Break Away From The Pack

Avoiding a poaching suit for your breakaway RIA

On Behalf of | May 10, 2022 | Financial Industry Dispute Resolution, RIA Formation |

An increasing number of financial advisors are making the leap toward independence by leaving their firm or bank to hang their own shingle. When they do this, the success of their new venture often depends upon how many clients they are able to attract after they make the leap – and how quickly. Ensuring that you do this properly is critical in order to minimize the chances of a lawsuit that could devastate your new firm before it fully gets off the ground.

Review your employee contract

The clients that you worked with at the bank are the bank’s clients, not yours. Nothing is stopping those clients from freely choosing to follow you to your new firm. However, you can land in hot water by improperly soliciting those clients away from your former employer.

Carefully review the employment contract that you signed with your former employer. It likely contains restrictions concerning privacy and protocols for dealing with client information, and possibly even restrictions against doing business with customers for a certain amount of time after your departure. In some cases, even contacting a client using their contact information that you obtained from your old employer’s records could be a violation of your agreement and company policy – and could open you up to suit.

Be aware of your employer’s membership in the Broker Protocol

If your former employer has signed onto the Broker Protocol or a similar accord, you should be aware of the covenants that they have agreed to concerning brokers leaving their firm and the types of client information they are allowed to take with them. This information can help you in two ways.

First, it can give you a defense to use against any accusations of improper poaching of clients. Second, it can make you aware of the exact guidelines that you must stay in to avoid a lawsuit, since lawsuits can come even to well-meaning brokers who inadvertently violate a covenant.

Your new venture will have its fair share of challenges ahead even without being bogged down in a lawsuit early on. It’s worth the extra time and care to avoid giving your former employer an easy excuse for bringing such a suit.