Advisors: Things to Consider when Transitioning Firms

Did You Know That Advisor Recruitment is at a Four-Year High?

According to data compiled by On Wall Street, despite the recent decision by certain wirehouses to significantly reduce recruiting, recruitment is at a four-year high and remains strong.

Recruiters say that the continued strength in recruiting is due to regulatory uncertainty, an aging advisor population, and the expiration of many advisors’ current recruitment or retention deals. Going independent and establishing Registered Investment Advisor firms (RIAs) remains attractive for advisors as recruitment packages have disappeared at many firms. As a result, according to On Wall Street nearly $60 billion in assets changed hands in the first half of 2017. With all these significant moves, it begs the question of how an advisor should prepare to move firms.

If you are a registered representative considering a transition to a new firm, here are some legal and practical considerations:

1. Paperwork. Every firm is different when it comes to offboarding and onboarding procedures. Make sure you fully understand what is required to make the transition as smooth as possible. You should also carefully review all agreements from your current firm and your new firm. All promises by your new firm that you are relying upon should be in writing.

2. Obligations to the Departing Firm. Be fully aware of how your departure may impact compensation you believe may be owed to you by the departing firm. This includes any promissory notes and any deferred compensation. You should also be careful not to run afoul of the typical pitfalls that can lead to litigation. For example, unless specifically permitted by your agreement with the departing firm, all client records typically belong to the departing firm.

3. Compensation. Your pay may be structured differently so make sure that when you transition firms, you are fully aware of how compensation is structured.

4. Restrictive covenants. Are you bound by any restrictive covenants that may impact your ability to solicit clients and/or employees?

5. Protocol for Broker Recruiting. Members of the Protocol for Broker Recruiting are governed by specific procedures for handling broker transfers. If you are going independent you should consider whether your new firm should become a signatory to the Protocol. If you are transitioning to a firm that is a member of the Protocol you should follow the Protocol’s requirements when transitioning, including what information you can take from your old firm and the proper procedures for advising clients of your transition.

6. Planning ahead. Develop a transition strategy that encompasses factors such as timing, client communication, and compensation during the transition. Staying organized in the process will pay dividends down the road.

7. RIA Considerations. If you are considering establishing an RIA, among other things, you will need to establish a new legal entity, file a form ADV, and set up an appropriate compliance system.

8. Regulatory Filings. Pending customer complaints, arbitrations or internal investigations should be analyzed to determine how departing may impact current or future disclosures on your Forms U4/U5.

9. Retaining Counsel. There are many pitfalls and complexities with transitioning. Mistakes can subject you to litigation and regulatory risks. Having experienced counsel to assist with your transition will minimize these and other legal risks.

Advisors looking to transition to another brokerage firm or establish an RIA should have all their bases covered. DWH Legal has significant experience advising registered representatives nationwide on these and other relevant matters, allowing you to focus on your transition without concern about whether you are violating any contract or industry rules/regulations. To learn more about our firm’s arbitration practice, please contact us or call our office in Chicago at 312.380.6587.