Earlier this week, Danny Sarch wrote an article for the "From the Headhunter" column over at InvestmentNews.com, entitled "Why Every Adviser Needs a "go Bag." The gist of his column is that financial advisors need to be ready to shift gears and go to a new firm in case something happens at their present firm. This means, according to Mr. Sarch, that they understand that their retention bonus agreement is not a fixed-term employment contract, that they maintain an updated production list, that they have a "protocol spreadsheet" with client contact lists up to date at all times, and that they have personal cell-phones/communication devices separate from their broker-dealer. The author likens these steps to a spy having a "go bag" ready with extra passports, cash, and weapons, ready at a moment's notice in case it is needed.
For several years in college, I was a volunteer firefighter/emergency medic, and I'm quite familiar with having your gear ready to go on a moment's notice. I get the analogy. I also think that Mr. Sarch is on to something here, and makes some good points. But I disagree somewhat with his recommendations, and also think that his list is not complete.
1. Yes, the Headhunter is right that retention bonuses/recruiting bonuses are typically never employment agreements. These deals almost always give the firm, and the broker, the opportunity to leave or be fired at any time, regardless of whether the broker has worked off the recruiting/retention bonus or still owes the firm money under promissory notes that were signed. But while the bonus/promissory note papers are important, they take a backseat to your registered rep. agreement. You need to make sure that you keep a copy of your signed registered rep. agreement (hat might include any covenants not to compete, not to solicit, etc) so that you and your lawyer can review it to determine what your rights and obligations are when you and your firm part ways. I can't tell you how many times I've spoken with reps. who have no copy of their rep. agreement, and have no idea what they have obligated themselves to under such a document. It is important, so keep a copy. You also need copies of the promissory notes/retention bonus paperwork too, but there will be time to deal with that later after you've landed and started moving your business.
2. Having a updated production run can be good when you are discussing potential employment with a new firm. But you must be cautious. Under industry rules, including Regulation SP, you have obligations to maintain the confidentiality of certain client information. Before you go passing along a production run to a new prospective firm, make sure that you can do it without violating the rules.
3. LIkewise, any spreadhseet you maintain that has client information, including information that falls within the protocol for broker recruiting, must not used in violation of industry rules and regulations, including Regulation SP. Just because it may meet the standards of the broker protocol does NOT mean it meets the standards of the regulation, or that you can take it from one firm to another. The SEC has proposed revisions to Reg. SP that would be more favorable in these situations, but has not yet adopted such revisions. Many brokers have been the subject of disciplinary action by the regulators for misuse of client information when they moved from one firm to another. Don't be the next broker charged with a violation for this. Consult with your lawyer and with your new firm's compliance folks as to what you should and should not do. (Also, understand that there have been some regulatory actions against firms as well for client info. privacy violations, so your new firm has something at stake to make sure you are following the rules.)
4. Having personal communication devices separate from your broker-dealer is also a good idea. But I'd go beyond cell phone service and include email service as well. Brokers should understand that if they access non-company email on a company computer, their data may be at risk, and it may be subject to monitoring. Discussing a possible firm change with another firm through a gmail account on your company computer is not a bright idea, unless you want to tip off the world about what you have in the works. BUt be wary of using any personal email accounts to communicate with clients, especially about securities business. That can also be quite problematic and can cause problems for you with your firm and the regulators.
The Headhunter's takeaway to "Be Prepared" is indeed good advice. But being prepared to protect yourself and get help from professionals in even better advice. You've potentially got a lot at stake when you change firms, whatever the reason, so do it right. Consult with compliance and legal folks so that your transition will be as smooth as possible, and that you won't become the next subject of a regulatory investigation and disciplinary action.
Joel Beck, a former securities regulator and founder of The Beck Law Firm, LLC, helps brokers protect their #1 investment, their careers. If you have a legal or compliance need, contact The Beck Law FIrm, LLC to see if the firm can help you.