New York Securities Lawyer Blog
The Georgia Court of Appeals has held that the Protocol for Broker Recruiting (“the Protocol”) does not preclude Financial Advisors from informing their employers of their intentions to leave. Some firms have Notice of Termination provisions in their employment contracts, which require brokers to give notice of their intentions to resign, prior to terminating their employment.
The Protocol is an agreement that was made in 2004. It was designed to allow financial advisors and brokers to transition from one firm to another while taking client information with them. At its peak, the Protocol included the vast majority of brokerage firms, leading to a significant decrease in litigation costs, which had reached staggering levels prior to the institution of the protocol. However, with the withdrawal of firms such as Morgan Stanley, which effectively withdrew from the Protocol on November 3, 2017, the Protocol has lost some of its influence. A recent Georgia court decision has further weakened the Protocol.
The June 2018 decision concerns a 2014 case where several brokers departed from Aprio Wealth Management LLC. Without waiting the obligatory 60 to 90 days outlined in their contracts, the brokers encouraged their clients to transfer their accounts over to Morgan Stanley. Morgan Stanley had recruited the brokers, telling them that the Protocol would override their advanced notice agreements. The Georgia court-of-appeals was tasked with determining what influence the Protocol plays on advanced notice agreements. The presiding judge of the Georgia Court of Appeals ruled that the Protocol does not override the advance notice provisions present in brokers’ contracts. Aprio claims that this decision is beneficial to its purposes, as it protects smaller and mid-sized firms from being poached by larger firms with more resources.
Advanced notice provisions are sometimes referred to as “garden leave”, as the employees remain on the payroll of their company, but are not allowed to build their new businesses, and are left with ample free time. During the duration outlined by the agreement, the employer can make a concerted effort to retain the clients of these employees. The Court’s decision affects brokers’ ability to seamlessly transition with their clients, as was the intention of the Protocol.
The attorneys at Lax & Neville LLP have extensive experience in successfully transitioning brokers from one firm to another, and advising brokers on how to avoid violating restrictive covenants or other legal obligations to their departing firm. If you are considering a transition, please contact Lax & Neville LLP today at (212) 696-1999 to schedule a consultation.