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Hightower brings the case based sole- promise not to do certain things [and/ He argued it’s possible that
ly on the misappropriation of trade or] you only do certain things, regardless “Hightower will cripple their recruiting
secrets — although I have seen these of what your contract says, we’re not efforts going forward because trying to
types of cases brought in desperation. going to sue you,” Concilla explained, sell an environment of business confine-
“Typically, we see either 1- or 2-year adding advisors can join the Protocol in ment is a tough sell.”
restrictions against competition and addition to brokers; in fact, most mem- After all, “our industry is a small
contacting and soliciting former cli- bers are now advisory firms. world and word gets around quickly
ents,” he said. If an advisor or broker backs up a truck with unintended consequences to those
But Schatzow pointed out: “Every to the firm’s office back door and takes that try to impose limits on advisors’
business is different and there really all the clients’ documents, like in a case independence,” he said. “Freedom, as
isn’t any industry standard. Large firms he had several years ago, “that’s going in much of life, always attracts, while
and small firms alike take steps to to be illegal” regardless of what the con- those that impose constraints on free-
protect their businesses. For firms that tract says, with or without the Protocol, dom eventually lose their audience.”
believe in using restrictive covenants Concilla said, adding, “Every company But, “instead of mandating rules or
to protect their business, they need to has a right to protect its property.” regulations on such matters, I prefer
look to state law to see what the the free markets to let the best
law permits.” Too many advisors and ways to operate a business rise
Although Hightower crit- to the top,” he said. “Let RIAs
ics argued that such restrictive brokers don’t read the and broker-dealers do as they
contracts should be abolished, wish, such as Hightower hin-
Schatzow said it was more terms of the contracts they dering their advisors’ ability to
complicated. leave, and let them experience
sign or even know what the the repercussions.”
THE BROKER PROTOCOL
Schatzow and Dennis Concilla, exact terms are when they A LINKEDIN LOOPHOLE?
a lawyer at Carlile Patchen & join a firm. This issue is “why every finan-
Murphy, where he heads the cial advisor should make sure
firm’s Securities Litigation and that they’re connected to their
Regulation Practice Group, both point- ISN’T IT IRONIC? clients on LinkedIn,” Crystal Thies,
ed out that the Broker Protocol was Recruiter Jon Henschen, president of a LinkedIn trainer, said recently on
designed to provide advisors more free- Henschen & Associates, says he has the platform in response to comments
dom. However, not every firm is a mem- discussed the Hightower case with made by Penny Phillips, president
ber of it. If an advisor’s firm is not a other recruiters. and co-founder of Journey Strategic
member of the Broker Protocol, it can’t “We all agreed that this advisor likely Wealth. Thies argued this would serve
be used as a defense by the advisor if a skimmed over the contract, which is as a loophole for advisors.
case goes to trial, they said. very common,” he told Investment But Concilla laughed at that argu-
Carlile Patchen & Murphy’s web- Advisor. “Advisors will think, this is the ment, saying it may serve as a loophole
site features a Broker Protocol search last place I’m moving [from], so they in some cases, but “it’s not all that effec-
engine. Hightower was listed as a simply skim over the contract and not tive either.” For one thing, many people,
member of the Protocol, according to a look at the details.” like him, don’t like using LinkedIn (even
search, while Policar and NGP were not. In cases like this, it’s the advisor or when they are, like him, a member of the
However, Hightower left the Protocol broker who is at fault, he said. social network).
in 2019, a company spokesperson told However, “the irony of this of course In many cases, companies have sued
Investment Advisor. is wirehouse representatives join a firm over this, alleging it was the equiva-
The Protocol was intended to like Hightower,” which previously tar- lent of solicitation, he said. Also, an
decrease the number of legal disputes geted wirehouse reps, “to gain greater advisor’s LinkedIn account and email
just like this one, Concilla said. It has freedoms in how they operate their busi- often are controlled by the firm they are
achieved that but there are still many ness yet we see Hightower incorporating working for and can no longer be used
cases like this anyway, he noted. similar tactics to the firms their advisors after the advisor has left the company,
In essence, the Protocol says, “if you left, wirehouses,” Henschen said. he added.

APRIL/MAY 2022 INVESTMENT ADVISOR 19