Tuesday, November 11, 2008

We Don't Need No Stinkin' Lawyers

Some clients express the sentiment in the title, although not quite in those words. (I do love Bogart movies though). Usually they are wrong, and typically, they realize they were wrong too many years later - when they try to leave their current firm.

Current market conditions are having a significant upheaval in the financial services industry, and many brokers are changing firms, or planning to start their own investment advisory firms. It is obviously a big step, and one that needs to be carefully planned and considered.

Part of that planning and consideration needs to be with a securities attorney. While it might be obvious that you will need an attorney when you leave your firm, for some unknown reason it is not so obvious that you need one when you JOIN a new firm.

Too many financial professionals engage in months of negotiation with a new firm, then resign, without ever having seen their new agreement in writing. For very puzzling reasons, they trustthe new firm's management to produce a document that conforms to the months of discussions. That is not the best way to go about a transition, yet it is done all the time.

Other brokers feel that the agreements are not negotiable or that they are all the same. Those deals are NOT all the same, and the terms of the agreement itself, in addition to the business points, can be negotiated. Termination clauses, assignments, bankruptcy issues, all need to be in the agreement, as well as the oral representations that were made during the negotiations. And yes, you can enforce those oral agreements, but it is much easier if it is all in writing and in one agreement should the firm renege on their deal. Aren't you better off with a termination clause that addresses your particular situation? Do you think the firm put something in that agreement that helps you? They didn't. They wrote the employment documents from their perspective, it is up to you to modify that language, and to add the language that will help you.

There are other factors to be considered. For example, the language used in the agreement varies from firm to firm, and even from deal to deal in the same firm. It makes a difference whether the firm is a signatory to the Broker Recruiting Protocol, and what the enforcement provisions of the note contain. At a minimum, even if you can't change a single word in the agreement, a review by an attorney will insure that you understand the agreement, and the enforceability of its clauses.

On the other end of the spectrum, leaving a firm has its own legal issues. Most brokers seem to understand the need to retain counsel when leaving a firm, but they wait too long, and hire the attorney after they leave! Hire the securities attorney while you are negotiating your deal, not after you have finished, agreed and resigned.

I understand that we are an expense. However, the review and negotiation of the new deal, and the advise and planning on leaving your current firm, will be an insignificant cost compared to the benefits that are being received, and you will know that you cut the best deal that you could.

The reality is that the attorney fees for the transition work, on leaving and joining a firm, will undoubtedly be less an a percentage point of the upfront money that is being received. In that context, the attorney is a worthwhile investment.

And for those who want to start a broker-dealer, or an independent relationship with an existing broker-dealer have an obvious need for an attorney. Registered investment advisors need that legal and regulatory help as well.

Joel Beck, a Georgia securities attorney has a blog post which highlights some of tthe other legal issues involved in changing firms.

If you have a question about a transition, give me a call or send an email. I don't charge a fee for an initial phone call or a response to an email - 973-559-5566 or astarita@beamlaw.com and you might get a heads up on an issue you hadn't thought of.
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