From the financial advisor`s perspective, this rise of non-competitive and non-competitive RIA employment contracts is a big challenge, as it means that when you start and build your career and client base in a company and decide to leave, you have to start from scratch and leave your clients behind. Especially if it`s a non-solicitation agreement, as these are the most enforceable in most states and almost by definition, it means that if you leave, you can`t ask customers to come with you. And while it`s possible for some to follow you if you have a good relationship with them and it`s just non-advertising and not non-acceptance, be prepared for the fact that the company will put hardcore pressure on those customers to stay with the company when you leave. According to the protocol, a broker whose new and old companies are both signatories is generally allowed to share certain limited customer information with the new company, including name, address, phone number, email address, and account title for each client they personally served in the old company. Before receiving such information, the broker must provide the company he disagrees with a written letter of resignation and a list of the clients he wishes to keep. By complying with these Terms and not violating other legal obligations, such as laws. B prohibiting the theft of trade secrets, brokers are protected from prosecution for violating non-solicitation prohibitions and/or non-disclosure agreements relating to these clients. This created an uncomfortable situation for everyone involved: senior advisors who had not anticipated the desire to leave Merrill or continue to work beyond the agreement; and next-generation heirs, many of whom are family members who didn`t foresee that they would have to decide whether they should do their best for the business or whether they were loyal to the person who built it. It is important to realize that there are in fact some differences in the types of restrictions relating to the working arrangements of the RIA. They are not all the same. There are basically three basic types used in most RIA employment contracts. But ultimately, the most important thing you need to realize is that if you work in a consulting firm, you need to know what your employment contract actually says, and consider the conditions and their implications for whether you need to start over before you leave.
And because labor law is a state-to-state affair, advisors who are concerned about restrictions in their employment contracts really need an employment lawyer in your state to determine whether a particular non-compete code or non-publicity ban is enforceable at all! And you can`t intervene because intervening would violate your non-solicitation agreement. You have to wait and hope that they find their way to you, or as happened in a relatively notorious case, the consultant actually bought an advertising poster on a main street in the city to advertise his new business after leaving his old business because he knew that most customers would drive on that highway. Technically, he did not recruit these clients. He just made a wide billboard to announce his new business to the entire audience in an open forum that also informed his former customers as well as tens of thousands of others, meaning that many of the former customers he wanted to reach understood the message. After choosing to retire from competitive recruitment more than a year ago, Merrill has instead doubled the retention of its current workforce, and the constraints inherent in the PTC are an example of this. And based on the feedback we hear from Merrill consultants and lawyers familiar with the deal, the firm seems more convinced than its Wirehouse counterparts to retain the best producers for the duration of their careers. The first type of restrictive agreement in an employment contract is a “non-compete obligation”. A non-compete clause states that if you leave the consulting firm, you cannot continue to be a financial advisor to another company – or your own company – if it competes with your previous company. In other words, when you leave, you can no longer be a financial advisor. Fortunately, such comprehensive non-compete obligations are generally difficult to enforce in practice and, in many States, are absolutely unenforceable. That being said, however, some states allow stricter non-compete obligations, for example. B by limiting yourself to being a financial advisor to another business located within 20 miles of your current business.
Although, unfortunately, not all non-compete obligations are enforceable, this has not deterred many RIAs from including non-compete obligations in their employment contracts, as not all consultants realize that the non-compete obligation may not be enforceable in their state, and many consultants do not have the financial means to combat the non-compete obligation and prove their case. The company is therefore getting away with it. The third type of agreement that exists in some AIR employment contracts is called “non-acceptance”. A non-acceptance agreement is essentially an extended version of a non-solicitation agreement. The non-prompt reads, “Here`s a list of customers you can`t refer.” An unrecognized person says, “Here`s a list of customers you`re not allowed to accept, even if they contact you in an unsolicited way.” In practice, these are less common in the RIA sector because, like far-reaching non-compete obligations, they cannot always be enforced in court when challenged. Nevertheless, it is an issue that varies from state to state. And some RIAs include a non-acceptance clause in their non-solicitation agreement, simply in the hope that the advisor won`t realize that it may not be valid and/or that the advisor won`t be able to fight it. You can pray that it doesn`t get ugly, but if you leave your company and plan to take on customers, read your employment contract carefully.
Let a lawyer understand what is really enforceable, how much in your state, and treat it as if it were a contentious issue. And then pray that it doesn`t turn out to be chaotic because, as Alan`s previous story shows, it`s better to be prepared in advance than to leave, find out while you leave, find out it`s not going well, try to intervene to save your customers, and then find out that you`re being beaten with a cease and desist letter and a lawsuit for violating your non-solicitation agreement. In other words, with a non-competition clause, you could fight it and bring it down. However, be much more careful if you violate non-advertising. In particular, a non-solicitation obligation doesn`t really mean you can`t work with your former clients. It just means you can`t ask for them. So you can`t reach them after you leave and ask them to continue working with you. You can`t contact them to tell them you`re starting a new business or suggest they work with you. It`s a prompt, because the fact is that you can`t ask for it. “The consultants I have advised are often shocked to learn of the existence of these regulations.
And we find that Merrills [CTP] is more expensive for the senior advisor because of this non-competitive component than the retirement plans of other companies (like Morgan Stanley or UBS),” Lewis said. “While non-compete obligations are usually unenforceable in the securities industry, in this case it is because they are part of a pension contract. But at least that means that as a financial advisor working with a consulting firm, you need to know what your employment contract actually says. Is there a non-compete obligation? Is there a non-solicitation? Does non-advertising have a non-acceptance requirement? If it`s important for you to take clients with you, is it legal to do so? If you need to, you should hire an employment lawyer to review the agreement. Pay an hour for an expert`s time to clarify what your agreement really says, whether it is actually binding, whether it is enforceable, and what rights you have as a consultant. Because labor law varies from state to state, and that means you really need a lawyer in your state who knows labor law and non-compete laws and non-poaching products in your state, because – and I can`t stress enough – the rules vary from state to state. What do you think? Have you ever left a company with a non-competition clause or a ban on non-advertising? Are these employment contracts becoming more and more popular in the consulting industry? Do you think these types of agreements are “fair” for new consultants? Please share your thoughts in the comments below! The third type of agreement that exists in some RIA employment contracts is called non-acceptance. .