Articles Posted in For Brokers

Morgan Stanley, UBS and Citigroup recently left the Protocol for Broker Recruiting (“Protocol”), which established procedures allowing advisors to switch firms and bring their clients with them. The Protocol helped protect such advisors from legal liability to their old firm for soliciting clients and using certain client information, provided the Protocol was followed. It remains to be seen how many other major firms will follow suit. But for advisors employed by the above firms and planning to move, this significantly alters the playing field, making them legally vulnerable for taking steps to move their business that were protected under the Protocol. Advisors planning to move from firms still subject to the Protocol need to take into account that by the time they leave, their old firm may have withdrawn from the Protocol. In either event, careful planning and legal advice every step of the way is crucial.

Unlike a typical Protocol move, advisors at non-Protocol firms now have to budget for possible court litigation, in which their old firm would seek to obtain an order precluding them from soliciting clients and from using or removing client records or information. Generally speaking, under the Protocol advisors are allowed to take client lists containing certain limited information and to solicit clients once they move to their new firm. Without the Protocol, a major legal factor governing transitions will be the advisors’ employment agreements with their old firm, which often broadly restrict solicitation of clients and other firm employees, and the use or removal of client or firm confidential information. There is also legal precedent imposing liability under common law and state statutes for conduct constituting unfair competition and theft of trade secrets.

Such court litigation, while often of short duration, is expensive. It requires the parties to appear for an evidentiary hearing before a judge on a expedited schedule usually not much longer than a couple of months. This means the lawyers typically work almost around the clock to be prepared for the hearing. After resolution of the court proceeding, the dispute may continue in FINRA arbitration.

A Miami-based FINRA arbitration panel has ruled that two former financial advisers of Barclays do not have to repay a total of over $3.8 million allegedly owed by them pursuant to promissory notes executed in connection with signing bonuses, despite the fact that they left the firm.

According to a recent report in the Wall Street Journal http://www.wsj.com/articles/two-ex-barclays-advisers-can-keep-big-bonuses-1424700638, the brokers, Ileana Delahoz Platt and Rafael Enrique Urquidi, joined Barclays in 2012 and received signing bonuses in the form of “forgivable loans”, which is a customary practice in the industry. These loans, evidenced by promissory notes, are typically forgiven over time provided the employee remains employed with the firm. However, shortly after Ms. Platt and Mr. Urquidi went to work at Barclays, the bank eliminated its business in the market where their clients were located, and, according to their attorney, the advisers could no longer service many of their clients, obliging them to leave the firm to seek out other employment.

In the FINRA arbitration proceeding, Ms. Platt and Mr. Urquidi sought compensatory and other damages, as well as a declaratory judgment that any amounts due under their loan agreements would be offset and that they would owe nothing under the promissory notes. Barclays, in a counterclaim, requested compensatory damages against the two advisers in the amounts it claimed were due and owing on the promissory notes at the time they left the firm.