Avoiding Firm Transition Disputes as a Financial Advisor - How to Stay Out of FINRA Arbitration

So after years of being at a firm you decide to seek out the next big sign on bonus check and seek out a new firm to do it. However, besides having access to your own clients who you brought to your current firm or even clients you developed at your current firm, you realize you have access to hundreds of other client records all with a net worth of over 1 million dollars with hundreds with over a 1 billion in invested assets. Clearly such records would be a gold mine for another firm, so you consider using such access as a method to parlay that into a much larger sign on bonus at a new firm. Generally, this is a very bad idea and would likely get you sued by your current employer for violating confidentiality agreements, violating trade secret prohibitions, unfair competition, potential breach of non-compete agreements you may have originally have signed, a breach of your duty of loyalty and other causes of action. This is not a hypothetical, but rather according to the NJ Law Journal of June 18, 2015 a real world legal action filed just last month by Fidelity in the Federal District Court of New Jersey against a former Fidelity financial advisor who went to Wells Fargo and allegedly utilized such to parlay it into a 1 million dollar upfront bonus from Wells Fargo. Fidelity is seeking an injunction from the Court to stop the solicitation of the subject clients and an order compelling arbitration of the dispute before a panel of the Financial Industry Regulatory Authority (FINRA) which presumably would seek substantial damages.  According to the NJLJ the law suit alleged:

"In a three-month period before he resigned, Carson used Fidelity's computer system to look up data on hundreds of customers, with most of the searches conducted after 6 p.m., the suit said."

If true it does not look good for this former Fidelity Rep. Every rep should know in this day and age, everything one does on a computer system is monitored and will catch up to you sooner or later. In our view, considering the legal action, although it is unclear how much Wells Fargo knew about what this representative was doing in bringing over his supposed clientele, it was not worth the 1 million they paid him upfront, and if so we wonder how many days this representative will last at Wells Fargo before being dumped along with a new FINRA claim by Well Fargo seeking reimbursement of the 1 million sign on bonus, forgivable loan that now could never be repaid. 

If one is switching from one firm to another, the first order of business is to learn if both the firm you are leaving from and the one you are joining are signers to the Brokerage Protocol which provides a safe harbor for broker who abide by such guidelines to not be sued for most if not all of the issues raised above. It does not cover "raiding" which involves much more than one advisor going from one firm to another, and a claim we successfully fought against Oppenheimer & Co. years ago in defending another firm and branch manager who left them, as they have a history of filings such frivolous claims in our opinion, so as to intimidate potential departing employees.  Hundreds of firms are signatories to the Protocol. However, if only the firm you are departing from is a signatory to the Protocol and you follow the protocol, there is an argument that they are bound by it even though the other firm did not sign, but the arbitrators will be the ultimate determiner of such. If you are unsure as to whether the firm you are joining or leaving is a member of the Protocol you may submit the below request button to our firm so as to inquire for free. Either way, if transitioning from one firm to another, whether or not a protocol member, it is a good idea to retain experienced FINRA lawyer to advise you on how to do it safely with the least likelihood of any legal action which will cost one a lot more than pro-actively retaining an experienced FINRA attorney in advance. Long ago before starting my own practice focusing on individuals, while working for boutique securities law firm, I was personally contracted by Morgan Stanley to solely represent many Morgan Stanley brokers just for their transition to the firm, while the firm had its own counsel. Such experience only reinforced many of the pitfalls representatives can fall into if they do not have the advice of a qualified FINRA Attorney from the beginning of considering any sort of employment transition.  

Stuart D. Meissner Esq,
Meissner Associates, 
Nationwide Representation
Free Phone Consult - 212-764-3100


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