Launching a breakaway Registered Investment Advisor (RIA) firm is a big leap forward. Going independent is often filled with opportunities. Still, making sure your new firm operates within the bounds of fair competition is equally important.

Companies, old and new, should not practice unfair competition, or deceitful and wrongful business methods to obtain a competitive edge. When breaking away, avoiding potential claims from your former employer and other companies is crucial.

Adhering to legal and ethical guidelines

U.S. law offers a framework to protect both your former employer and your future clients. Some key legal areas to consider are:

• Nonsolicitation and noncompete agreements: Many employment contracts restrict your ability to solicit clients or colleagues for a specific period after leaving.
• Client confidentiality: You cannot take client information with you, nor can you use it to solicit clients for your new firm.
• Respecting client choice: You cannot ethically contact a client while still employed at your previous firm and encourage them to switch to you. After your departure, loyal clients can choose to follow you to your new RIA firm on their own accord.
• Taking only permissible materials: Only take nonconfidential materials when leaving. Your former employer typically owns client files, internal documents and marketing materials with proprietary information.
• Marketing with transparency: Make sure your marketing materials are truthful and do not disparage your former employer. Instead, highlight your unique qualifications and the value proposition of your new firm.
• Building your new client base: Network with potential clients through industry events, referrals and content marketing that displays your expertise. Do not engage in misleading advertising or poach clients through deceptive tactics.

Violating any of these can lead to a lawsuit. The court may order liable companies to change their practices and even pay penalties and damages to the complainant.

Striking out on your own

Building trust and a strong reputation for your breakaway firm takes time. Still, adhering to all the legal and ethical guidelines will serve you well in the long run. If accused of unfair competition, consult an attorney focusing on RIA law for specific guidance on your situation. They can fight for you and protect your new firm's prospects.