We’ve previously discussed the lucrative compensation packages wire houses use to attract high producing FAs. The mechanics of those packages usually include a signing bonus, but it’s not an up front bonus like the 1st round draft choice in the NFL draft receives. In many instances it is a forgivable promissory note conditioned on the broker staying a certain time period. If they leave early the broker must pay it back.
Recently, Judge Lewis Kaplan of the Southern District of New York dismissed a group of former Citigroup brokers’ lawsuit who left employment early and refused to pay off their loans. Typically, breach of a promissory notes is almost impossible to defend. It’s a simple proposition, I loan you money you have to pay it back.
The Judge was not impressed with the Plaintiffs’ case:
These plaintiffs all received substantial interest-free advances when they joined Smith Barney . . . They all promised to repay Smith Barney over terms of years out of their compensation and to repay any unpaid balance if they left the firm ‘for any reason or no reason.’ Having left the firm without repaying everything they owed, they brought this baseless lawsuit in what quite plainly was a studied effort to prevent collection of the debts they owed through the arbitration process.
Brokers should assume that if they are going to sign a note like this, they are going to have to pay it back unless they stay the term of their agreement.