Transitioning from one business model to another is always challenging. There are many complex regulatory and legal considerations that must be taken into account. The situation can become even more complicated if you are transitioning from a captive firm.
JLG provides the legal guidance, services, and support that securities and financial industry professionals need to successfully transition to a new business.
Whether you are venturing off on your own, moving from one firm to another, or changing your company’s business model, a series of intricate steps will be involved. JLG’s professional team provides strategic counsel on corporate and regulatory considerations for meeting your immediate, midrange, and long-term business objectives.
Some of the specific areas that JLG can address for clients transitioning or breaking away to a new business include:
Before giving notice, a financial adviser should understand their legal and contractual obligations. This entails reviewing employment or contractor agreements, restrictive covenants, confidentiality obligations, client privacy requirements and even regulatory filings. Many transition steps need to occur in a particular order, planning before notice is given can help reduce the risk of unnecessary disruption, litigation, or regulatory complications.
Ideally, legal counsel should be retained before any steps towards the transition or breakaway occur. Early legal review allows an adviser to understand contractual restrictions, confidentiality obligations, and other provisions before taking action. Counsel can also help develop a transition timeline, coordinate formation of a new business, and identify steps that should occur before and after resignation.
It depends on the type of information and facts and circumstances of the transitioning advisor. If the departing advisor is leaving a firm which is a member of Broker Protocol and transitioning to a firm that also is a member of Broker Protocol, the advisor may take certain information in accordance with the Broker Protocol requirements (namely, name, address, email and telephone number). If the departing advisor is leaving a firm not subject to Broker Protocol, what information (if any) can be taken is governed by the Advisor’s engagement with the firm (e.g., as a W2 employee or 1099 independent contractor) and the terms of the Advisor’s contract and related obligations. Typically, independent contractors can take copies of a client file, subject to firm obligations and client privacy (Regulation S-P) considerations. Certain states, such as California, require an opt-in prior to taking any client information, regardless of contractual provisions. Typically, employment agreements impose strict restrictions on the taking of client, confidential, and/or proprietary firm information. Thus, engaging legal counsel to review contractual obligations is incredibly important.
Employment and contractor agreements can significantly affect how an adviser may leave a firm and establish or join another business. Agreements may contain confidentiality provisions, non-solicitation restrictions, non-compete provisions (where enforceable), client ownership provisions, compensation terms, repayment obligations, and other restrictions that are triggered upon termination. Advisers should review these agreements before announcing or implementing a departure so they understand their obligations and available options. The receiving firm should also understand these restrictions when developing its onboarding and client-transition strategy.
Launching a new financial services business like an RIA requires a coordinated corporate, regulatory, and operational approach. This may include forming an entity, establishing governance documents, preparing regulatory filings, registering the adviser or representatives, and more. The business should also address privacy, cybersecurity, books and records, custodial relationships, and other applicable requirements. These steps should be planned before the transition because delays can affect the newly formed firm’s ability to serve clients after the departure.
A carefully planned transition can help reduce the risk of disputes with a former firm. Advisers should review their contractual obligations before giving notice, understand what information and property may be taken, preserve relevant documents, avoid using confidential or proprietary information improperly, and follow applicable privacy requirements. Advisers should also be cautious about forming a new entity, contacting clients, or soliciting business before their contractual and legal obligations have been evaluated and met. For more complex departures, counsel can help establish a transition plan that separates permissible preparation to compete, from conduct that could create claims involving trade secrets, fiduciary duties, contract violations, or improper solicitation.
An experienced securities and corporate law counsel can help advisers evaluate their existing agreements, identify legal and regulatory restrictions, develop a transition timeline, and coordinate the steps required to leave one firm and establish or join another. Counsel may also assist with entity formation, regulatory registration, client privacy, and negotiations with the departing or receiving firm. For advisers concerned about potential litigation, counsel can help identify risks before notice is given and develop strategies to minimize disputes.
