Your day has arrived. A prominent brokerage firm wants you… or to be more honest, your book of business. The branch manager offers you the world – a sizable up-front bonus, corner office, additional support staff, and a monthly marketing budget. All your hard work over the years appears to have paid off.
You accept the firm’s offer and transfer. You incur time and expense papering the new accounts. You get your corner office and everything else the branch manager promised you. Things look good and your future looks better. But then, something happens a few months into your employment. The branch manager retires and is replaced by a new manager who does not share the same view of your abilities. He transfers you out of your corner office to one shared with three other brokers. He pulls your monthly marketing budget and reassigns your assistants to other brokers. To add insult to injury, your new manager prohibits you from selling products you concentrate in.
Your business suffers. You fail to generate new business, and your existing clients are leaving because you cannot sell products they have come and known. You explain to the new manager what the previous manager promised and why you switched firms. You would never have transferred companies under these conditions. You feel you are talking to a wall. He does not care and has no intention to revert things back to the way they were.
You want out. Being an employee at will, you can leave the firm. However, the employee forgivable loan (“EFL”) you accepted is long gone. You remodeled your house, paid down debt and invested in your business. You justify not paying back the unearned portion of the EFL because of the way the firm treated you.
You decide to leave and switch to a new brokerage-dealer. You tell the old company to “take a hike” and that you will not pay back a cent after what they did to you. Several weeks later the brokerage firm files FINRA arbitration against you to recover the amount owed on the EFL and for attorney fees associated with bringing the arbitration.
Litigation is never a happy events in one’s life, regardless of the outcome. The best advice in the above situation is to taket steps minimizing the filing of arbitration or a lawsuit.
When approached by a firm to transfer, have them memorialize in writing their representations. The corner office, support staff, marketing budget, etc. should all be described in detail, with nothing being ambiguous. When I say “detail” consider the time frame. For example, it is unreasonable for the firm to commit to the terms until your retirement. The duration could be tied to the EFL so if the note is for five years, the corner office, support staff etc. is guaranteed for that time. If a significant portion of your business is in a particular product, incorporate the right to sell it in the agreement. For example, if you sell a lot of private placements make sure the new firm allows it. All material promises made to you should be in writing and state you are accepting the position based on these representations. If the firm refuses to put this in writing, this is a red flag. Some broker-dealers may have policies not putting any promises in writing. If this is the case, you may still want to “roll the dice” on transferring or stay where you are. If you decide to transfer, consider sending an email or letter to the new firm memorializing the promises made to you, and your reliance on these promises in switching companies.
Brokers should escrow the EFL proceeds and only withdraw the earned amount each year. This way, if you leave before maturity of the EFL, the unearned portion is available. By doing this, it allows you to make better business decisions without being “anchored to a sinking ship.”
Switching firms is a major event for a stockbroker, and many things can go wrong. It is crucial for both the stockbroker and new broker-dealer to be on the same page with expectations, promises and best efforts utilized. Always consider hiring experienced counsel to help navigate you through this process.