t Get Distracted from the Essentials

In a prior article, I discussed the new recruiting boom for financial advisers and how mistakes made in the beginning of the process can come back to haunt you, lead to potential litigation or even make it very difficult for you to leave your firm.

Besides making sure you don’t get caught, you need to avoid violations of privacy regulations, confidentiality and trade secret agreements, restrictions on solicitation, and the “employee’s duty of loyalty” when you begin the interview process with another firm. I also discussed the need for you to analyze documents you may have signed at both your old and new firm, the terms of your deferred compensation plans and whether you will have problems with automatic transfer of your State registrations. I also discussed consideration of your various alternatives prior to beginning the process. Here we will cover the process for successful adviser transitions that I have developed over the past several decades of moving hundreds of top-producing advisers.

There is no right place to go for everyone, nor is a move necessarily the right thing, even for some huge recruiting package. The critical issue is, to the extent reasonably possible, to be fully informed, to have everything important properly documented, to avoid unpleasant surprises when you arrive at a new firm and to have the best contract you possibly can from your new firm.

The Process

After you collect your documents and review the things you must avoid during the process, I break down the critical areas as follows: (1) determining Recruiting Protocol status; (2) reviewing portability of assets; (3) issues regarding economic terms; (4) issues regarding other contract terms; (5) due diligence and documentation; (6) logistics of the actual move; and (7) post-move issues, including benefit conversions, tax planning and disputes with your prior employer.

Restrictive Covenants and the Recruiting Protocol

Anything can go wrong at any firm. There is no way to guarantee with certainty that you will not find it intolerable to stay. Your basic last-resort protection is your ability to leave and take your clients. There are contract provisions and State laws that can restrict your ability to do that. If you go anywhere, it is important to know the extent to which you will have significant impediments to leaving if the new job does not work out. And, it is critical to know what your current employer can do to make your move more difficult, as mentioned in the last installment in this series.

The Recruiting Protocol is an agreement signed by hundreds of broker-dealers and investment advisers. Under the Protocol, if you move between firms that are both signatories, you may take your customers’ basic contact information with you and non-solicit restrictions will not apply to those clients. The Protocol has a number of conditions and limitations that must be followed. Find out if your firm is a signatory to the Protocol and if the firms you are talking to are signatories. It may not be a determinative issue by itself, but it is important to consider.

It is critical to remember that any firm can resign from the Protocol without notice. You should not ignore dealing with restrictive covenants and other such items that could restrict a future move just because a firm is a signatory to the Protocol. You need to see everything you will sign --and sign for--at a new firm. Restrictive covenants can be buried anywhere, or they can be presented to you in a document only after you arrive at your new job—terms you knew nothing about before joining the new firm.

It is important to have some basic understanding of the laws of your State. In some States, restrictions on solicitation are strictly enforced, while in others, restrictions may be relatively ineffective. In some States the restriction known as “garden leave” is enforceable; in others it is not.

While disputes will generally go to FINRA arbitration (if you are employed by a broker-dealer) after an initial attempt to obtain a restraining order in court, the initial issues in a court will generally involve the law of the State where you are employed, with some exceptions. The importance of the restrictions you are subject to now, and will be subject to at a new firm, may be somewhat more or less critical depending on the State where you are employed.