Page 20 - Investment Advisor April/May 2022

RIA LESSONS & LEADERS

By Jeff Berman

The Big Mistake That Leaves Advisors

Open to Lawsuits

Too many brokers and advisors skip a crucial step when joining a firm,

legal experts like Brian Hamburger say.

fter Hightower sued a break-
away advisor in December
A on accusations he broke an
agreement protecting client informa-
tion, advisors and other industry lead-
ers criticized the firm for using what
they deemed a wirehouse tactic. But in
recent years, an increasing number of
RIA firms have filed similar suits, legal
experts told Investment Advisor.
Too many advisors and brokers don’t
read the terms of the contracts they sign
or even know what the exact terms are
when they join a firm, they said.
One big mistake is that advisors
“almost never” have a lawyer review a
contract from a financial services firm and aren’t reviewing the business terms The agreement restricted Policar
before signing it, according to Brian before accepting a job, he said. from contacting Hightower clients for
Hamburger, CEO and president of Advisor/broker Michael Policar 12 months following his termination,
MarketCounsel and chief counsel of the “stole Hightower’s confidential and according to the complaint, which said
Hamburger Law Firm. proprietary information, trade secrets, he contacted Hightower clients exclu-
and solicited Hightower clients for the sively by phone “in order to avoid leaving
NOT JUST FOR WIREHOUSES ANYMORE benefit of his newly created compet- a paper trail of his wrongful behavior.”
It used to be that wirehouses were ing company,” NGP Financial Planning, Policar denied that he breached his
responsible for most cases in which Hightower alleged in the complaint filed agreement with Hightower.
financial services firms sued brokers in U.S. District Court for the Northern
who left and attempted to take cli- District of Illinois. ‘RESTRICTIVE COVENANTS’
ents with them, Hamburger told As part of an agreement he signed This type of legal dispute is “extremely
Investment Advisor. with Hightower, Policar “promised prevalent in the industry,” according to
“But, as market share has shifted, we to safeguard confidential information Max Schatzow, partner at RIA Lawyers.
are seeing a commensurate number of and take precautions to prevent the “Most employers in this industry still try
cases within the independent side of disclosure and improper use of con- and protect their business and their cli-
the securities industry, and that makes fidential information,” the complaint ents through restrictive covenants and
sense,” he said. said. However, “Policar failed to safe- when employees violate those restric-
Meanwhile, the specific terms of guard Hightower’s confidential infor- tive covenants, we oftentimes see litiga-
each financial services firm contract mation; Policar violated Section 3(c) tion,” he told Investment Advisor.
with an advisor or broker vary signifi- of the agreement when he used such If Policar was located in California
cantly, Hamburger said, adding there confidential information for improper instead of Illinois, “there is likely no
are always some restrictions placed on purposes and to his advantage, there- case,” said Schatzow, noting California
advisors. “Yet, way too often, advisors by harming Hightower,” according to “doesn’t recognize agreements not to Adobe Stock
just sign what’s placed in front of them” the complaint. solicit clients and it is unlikely that

18 INVESTMENT ADVISOR APRIL/MAY 2022 | ThinkAdvisor.com