Becoming a breakaway RIA is a big decision. Consequently, it is vital to fully understand what this move entails.
Perhaps among the most crucial considerations is the terms of your contract. A breakaway that follows without a comprehensive understanding of your contract could result in legal issues further down the line. As a result, exploring the potential clauses contained within your RIA contract warrants further consideration.
Non-solicitation clauses
A non-solicitation clause could significantly impact the best way to go about your transition. For example, the terms of the clause may restrict your means of attracting prospective clients and employees. Additionally, a non-solicit clause will typically prevent you from recruiting any person from the original firm unless you knew them before joining.
Furthermore, you may wish to take the selection of clients that you have built up over the years with you into your new venture. There is a significant chance that a non-solicit clause would prevent you from doing so.
Non-compete clauses
The specific characteristics of non-compete clauses can vary from state to state. However, they do typically share the common principle of preventing you from aiding competitors. Non-compete clauses can contain very specific terms, which means they are more likely to be enforced. Occasionally, non-compete clauses are less specific, which means legal enforcement may be problematic.
The general motivation for a corporation to impose non-compete clauses is so that they do not invest resources into an employee only for them to utilize newly learned skills only to assist a rival company. Understanding the elements of your contract could be in your best interests. As a breakaway RIA, it is important to note that you have legal rights and protections.