Break Away From The Pack

Your employer can seek a repayment of your note if you leave

On Behalf of | Apr 24, 2024 | Practice Migration |

It’s a huge career move to break away from a large wirehouse or Registered Investment Advisor (RIA) to start your own firm. As you make this transition, you may be surprised when your employer asks you to repay your signing bonus. You might wonder, “What? They can do that?” Unfortunately, the answer is yes.

This can be a major concern, especially if the repayment amount is large. A common question is whether you must repay the full or net amount.

Do I have to pay it in full?

When you join a firm, you might receive a signing bonus as an incentive. While this bonus is yours to keep, it’s typically structured as a loan, often referred to as a promissory note. The firm usually structures this loan so that you don’t have to repay a certain amount of it as long as you stay with the firm and meet specific performance targets.

Take this situation, for example. Your signing bonus was a loan of $200,000. You get to keep $50,000 of the loan each year you stay with the firm for up to four years.

However, if you decide to leave after two years, your employer may require you to pay the remaining balance of the loan, which would be the outstanding $100,000, not the net amount you received after taxes were withheld.

Since you only fulfilled half of the loan’s terms, you may need to negotiate with your employer about repaying the remaining balance.

Make the jump with a repayment strategy

Transitioning as a broker in a large wirehouse while building your own firm can be complex. The strategy for making this jump involves multiple steps. These often include setting up your firm and negotiating a repayment strategy with your soon-to-be former employer. Being mindful during this process is crucial to avoid costly disputes or litigation.

However, navigating it on your own can be complex, especially while preparing for your next move.

Seeking a legal professional can be beneficial in these situations. They can help you develop an exit strategy and negotiate repayment amounts and schedules on current promissory notes that align with your new business plans.