As I indicated in my previous column on the subject of transition planning for advisors (“Hold On to Your Clients”), this month I am calling upon the expertise of my partners, Thomas B. Lewis and Brian A. Carlis, to address specific issues that investment professionals must deal with when considering a career transition. For years, Tom and Brian have successfully addressed these issues for broker/dealers, investment advisors, and individual investment professionals throughout the country, including NASD registered representatives considering a transition from a broker/dealer to a registered investment advisor, and, to a lesser extent, an existing representative of a registered investment advisor leaving to start his own firm. I asked Tom and Brian the following questions, and they replied together in writing.
I am thinking about leaving my current job as a financial advisor to join another company. I plan on changing to a registered investment advisor. What should I do? What should I be thinking about?
There are many issues to be reviewed before making a decision to leave your current employer. Experienced counsel should be consulted. Every case has similarities, and every case has differences. Counsel needs to be experienced with trends in the industry and with the nuances of each company, but there are many typical questions.
First, how long have you been employed? Did you start at your current firm or did you leave an existing position with a book of business transferring over to your current employer?
Second, when you joined your current employer, did you sign any type of a restrictive covenant agreement, non-solicit agreement, or confidentiality agreement?
Third, what, usually, does your current employer do with a departing advisor?
Fourth, have you recently signed any promissory notes, received any retention bonuses, or do you have any trading errors that you would be responsible to pay if you leave your current employer?
Fifth, do you have good reason to believe that if you leave your current employer, the majority of your clients will follow you to your new employer?
Sixth, are there any other employees at your current firm that you desire to join you at your new position?
Seventh, what information do you need to successfully transfer your clients to your new employer?
Finally, are you emotionally and financially prepared for the transition?
Let’s talk about the first issue–the length of your employment. Why is that important?
The main reason has to do with your book of business. If you were a seasoned advisor when you joined your current employer, you likely brought a clients with you. In many cases, the book of business you bring into your new employer may be able to leave with you if you depart. There is also case law saying that accounts brought into an employer may be available to depart with you, should you choose to leave. Additionally, questions may exist as to the company itself. Many companies have undergone name changes over the last twenty years–some more than once. If you joined the firm twenty years ago, it may have had a different name. There may be legal issues if you signed an agreement with the predecessor of the firm and the agreements have not been updated.
I do not remember if I signed a restrictive covenant. What should I do?