Thinking about making a career change and switching firms? Your thoughts about wanting to switch firms or even opening your own shop are not uncommon. There may be various reasons why making a change may be in your best interest. Before doing so, however, there are some legal and professional considerations with regard to your clients that deserve your attention.
When determining whether to change firms, the question of whether it is in your clients’ best interest should be part of the equation. Building your client base and meeting their needs is crucial to your overall success as an adviser. Thus, you should have an understanding of the culture and environment of the new firm and analyze how these may or may not be beneficial for your clients before deciding to jump ship. For instance, if you have a business that is heavily concentrated in certain products or if you are considering expanding the products you offer, make sure the firm can offer the support you need. You should also consider if there is a change in the fee or commission structure at your new firm and whether it will cost your clients more to move their accounts. Will some of your clients have to sell any portion of their portfolio in order to move? These are questions you will need to answer before making a decision.
If you do decide to seek employment with another firm, you’re probably wondering how to inform your clients. This area can get murky. You should thoroughly review the contracts you signed with your current employer. It is likely that these agreements govern your rights upon terminating your employment. For instance, many employment and independent contractor agreements and contain clauses that prohibit an adviser from soliciting clients, or even other co-workers from moving their accounts or joining you at your new firm. You may also be prohibited from informing your clients that you are joining a new firm or taking any information about your clients to your new firm.
If you are a registered representative, find out if both your current firm and the firm you are seeking employment with participate in the Protocol for Broker Recruiting. This program is administered by SIFMA and seeks to “further the clients’ interests of privacy and freedom of choice in connection with the movement of their Registered Representative between firms.”
If both firms participate in the Protocol, reps may take only the following account information to his or her new firm: client name, address, phone number, email address, and account title of the clients that they serviced while at the firm (“the Client Information”) and are prohibited from taking any other documents or information. Reps must also submit written resignations to local branch management and must include a copy of the Client Information that the rep is taking with him or her and include the account numbers for the clients serviced by the rep. If you’ve complied your own information or notes about your clients during your career, taking this information with you is a common Protocol violation which could potentially lead to legal proceedings. Remember that these rules only apply if both your current firm and the firm you are moving to belong to the Protocol.
If both firms do not participate in the Protocol, then look to your employment contract to see what restrictions may be placed on informing and soliciting customers. These prohibitions could create a dilemma for advisors. Even if there are no restrictions in your contract you should still consider the possible implications of alerting your clients about a new position. From a legal standpoint, the most protective measure is likely not informing your clients that you are jumping ship, but is that the best decision professionally? Clients may be confused upon learning about your departure and unsure of the circumstances surrounding the departure which may cause them to speculate and possibly resist moving their accounts to your new firm. Some clients that you maintain close relationships with may feel offended that they were uninformed of your career choice. Thus, if there is not some sort of contractual bar to letting your clients know you are switching firms, it’s probably best to inform them.
If you do decide to tell you clients that you are accepting a position with a new firm, you should almost never tell them of your plans until your current employer is informed. You do not want to risk your employer finding out about your departure before you are ready to tell them. When you do let your clients know about your opportunity, be sure to explain why the move is in their best interest and never say anything disparaging about your current employer even if your departure was the result of a tumultuous situation. Be ready to inform your clients about any changes in the fee or commission structure, or any change in their portfolio that would result from moving their accounts. Make a point to emphasize the benefits but always give your clients the material information they need to make an informed decision.
If at any point during your decision making process you are unsure of what restrictions are contained in your employment agreement, or the requirements of the Protocol, contact an attorney to assist you in understanding your rights and protect yourself during your transition.