Break Away From The Pack

Will restrictive covenants stop you from starting your own firm?

On Behalf of | Sep 27, 2022 | Practice Migration |

There are always risks when you decide to form a newly registered investment advisor (RIA) entity. You may have a hard time bringing in clients, and you may work much longer hours than you do as a salaried employee at someone else’s business. 

However, if your efforts prove successful, breaking away to start your own firm could mean that you multiply your income several times over and ultimately have far more control over what clients you work with and how you perform your job. 

Will the restrictive covenants in your current employment contract prevent you from starting your own RIA entity? 

Your contract and location will affect your options

Every state has its own rules related to restrictive covenants. For example, in California, the courts typically will not enforce non-compete agreements. Employers sometimes protect themselves from such rules by including multiple different kinds of restrictive covenants in their contracts. 

Non-compete agreements can apply when you start your own breakaway firm. Non-solicitation agreements might prevent you from reaching out to clients or coworkers that you know from your current job. If you are subject to such agreements, you may need to sit down and review them carefully to determine your next step. 

Not all contracts are enforceable

Maybe your employer came to you on a Thursday afternoon and had you sign a new employment contract. That agreement in theory limits your ability to start your own firm. However, if you received nothing of value for making those concessions, the contract may not hold up in court. 

Similarly, if your employer did not appropriately limit when and where they can enforce the agreement, it may not actually be enforceable in civil court. Understanding contract terms that can limit your opportunities will help you as you start considering the creation of your own RIA entity.