Financial Advisors - Look Before You Leap

Posted on August 15, 2011 by Rob Radcliff

 

According to a recent survey, brokers and wealth managers will be on the move during the remainder of 2011 and in 2012. The survey,  entitled “Wealth Management on the Move: The Moment of Truth” notes that there was a significant "buying" of advisors and wealth managers in 2008 and 2009 through retention packages.  These usually took the form of forgivable loans with 3 - 4 year retention periods.  This means  the loans are now forgiven or close to it. 

 

As a result, a lot of brokers are weighing new offers from new firms that include large signing bonuses: 

 

A lot of top brokers will look at the signing bonus being offered, and at how little is left on the retention contract, and they’ll decide it looks like jumping ship is a good deal

 

Brokers need to be sensitive to the risk/reward calculus involved in any employment move.  Things to consider include:  

 

  1. The effect of any non-compete or non-solicitation agreement may have on their move to a new employer;
  2. The effect of any “garden leave policy” may have on their transition;
  3. Whether their new employer is in a position to aggressively help them move their business;
  4. The tax implication any bonus or promissory note may have on them individually;
  5. How much business might be lost; and
  6. The general hassles of moving to a new employer.

The grass is always greener on the other side of the fence.  Any employee should critically evaluate the pro's and con's of a move and consult with counsel if necessary.

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The Big Deal with Brokers and Fiduciary Duties

Posted on May 18, 2010 by Rob Radcliff

 

After the financial meltdown there was talk of the Securities and Exchange Commission imposing a fiduciary duty standard on financial advisors and brokers.  That no longer looks like the case and apparently the SEC is only going to "study" the situation.  Why does it matter?  In Texas, a fiduciary-defendant has the burden of proof in a trial.  Below is the question the jury considers on fiduciary duty:

Did Mr. Broker comply with his fiduciary duty to Mr. Customer?

Because a relationship of trust and confidence existed between them Mr. Broker owed Mr. Customer a fiduciary duty.

To prove he complied with his duty, Mr. Broker must show:

a.     The transaction[s] in question [was/were] fair and equitable to Mr. Customer;

b.     Mr. Broker made reasonable use of the confidence that Mr. Customer placed in him;

c.     Mr. Broker acted in the utmost good faith and exercised the most scrupulous honesty toward Mr. Customer;

d.     Mr. Broker placed the interests of Mr. Customer before his own, did not use the advantage of her position to gain any benefit for himself at the expense of Mr. Broker, and did not place himself in any position where his self-interest might conflict with her obligations as a fiduciary; and

e.     Mr. Broker  fully and fairly disclosed all important information to Mr. Customer concerning the transaction[s]. 

      Answer: _______________

 

In most civil cases, the burden of proof is on the Plaintiff. Not in a fiduciary duty case where the defendant has the burden. Though the majority of broker/dealer disputes take place in the arbitration format, a proceeding in state court would have a far different complexion if fiduciary duties are imposed, not to mention the effect it would have on the broker/customer relationship.

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