Break Away From The Pack

Is it smart to hire employees from your previous firm?

On Behalf of | Jun 27, 2024 | Employment Matters, RIA Formation |

A successful business often requires a strong team. This also applies to advisors looking to build a breakaway firm. A natural first thought might be to hire former colleagues at your previous company. This move has advantages and disadvantages, which you must carefully consider before extending offers.

Familiarity can breed efficiency

Recruiting your former co-employees comes with some advantages, such as:

  • Existing relationships: They already understand your investment philosophy and service model, so their onboarding process and integration into your new firm should be smoother and quicker.
  • Proven track record: Having previously worked with them means you know firsthand the quality of their work ethic and skills. This can reduce the risk associated with bringing in unknowns.
  • Client familiarity: If your former colleagues worked directly with clients, they may bring valuable established relationships to your new firm. This can jumpstart your client base.

Hiring your former co-workers may be a strategic move if you want to hit the ground running, especially if you expect to handle former clients.

Legal concerns to consider

There are, however, legal hurdles and ethical concerns to note before deciding. For one, many employment contracts contain non-compete clauses that restrict post-employment activities. These clauses were banned recently but it can prove vital to take another look at your old job’s employment contract.

Even without a non-compete, there is a fine line between passively allowing former colleagues to bring clients and actively soliciting them. Some states have laws prohibiting actively soliciting clients from former employers. Moreover, client information gleaned during your tenure at the parent firm is often regarded as confidential or a trade secret.

Violating these agreements can lead to legal repercussions. It is highly advisable to consult an attorney to understand the specifics of your and your colleagues’ contracts.