As most readers are aware, brokerage firms structure their signing bonuses for producing brokers as long term loans which are forgiven over time. When the broker leaves the firm, regardless of the reason, the firm sues to collect the balance on the loans.
Those claims are often met with significant counterclaims by the broker - after all, the broker left the firm for a reason, usually a significant breach by the firm.
While the brokerage firms often win in those cases, since the promissory note is just that, Merrill Lynch has been losing these cases lately, as it appears that Merrill's mistreatment of its brokers over recent years is finally coming home to roost.
Last month, a FINRA Panel refused to enforce a promissory note at Merrill's request. This month, another FINRA arbitration panel denied Merrill Lynch's request to enforce a million dollar note, and ordered Merrill Lynch to pay the broker 1.5 million dollars.
The broker keeps the one million dollars represented by the note, and Merrill pays him an additional 1.5 million dollars.
And, to add insult to injury, the Panel assessed all forum fees against Merrill.
I have represented numerous Bank of America and Merrill Lynch brokers in employment related cases, including the defense of claims on promissory notes. While I do not know anything about this case, in my view of the world, these cases are simply an outgrowth of the poor management of Merrill Lynch which led to its financial demise, and the nearly incompetent management of the brokerage firm by Bank of America. Management of both firms took steps in their own self-interest, regardless of the impact on employees and brokers and destroyed careers in the process.
Sometimes damage to employees in management decisions is unavoidable. A reputable company compensates the employees harmed by those management decisions. Merrill Lynch and Bank of America do not compensate the employees; they sue the employees.
No wonder Bank of America/Merrill lynch finds itself in financial ruin. BofA's stock traded at over $50 a share a few years ago. Today it hovers around $10.
A copy of the award is available here.
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BofA In A Panic? Unilaterally Imposes Garden Leave Provisions
Selasa, 08 Maret 2011 0 komentarIt never ceases to amaze me that Bank of America has managed to stay in business. Personally, I always thought they were a terrible bank, with terrible rates, annoying terms and conditions, and really annoying marketing. As a brokerage firm, they have simply bumbled and stumbled their way through the acquisition of Merrill Lynch, turning a unique opportunity into a disaster.
There are too many misteps to detail, but the ones that directly affect brokers makes the point - plus there is a new disaster breaking.
Right after the merger Bank of America had a problem. Its US Trust brokers had some of the same clients as its Merrill brokers, and the two firms were, on a certain level, competitors. The same is true on the retail side, but the problem is what do you do about integrating the brokers and the customers?
There are any number of solutions, but Bank of America decided that brokers who Merrill recruited from US Trust could no longer solicit their US Trust clients to join Merrill. That obviously causes a significant problem for the new US Trust recruits - who are recruited by Merrill to bring their clients from US Trust. Imagine that series of conversations:
"Bring your business to us, we want your US Trust clients, get them over here."
"We will give you a huge bonus, as a loan, and you will be able to pay it off with the money that you make with us"
There was also the 50% pay cut imposed on bank brokers. Yes, those stock brokers who sit in bank branches and provide investment services. Their compensation structure is different from that of a stock broker on the brokerage side of the business. Their payout is lower, but they have some advantages - a build-in client base, and referrals from the branch bankers. For reasons which still remain a mystery to the brokers involved, Bank of America decided one day to stop permitting bankers to give referrals to the bank brokers, and then in order to insure that they really screwed the brokers, they cut their payout in half. A 50% pay cut plus a loss of your largest source of referrals. Many brokers were simply forced to leave because of this flagrant breach of contract, and the reality that you cannot earn a living after a 50% paycut. You have to leave in order to support your family.
Then Bank of America refused to join the Broker Recruiting Protocol, creating the interesting situation where Merrill brokers were covered by the protocol, but Bank of America brokers were not. And just to make sure the process was an entire mess, they began to consolidate the bank brokers with the brokers at Merrill. That created significant problems with the Recruiting Protocol. While those were ultimately addressed, it created additional problems for individual brokers, many of whom were forced back to a branch that they left - brokers who got into a dispute with Bank of America managers and quit to go to Merrill are finding themselves back at their old Bank of America office, with the same manager.
To no one's surprise, Bank of America is having trouble recruiting brokers. Shocker. What would a reasonable firm do in such a situation? There are a ton of choices - increase pay packages, step up recruiting, and otherwise make your firm a place where brokers can bring their clients, with a good platform, favorable employment policies - things like that.
Did Bank of America do any of that? Of course not. Instead of making the firm a place to conduct a securities business, add value to the customers, all to entice brokers to join, Bank of America has done the exact opposite - they have announced unilateral employment terms on their existing brokers, and new hires, in order to prevent them from leaving!
Some advisors at Bank of America Merrill Lynch's U.S. Trust unit recently received an ultimatum - a demand that they sign a new agreement that would effectively sideline them for up to eight months if and when they decide to leave the firm or else risk losing not only their 2010 bonuses but their jobs, too.
That's the ticket! We can't recruit brokers, so lets make sure the ones we have do not leave. Lets force them to give 60 days notice of termination, with a 6 month non-solicit of their customers! Not only does this move raise employment law questions, contract questions, and more, it raises questions regarding the Broker Recruiting Protocol and a potential breach of the agreement with 450 other brokers firms.
The Protocol was put into place to stop all of the lawsuits between firms when a broker moved. Firms were spending tons of money suing each other over recruiting and solicitation of clients. Three firms created and signed the Protocol, which is in essence an agreement between the firms to allow brokers to solicit customers when they leave, provided the provisions of the Protocol are met. Bank of America acknowledges that its Merrill brokers are covered by the Protocol, but continues to insist that its US Trust brokers are not.
How Bank of America intends to compete in an industry where over 450 of the firms have signed onto the Protocol remains a mystery, but this latest move is the icing on the cake. Brokers are aware of the existence of the Protocol, and in considering a move, factor the Protocol into their decision making. It obviously makes a significant difference if the new firm is part of the Protocol, as it makes the transition easier, and gives the broker a measure of comfort knowing that he will not be sued if the new position does not work out, and he wants to leave in a year or two.
But now US Trust, which is not part of the Protocol, and already has problems recruiting, has make the situation significantly worse. Any broker who is considering a move to US Trust is going to have to consider that once he goes there, he can never leave, no matter what happens - because if he does leave, he will lose his clients.
A two month garden leave plus a 6 month non-solicit is draconian. Even Bank of America can convince clients not to leave the firm if they get an 8 month head start.
Related Stories:
Prickly BofA slaps "garden leave" restrictions on advisers
US Trust Asks Employees to Confirm Broker Protocol Does Not Apply
BofA to Advisors: Take it Or "Garden" Leave It
BofA Forces "Garden Leave" on Brokers After Defection
There are too many misteps to detail, but the ones that directly affect brokers makes the point - plus there is a new disaster breaking.
Right after the merger Bank of America had a problem. Its US Trust brokers had some of the same clients as its Merrill brokers, and the two firms were, on a certain level, competitors. The same is true on the retail side, but the problem is what do you do about integrating the brokers and the customers?
There are any number of solutions, but Bank of America decided that brokers who Merrill recruited from US Trust could no longer solicit their US Trust clients to join Merrill. That obviously causes a significant problem for the new US Trust recruits - who are recruited by Merrill to bring their clients from US Trust. Imagine that series of conversations:
"Bring your business to us, we want your US Trust clients, get them over here."
"We will give you a huge bonus, as a loan, and you will be able to pay it off with the money that you make with us"
"Great you are here, glad to have you!"A complete disaster for those US Trust recruits, and Bank of America offered no solutions, no enhanced compensation, no additional loan forgiveness. Nothing, it just told its new hires, many of whom were big producers with signficant clients who they had built relationships with over decades, "too bad", "start over."
"Oh wait, you can't solicit your old clients to come over here. Not a problem, you can start all over again here!"
There was also the 50% pay cut imposed on bank brokers. Yes, those stock brokers who sit in bank branches and provide investment services. Their compensation structure is different from that of a stock broker on the brokerage side of the business. Their payout is lower, but they have some advantages - a build-in client base, and referrals from the branch bankers. For reasons which still remain a mystery to the brokers involved, Bank of America decided one day to stop permitting bankers to give referrals to the bank brokers, and then in order to insure that they really screwed the brokers, they cut their payout in half. A 50% pay cut plus a loss of your largest source of referrals. Many brokers were simply forced to leave because of this flagrant breach of contract, and the reality that you cannot earn a living after a 50% paycut. You have to leave in order to support your family.
Then Bank of America refused to join the Broker Recruiting Protocol, creating the interesting situation where Merrill brokers were covered by the protocol, but Bank of America brokers were not. And just to make sure the process was an entire mess, they began to consolidate the bank brokers with the brokers at Merrill. That created significant problems with the Recruiting Protocol. While those were ultimately addressed, it created additional problems for individual brokers, many of whom were forced back to a branch that they left - brokers who got into a dispute with Bank of America managers and quit to go to Merrill are finding themselves back at their old Bank of America office, with the same manager.
To no one's surprise, Bank of America is having trouble recruiting brokers. Shocker. What would a reasonable firm do in such a situation? There are a ton of choices - increase pay packages, step up recruiting, and otherwise make your firm a place where brokers can bring their clients, with a good platform, favorable employment policies - things like that.
Did Bank of America do any of that? Of course not. Instead of making the firm a place to conduct a securities business, add value to the customers, all to entice brokers to join, Bank of America has done the exact opposite - they have announced unilateral employment terms on their existing brokers, and new hires, in order to prevent them from leaving!
Some advisors at Bank of America Merrill Lynch's U.S. Trust unit recently received an ultimatum - a demand that they sign a new agreement that would effectively sideline them for up to eight months if and when they decide to leave the firm or else risk losing not only their 2010 bonuses but their jobs, too.
That's the ticket! We can't recruit brokers, so lets make sure the ones we have do not leave. Lets force them to give 60 days notice of termination, with a 6 month non-solicit of their customers! Not only does this move raise employment law questions, contract questions, and more, it raises questions regarding the Broker Recruiting Protocol and a potential breach of the agreement with 450 other brokers firms.
The Protocol was put into place to stop all of the lawsuits between firms when a broker moved. Firms were spending tons of money suing each other over recruiting and solicitation of clients. Three firms created and signed the Protocol, which is in essence an agreement between the firms to allow brokers to solicit customers when they leave, provided the provisions of the Protocol are met. Bank of America acknowledges that its Merrill brokers are covered by the Protocol, but continues to insist that its US Trust brokers are not.
How Bank of America intends to compete in an industry where over 450 of the firms have signed onto the Protocol remains a mystery, but this latest move is the icing on the cake. Brokers are aware of the existence of the Protocol, and in considering a move, factor the Protocol into their decision making. It obviously makes a significant difference if the new firm is part of the Protocol, as it makes the transition easier, and gives the broker a measure of comfort knowing that he will not be sued if the new position does not work out, and he wants to leave in a year or two.
But now US Trust, which is not part of the Protocol, and already has problems recruiting, has make the situation significantly worse. Any broker who is considering a move to US Trust is going to have to consider that once he goes there, he can never leave, no matter what happens - because if he does leave, he will lose his clients.
A two month garden leave plus a 6 month non-solicit is draconian. Even Bank of America can convince clients not to leave the firm if they get an 8 month head start.
Related Stories:
Prickly BofA slaps "garden leave" restrictions on advisers
US Trust Asks Employees to Confirm Broker Protocol Does Not Apply
BofA to Advisors: Take it Or "Garden" Leave It
BofA Forces "Garden Leave" on Brokers After Defection
Friday Q&A - Are EFLs and Promissory Notes Enforceable?
Jumat, 03 Desember 2010 0 komentar
Friday Q & A – I recently left Bank of America after the ML merger, and they now want me to repay the bonus that I received. BofA killed my business, and ML actually made it worse? Do I have to repay the money? Will they settle or do I have to go to arbitration?
This is almost becoming a daily question in our office, and not only with Bank of America reps. The turmoil in the financial markets has cause turmoil for brokers and firms as well. Add to that the move to become independent, and/or starting your own RIA (finally!) and there is quite a bit going on in broker transition these days.
The short answer is that assuming you have the “standard” promissory note that the firms use you are probably going to have to repay the money. The promissory notes are unconditional promises to repay. In most cases, they are clear that if you do not work at the firm, or any reason, the note is due and payable.
However, that is not the end of the story. Many reps that leave firm have claims against the firm – after all, that is why they left. Those claims may constitute a counterclaim against the firm – for mismanagement, unilaterally changing the terms of your employment (like reducing payouts by 50%), a harassing manager, or even closing your branch. While the counterclaim does not void the note, and award in your favor on the counterclaim may offset, or eliminate, the amount owed on the note, and in some cases, an award on the counterclaim will exceed the amount of the note, resulting in a net payment to the broker, rather than the other way around.
Those cases are not the norm, but they do exist. And like most things legal, the counterclaim depends on the specific facts. I have represented brokers with great counterclaims, and those cases get resolved – that is why you do not see them in the arbitration award database. When the counterclaim is not as viable as it might be, we negotiate the note, enter into a new long term payment agreement, or otherwise settle the case. That sometimes takes some work, but at the end of the day the settlement is typically a better outcome than going to an arbitration and losing for the full amount.
The only way to have an idea of the viability of the claim is to have an experienced securities employment attorney review the facts – and of course your contract and note. Not all employee forgivable loan documents are the same.
And call me for a consultation before you leave your firm, not after. After all of these years it still amazes me how often brokers leave a firm, negotiate a new deal at a new firm, and wait until they are at the new firm to ask for a consultation. Do yourself a favor; call an attorney before you give notice, not after.
Questions? Email me at astarita@beamlaw.com or call my office at 212-509-6544. We represent brokers nationwide and have been doing so for 25 years. My CV is online at SECLaw.com
This is almost becoming a daily question in our office, and not only with Bank of America reps. The turmoil in the financial markets has cause turmoil for brokers and firms as well. Add to that the move to become independent, and/or starting your own RIA (finally!) and there is quite a bit going on in broker transition these days.
The short answer is that assuming you have the “standard” promissory note that the firms use you are probably going to have to repay the money. The promissory notes are unconditional promises to repay. In most cases, they are clear that if you do not work at the firm, or any reason, the note is due and payable.
However, that is not the end of the story. Many reps that leave firm have claims against the firm – after all, that is why they left. Those claims may constitute a counterclaim against the firm – for mismanagement, unilaterally changing the terms of your employment (like reducing payouts by 50%), a harassing manager, or even closing your branch. While the counterclaim does not void the note, and award in your favor on the counterclaim may offset, or eliminate, the amount owed on the note, and in some cases, an award on the counterclaim will exceed the amount of the note, resulting in a net payment to the broker, rather than the other way around.
Those cases are not the norm, but they do exist. And like most things legal, the counterclaim depends on the specific facts. I have represented brokers with great counterclaims, and those cases get resolved – that is why you do not see them in the arbitration award database. When the counterclaim is not as viable as it might be, we negotiate the note, enter into a new long term payment agreement, or otherwise settle the case. That sometimes takes some work, but at the end of the day the settlement is typically a better outcome than going to an arbitration and losing for the full amount.
The only way to have an idea of the viability of the claim is to have an experienced securities employment attorney review the facts – and of course your contract and note. Not all employee forgivable loan documents are the same.
And call me for a consultation before you leave your firm, not after. After all of these years it still amazes me how often brokers leave a firm, negotiate a new deal at a new firm, and wait until they are at the new firm to ask for a consultation. Do yourself a favor; call an attorney before you give notice, not after.
Questions? Email me at astarita@beamlaw.com or call my office at 212-509-6544. We represent brokers nationwide and have been doing so for 25 years. My CV is online at SECLaw.com
More Merrill Brokers Suing BofA over Deferred Compensation
Selasa, 09 November 2010 0 komentarThe fallout from the turmoil created for employees as the investment banks failed in 2008 continues. Brokers, traders, salespersons and other employees are suing over compensation which was denied to them, as the investment banks attempted to balance their books. Chicago Business is reporting that four former Merrill Lynch brokers in Chicago are suing Merrill Lynch, now owned by Bank of America Corp., to pay about $3 million in deferred compensation. According to the article, Merrill Lynch is again withholding deferred compensation from employees who left the firm. The brokers claim that they resigned from Merrill after the Bank of America merger, that the change in control constituted "good cause" under their employment agreements, entitling them to their deferred compensation. More...
Brokers Still Leaving Wirehouses
Rabu, 27 Oktober 2010 0 komentarOver the last two years our practice has seen a marked increase in brokers who are leaving wirehouses. We have always represented advisers who are changing firms, but with the mergers of Merrill Lynch and Smith Barney into their former competitors, there has been a significant increase in these matters. We are also seeing an increase in the switch to becoming an investment adviser, something which we have been recommending for years
InvestmentNews.com, in an article titled Why more than 7K reps left the big brokerages in 18 months takes a look at the broker movement. From poor management decisions to material changes in compensation and business philosophy, its no wonder brokers are leaving their firms and becoming investment advisers.
Starting and operating an investment advisory firm is not difficult, and there are less regulations and red tape than at a large broker-dealer. Still, the move is not for everyone, but with the right mind-set and business model, an investment advisory firm has become the answer for many wirehouse representatives.
InvestmentNews.com, in an article titled Why more than 7K reps left the big brokerages in 18 months takes a look at the broker movement. From poor management decisions to material changes in compensation and business philosophy, its no wonder brokers are leaving their firms and becoming investment advisers.
Starting and operating an investment advisory firm is not difficult, and there are less regulations and red tape than at a large broker-dealer. Still, the move is not for everyone, but with the right mind-set and business model, an investment advisory firm has become the answer for many wirehouse representatives.
Merrill Brokers Win $1.167 ML Arb Award For Retained Comp
Minggu, 17 Oktober 2010 0 komentarFor those who believe that the wirehouses would not deny compensation to an employee simply to save money, this article from Registered Rep provides some telling information. According to the article, Merrill Lynch's employee policies provide that a broker who resigns for "Good Reason" is entitled to have his deferred compensation benefits vest at the time of his resignation.
According to the article, at the time of its merger with Bank of America, brokers were leaving, and Merrill canceled the deferred comp benefits, and simply refused to pay out any funds for a "Good Reason" resignation, something Merrill Lynch had agreed to in the compensation plans.
Why would Merrill Lynch unilaterally breach an agreement with its employees? We have represented brokers against a number of wirehouses in this sort of situation, and the firm always has an excuse. "Good Reason" doesn't really mean "Good Reason", or we were going to fire him, or his reason wasn't really good, or some technical defense that is obviously a ploy to avoid paying.
When the broker points out the obviously ploy, and claims that they denied benefits or compensation to a particular broker as a cost saving measure , the firm chuckles in a smug way, claiming that the firm is so big that an individual broker's compensation would have no effect on the bottom line, and such a claim was absurd.
Really. According to the article, the value of the stock and cash that Merrill refused to pay its departing brokers was significant - between $100 million and $300 million dollars. Sure, one broker didn't make a difference, but deny all of the departing brokers their compensation, and you are talking about a significant sum of money. The theory is, I suppose, deny all of them compensation, a few will sue, but all of them will not, and we will be ahead of the game even if we lose the arbitrations.
A FINRA arbitration panel just awarded two Merrill brokers over 1.1 million dollars for this conduct. Unfortunately, no interest and no attorneys fees were awarded so perhaps the theory of "let them sue" actually works. The Registered Rep article is here, the award is at FINRA's website.
According to the article, at the time of its merger with Bank of America, brokers were leaving, and Merrill canceled the deferred comp benefits, and simply refused to pay out any funds for a "Good Reason" resignation, something Merrill Lynch had agreed to in the compensation plans.
Why would Merrill Lynch unilaterally breach an agreement with its employees? We have represented brokers against a number of wirehouses in this sort of situation, and the firm always has an excuse. "Good Reason" doesn't really mean "Good Reason", or we were going to fire him, or his reason wasn't really good, or some technical defense that is obviously a ploy to avoid paying.
When the broker points out the obviously ploy, and claims that they denied benefits or compensation to a particular broker as a cost saving measure , the firm chuckles in a smug way, claiming that the firm is so big that an individual broker's compensation would have no effect on the bottom line, and such a claim was absurd.
Really. According to the article, the value of the stock and cash that Merrill refused to pay its departing brokers was significant - between $100 million and $300 million dollars. Sure, one broker didn't make a difference, but deny all of the departing brokers their compensation, and you are talking about a significant sum of money. The theory is, I suppose, deny all of them compensation, a few will sue, but all of them will not, and we will be ahead of the game even if we lose the arbitrations.
A FINRA arbitration panel just awarded two Merrill brokers over 1.1 million dollars for this conduct. Unfortunately, no interest and no attorneys fees were awarded so perhaps the theory of "let them sue" actually works. The Registered Rep article is here, the award is at FINRA's website.
FINRA Wants More Details When Someone Gets Canned
Selasa, 28 September 2010 0 komentarFINRA's Regulatory Notice 10-39 is getting quite a bit of attention. FINRA is going to require Broker-Dealers to put more detail on termination notices in the future. The reason for the attention is that once again, we are going to have public disclosure of unsubstantiated allegations against brokers. Making matters worse, in NY at least, brokers cannot sue their firms for defamation, since those comments are absolutely privileged.
On Wall Street has more on the issue, with quotes from yours truly. More>>>
On Wall Street has more on the issue, with quotes from yours truly. More>>>
Advisors Win $2 Million Award Against NRP
Selasa, 27 Juli 2010 0 komentarTwo financial advisors won $2 million in arbitration from a retirement-plan advisory firm they left Merrill Lynch to join in 2008, only to be let go the following year.
According to this article in FA Magazine, National Retirement Partners sought to have the Indianapolis advisors, Wade Walker and Jeffrey Bafs, return funds the company said they owed through a corporation NRP purchased to buy their practice. It also accused them of violating transition agreements. But a panel of the Financial Industry Regulatory Authority ruled that the claims by the company and two subsidiaries were "frivolous, unreasonable, groundless, and made in bad faith," according to the award document.
The panel awarded a total of $2 million to the two advisors, who had filed their own claim accusing the company, based in San Juan Capistrano, Calif., of defamation, theft of clients, disclosure of confidential information and other offenses. More...
According to this article in FA Magazine, National Retirement Partners sought to have the Indianapolis advisors, Wade Walker and Jeffrey Bafs, return funds the company said they owed through a corporation NRP purchased to buy their practice. It also accused them of violating transition agreements. But a panel of the Financial Industry Regulatory Authority ruled that the claims by the company and two subsidiaries were "frivolous, unreasonable, groundless, and made in bad faith," according to the award document.
The panel awarded a total of $2 million to the two advisors, who had filed their own claim accusing the company, based in San Juan Capistrano, Calif., of defamation, theft of clients, disclosure of confidential information and other offenses. More...
Keeping Your Signing Bonus May Get Easier?
Rabu, 10 Maret 2010 0 komentarA recent article at a financial adviser publication ran this headline, without the question mark, reporting on a broker's win on a promissory note case as if it was a major breakthrough in the financial world. It's not.
Certainly the award against the broker of approximately $20,000 on a $142,000 note is a win, but the broker also had to pay $13,000 in forum fees, presumably because he filed a third party claim against two individuals (on which he did not receive any award).
Still, it is a win, but not unusual. I have been representing brokers on promissory note cases for years; decades even. The overwhelming majority of the cases settle, as there are just too many uncertainties in the litigation, and no one wants the risk of loss. I have had instances where my client's note was entirely forgiven, and awards where my clients paid back 20% to 50% of the outstanding balance - which in a case involving a note for over $1 million dollars is a significant win for the broker. In a recent case, the panel awarded my client his attorneys fees, despite the fact that it found for the firm on the promissory note.
The entire concept of structuring a signing bonus as a promissory note in order to keep the new hire at the firm for 5, or 7 or even 9 years is odd, but it certainly has become the standard in the brokerage industry. These promissory notes have been carefully crafted by the firms to insure that brokers do not leave the firm until the note is completely forgiven, and to insure that the funds are repaid if the broker leaves before the term expires.
In most instances they are completely one-sided affairs - the broker promises to repay the note, and the firm promises nothing except to forgive a percentage of the note on each anniversary date. Firms do not make any representations or promises regarding anything that was said during the recruiting process, and in fact, some firms put language in the compensation agreement that attempts to remove all promises made during the recruiting process.
The promissory note is an unconditional promise to repay, but it does not necessarily stand alone. If the broker had an attorney involved when he was hired, he may have additional clauses in his hiring agreements that provide a defense to the note, or a counterclaim for breach or contract, or the covenant of good faith and fair dealing.
What is going to change these cases is the recent conduct of the wire houses. Firms have always been aggressive in enforcing the notes. Now they are aggressive in attempting to reduce costs by forcing brokers out of the firms, then trying to collect the note. In the last year or so I have seen payout reductions by 50%, removal of all support staff, mysterious re-calculations of payouts, forced changes in business models, trumped up termination language and a host of other conduct designed to either fire the broker, or force him to leave.
That conduct is resulting in more claims for constructive discharge, as well as breach of contract and related claims, all of which are starting to come to hearing in the next few months.
I expect that we are going to see even more of these cases, where the firms lose on their promissory note claims, and wind up paying the brokers for breach of contract. Firms have been cost cutting off of the backs of brokers for far too long. The recent trend, of forcing a broker to quit, and then aggressively pursuing him for the outstanding promissory note, is going to come back to haunt the firms. The right way to handle a decline in business is to reach an accomodation with the employee, compensate him for the firm's desire to cut his position (or to take his accounts), release him from the promissory note, or some combination of those alternatives, and stop all of this nonsense with forcing brokers to quit, and then suing them because they quit.
If the firms don't act appropriately, you can be sure that arbitration panels will render an award to adjust for what should have been the proper course of conduct. Panels have been doing in in the past, and will continue to do so in the future.
More>>>
Certainly the award against the broker of approximately $20,000 on a $142,000 note is a win, but the broker also had to pay $13,000 in forum fees, presumably because he filed a third party claim against two individuals (on which he did not receive any award).
Still, it is a win, but not unusual. I have been representing brokers on promissory note cases for years; decades even. The overwhelming majority of the cases settle, as there are just too many uncertainties in the litigation, and no one wants the risk of loss. I have had instances where my client's note was entirely forgiven, and awards where my clients paid back 20% to 50% of the outstanding balance - which in a case involving a note for over $1 million dollars is a significant win for the broker. In a recent case, the panel awarded my client his attorneys fees, despite the fact that it found for the firm on the promissory note.
The entire concept of structuring a signing bonus as a promissory note in order to keep the new hire at the firm for 5, or 7 or even 9 years is odd, but it certainly has become the standard in the brokerage industry. These promissory notes have been carefully crafted by the firms to insure that brokers do not leave the firm until the note is completely forgiven, and to insure that the funds are repaid if the broker leaves before the term expires.
In most instances they are completely one-sided affairs - the broker promises to repay the note, and the firm promises nothing except to forgive a percentage of the note on each anniversary date. Firms do not make any representations or promises regarding anything that was said during the recruiting process, and in fact, some firms put language in the compensation agreement that attempts to remove all promises made during the recruiting process.
The promissory note is an unconditional promise to repay, but it does not necessarily stand alone. If the broker had an attorney involved when he was hired, he may have additional clauses in his hiring agreements that provide a defense to the note, or a counterclaim for breach or contract, or the covenant of good faith and fair dealing.
What is going to change these cases is the recent conduct of the wire houses. Firms have always been aggressive in enforcing the notes. Now they are aggressive in attempting to reduce costs by forcing brokers out of the firms, then trying to collect the note. In the last year or so I have seen payout reductions by 50%, removal of all support staff, mysterious re-calculations of payouts, forced changes in business models, trumped up termination language and a host of other conduct designed to either fire the broker, or force him to leave.
That conduct is resulting in more claims for constructive discharge, as well as breach of contract and related claims, all of which are starting to come to hearing in the next few months.
I expect that we are going to see even more of these cases, where the firms lose on their promissory note claims, and wind up paying the brokers for breach of contract. Firms have been cost cutting off of the backs of brokers for far too long. The recent trend, of forcing a broker to quit, and then aggressively pursuing him for the outstanding promissory note, is going to come back to haunt the firms. The right way to handle a decline in business is to reach an accomodation with the employee, compensate him for the firm's desire to cut his position (or to take his accounts), release him from the promissory note, or some combination of those alternatives, and stop all of this nonsense with forcing brokers to quit, and then suing them because they quit.
If the firms don't act appropriately, you can be sure that arbitration panels will render an award to adjust for what should have been the proper course of conduct. Panels have been doing in in the past, and will continue to do so in the future.
More>>>
Wells Fargo To Add 1,400 Advisors
Senin, 08 Februari 2010 0 komentarStories about Merrill adding trainees surfaced last week, now we learn that Wells Fargo Advisors is looking to add 1,400 financial advisors. A published report said that the advisors will be a combination of 1,000 recruits from other firms and 400 trainees. More>>>
Technorati Tags: broker transition, stock brokers
Technorati Tags: broker transition, stock brokers
Raiding Case Costs Raymond James $12 Million
Minggu, 07 Februari 2010 0 komentarIn a case involving 20 advisers in 4 branch offices, a securities arbitration panel has ordered Raymond James Associates Inc. to pay $12.1 million to Wells Fargo Advisors LLC for alleged raiding.
The award does not provide any detail of the case, but ordered 10,500,000 in compensatory damages, 1,500,000 in attorneys fees and costs. A copy of the award is available here.
The offices were, at the time, Wachovia offices, and according to published reports, Wachovia Securities allegedly lost $5.3 million in production from the departures of these advisors. FA Magazine has more>>>
The award does not provide any detail of the case, but ordered 10,500,000 in compensatory damages, 1,500,000 in attorneys fees and costs. A copy of the award is available here.
The offices were, at the time, Wachovia offices, and according to published reports, Wachovia Securities allegedly lost $5.3 million in production from the departures of these advisors. FA Magazine has more>>>
Compensation Cuts Leads to Broker Transitions
Selasa, 19 Januari 2010 0 komentarIn my practice I have seen a huge increase in the number of wirehouse brokers who are changing firms, as those firms consolidate and attempt to increase their profits.
Unfortunately for some, the wirehouses are ramping up profits at the expense of their brokers, and ultimately, their customers. In all of the years that I have been representing wirehouse brokers, I have never seen such a large number of brokers who are being terminated on the basis of trumped up charges. I certainly understand the need and desire to run a compliant firm, and to weed out brokers who have difficulty following the rules. And I am aware that brokers, like everyone else, tend to downplay their own culpability in such matters. But really, some of these terminations are simply beyond the pale, and nothing more than an asset grab.
I have been saying for almost a decade that the wirehouses want to get rid of brokers and move their business model to salaried employees. See my column from the January 1998 issue of Research Magazine - Death of a Salesman. But now there is a new attack - lower payouts.
It started with the small producers - who can forget Bank of America's decision to cut payouts for brokers on the banking side by 50%, causing a exodus of brokers from the firm, and a mess of promissory note arbitrations.
Citigroup, never the friend to its brokers, apparently has plans to force its brokers into a fee based model, regardless of what the customers want, or need. In an article titled "FAs Disgruntled over New Comp Plan at Citi Personal Wealth Management", David Geracioti, the editor-in-chief of Registered Rep magazine, details the information he has received regarding this forced transition from broker to investment adviser.
As Mr. Gercioti points out, brokers are upset; and leaving. Just take a look at the discussion at the Advisor Forum at Registered Rep titled "Citi PWM Exodus" for a peek at what some brokers are facing, and thinking.
Certainly, in many instances, the fee based model works for customers, and brokers. In many cases, it aligns the interests of the broker with the interests of the customer, and both do well if the assets increase in value, without any selling pressure on the broker or the customer.
But it doesn't work well for everyone. Customers with fixed income accounts, customers who adjust their portfolios once a year, and a host of others, will pay lower fees with a commission based account. Unless of course you lower the management fee to less than a percent.
Citigroup would obviously love to get rid of brokers, and the payouts, and it just may get its wish. Brokers are leaving. If a broker wants to be an RIA, he certainly can do so without the heavy hand of a wirehouse.
Setting up an investment advisory firm, using the platform of a major broker-dealer like Fidelity, is not expensive, nor is it difficult. For the enterprising professional, it is an excellent business model. For an overview of what is involved, take a look at my article, Registration and Regulation of Investment Advisers at SECLaw.com and our update of the SEC publication, Guide to Broker-Dealer Registration.
Or, becoming an independent, and associating with an independent broker-dealer. Doing so lets brokers do exactly what they and their customers need - the flexibility to use a commission based model when appropriate, or a fee based model for those customers who need that model.
Some brokers are reluctant to go into business on their own, and certainly some customers will be reluctant to leave a "big" name like Citigroup. Brokers who stay may find their compensation continually reduced, being forced into teams, and their smaller accounts sent to a call center. Ultimately, the firms will keep the assets, and continue to have less overhead, and more profit, all to the detriment of the financial professionals who cultivated those relationships and serviced those clients.
Does the big name make a difference? I am sure it does. But given the recent financial crisis, are customers still impressed with those "big" name wirehouses? Do customers really believe that those firm offer better advice than an independent? Are they in better financial shape than their competitors? Aren't customers really relying on the relationship with their financial adviser?
Time will tell, but like the brokers in the Registered Rep forums and those who are calling my office, the outlook is not good.
Naturally, any move needs the assistance of professionals, including an experienced securities attorney. Creating an investment advisory firm is not difficult, but requires guidance through the regulatory maze. But all of that can be achieved with effort, and the cost is going to be less than the loss that you will incur over the course of a single month.
My firm offers free consultations to financial professionals who are seeking to change firms, join independents or to start their own RIAs or broker-dealers. Feel free to email me at astarita@beamlaw.com, or to call 212-509-6544 to discuss the possibilities.
More>>>
Unfortunately for some, the wirehouses are ramping up profits at the expense of their brokers, and ultimately, their customers. In all of the years that I have been representing wirehouse brokers, I have never seen such a large number of brokers who are being terminated on the basis of trumped up charges. I certainly understand the need and desire to run a compliant firm, and to weed out brokers who have difficulty following the rules. And I am aware that brokers, like everyone else, tend to downplay their own culpability in such matters. But really, some of these terminations are simply beyond the pale, and nothing more than an asset grab.
I have been saying for almost a decade that the wirehouses want to get rid of brokers and move their business model to salaried employees. See my column from the January 1998 issue of Research Magazine - Death of a Salesman. But now there is a new attack - lower payouts.
It started with the small producers - who can forget Bank of America's decision to cut payouts for brokers on the banking side by 50%, causing a exodus of brokers from the firm, and a mess of promissory note arbitrations.
Citigroup, never the friend to its brokers, apparently has plans to force its brokers into a fee based model, regardless of what the customers want, or need. In an article titled "FAs Disgruntled over New Comp Plan at Citi Personal Wealth Management", David Geracioti, the editor-in-chief of Registered Rep magazine, details the information he has received regarding this forced transition from broker to investment adviser.
As Mr. Gercioti points out, brokers are upset; and leaving. Just take a look at the discussion at the Advisor Forum at Registered Rep titled "Citi PWM Exodus" for a peek at what some brokers are facing, and thinking.
Certainly, in many instances, the fee based model works for customers, and brokers. In many cases, it aligns the interests of the broker with the interests of the customer, and both do well if the assets increase in value, without any selling pressure on the broker or the customer.
But it doesn't work well for everyone. Customers with fixed income accounts, customers who adjust their portfolios once a year, and a host of others, will pay lower fees with a commission based account. Unless of course you lower the management fee to less than a percent.
Citigroup would obviously love to get rid of brokers, and the payouts, and it just may get its wish. Brokers are leaving. If a broker wants to be an RIA, he certainly can do so without the heavy hand of a wirehouse.
Setting up an investment advisory firm, using the platform of a major broker-dealer like Fidelity, is not expensive, nor is it difficult. For the enterprising professional, it is an excellent business model. For an overview of what is involved, take a look at my article, Registration and Regulation of Investment Advisers at SECLaw.com and our update of the SEC publication, Guide to Broker-Dealer Registration.
Or, becoming an independent, and associating with an independent broker-dealer. Doing so lets brokers do exactly what they and their customers need - the flexibility to use a commission based model when appropriate, or a fee based model for those customers who need that model.
Some brokers are reluctant to go into business on their own, and certainly some customers will be reluctant to leave a "big" name like Citigroup. Brokers who stay may find their compensation continually reduced, being forced into teams, and their smaller accounts sent to a call center. Ultimately, the firms will keep the assets, and continue to have less overhead, and more profit, all to the detriment of the financial professionals who cultivated those relationships and serviced those clients.
Does the big name make a difference? I am sure it does. But given the recent financial crisis, are customers still impressed with those "big" name wirehouses? Do customers really believe that those firm offer better advice than an independent? Are they in better financial shape than their competitors? Aren't customers really relying on the relationship with their financial adviser?
Time will tell, but like the brokers in the Registered Rep forums and those who are calling my office, the outlook is not good.
Naturally, any move needs the assistance of professionals, including an experienced securities attorney. Creating an investment advisory firm is not difficult, but requires guidance through the regulatory maze. But all of that can be achieved with effort, and the cost is going to be less than the loss that you will incur over the course of a single month.
My firm offers free consultations to financial professionals who are seeking to change firms, join independents or to start their own RIAs or broker-dealers. Feel free to email me at astarita@beamlaw.com, or to call 212-509-6544 to discuss the possibilities.
More>>>
UBS To Reward Reps for Loyalty and Growth
Jumat, 11 Desember 2009 0 komentarCompetition for brokers - or rather their assets - has intensified over the past two years as firms consolidate. My firm has seen a significant increase in the number of broker transition cases we are handling, both in brokers who are being forced out of their positions, and in those who are voluntarily changing firms.
UBS was one of the firms that was aggressively luring brokers from the competition, at one point in time offering over two times their trailing 12 months gross commissions to join UBS. Of course, those checks came with significant handcuffs - promissory notes with up to 9 years of forgiveness.
UBS is apparently trying to insure that they don't lose those reps. Registered Representative is reporting that the firm has unveiled a new compensation program that will reward the firm's biggest financial advisors for loyalty and growth.
The program applies to advisors who have at least $500,000 in revenue in 2010, which apparently applies to approximately 3,000 of UBS’s network of 7,000 advisors. Those brokers would receive 65% of their gross production for 2010, structured as a seven-year forgivable loan.
More>>>
UBS was one of the firms that was aggressively luring brokers from the competition, at one point in time offering over two times their trailing 12 months gross commissions to join UBS. Of course, those checks came with significant handcuffs - promissory notes with up to 9 years of forgiveness.
UBS is apparently trying to insure that they don't lose those reps. Registered Representative is reporting that the firm has unveiled a new compensation program that will reward the firm's biggest financial advisors for loyalty and growth.
The program applies to advisors who have at least $500,000 in revenue in 2010, which apparently applies to approximately 3,000 of UBS’s network of 7,000 advisors. Those brokers would receive 65% of their gross production for 2010, structured as a seven-year forgivable loan.
More>>>
Morgan Stanley Plans to Double High Net Worth Advisors
Jumat, 23 Oktober 2009 0 komentarMorgan Stanley Smith Barney announced the integration of Smith Barney’s Citi Family Office into its own ultra-high-net-worth division, which will now be called Morgan Stanley Private Wealth Management. Unlike the old family office, the newly combined unit will exclusively serve clients with a minimum of $20 million in assets. Morgan said it plans to add more advisors to PWM through a combination of “organic growth and selective acquisitions.” More>>>
Friday Q&A - LLCs for Independent Reps
Jumat, 25 September 2009 0 komentar
Question: I recently went independent and intend to operate my business as an LLC. We setting up the relationship with my BD, they insist that all the paperwork will be in my name and not the LLC. Is this normal? How do I protect myself from liability?
Answer: The reason the BD insists on having the registration and agreements with you rather than your LLC is simple – securities regulations require it. Firms are not permitted to pay compensation to unregistered persons or entities. Your LLC is not registered, YOU are registered, and therefore the paperwork is with you, not the LLC.
As to liability, first, an LLC will not protect you from liability to your clients should they sue you for negligence or fraud. That is what insurance is for, and a corporate entity does not provide protection from your own wrongful conduct. You can insulate yourself from other liabilities, such as rent, premises liability, vendor suits and all non-work related hazards by using the LLC. Set up the LLC as you would for any other business, and pay the LLC a fee for rent, phones, etc. from the check that you receive from the BD.
All of the legal caveats apply, this is not legal advice. If you need assistance with this give us a call.
Answer: The reason the BD insists on having the registration and agreements with you rather than your LLC is simple – securities regulations require it. Firms are not permitted to pay compensation to unregistered persons or entities. Your LLC is not registered, YOU are registered, and therefore the paperwork is with you, not the LLC.
As to liability, first, an LLC will not protect you from liability to your clients should they sue you for negligence or fraud. That is what insurance is for, and a corporate entity does not provide protection from your own wrongful conduct. You can insulate yourself from other liabilities, such as rent, premises liability, vendor suits and all non-work related hazards by using the LLC. Set up the LLC as you would for any other business, and pay the LLC a fee for rent, phones, etc. from the check that you receive from the BD.
All of the legal caveats apply, this is not legal advice. If you need assistance with this give us a call.
Brokers Leaving Wirehouses, Going Independent
Rabu, 12 Agustus 2009 0 komentarAccording to this article, in July, only 28% of the 990 wirehouse representatives who left their firms relocated to other wirehouses. The other 72% relocated to independent broker-dealers, regional and institutional firms has been on the rise.
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Is Merrill Schizophrenic?
0 komentarLess than a year ago Merrill Lynch was chasing its brokers out the door with a transition bonus that was so low it was insulting for anyone producing less than a million dollars a year. Readers will recall that many Merrill Lynch brokers were faced with the choice of remaining at Merrill and taking something less than one times trailing 12 to stay, or leaving Merrill and taking something more than two times trailing 12 to leave. I discussed the problems with the retention in the post Merrill's Retention Bonuses Come In Low.
It was not a difficult choice for many brokers, and they left. Undoubtedly, Merrill structured the retention bonus to entice the small producers to leave, as it seems that firms have decided that anyone producing less than $750,000 is not worth the trouble keeping.
But that was October, 2008. This is August 2009 and now Merrill has decided it wants small producers. While it may be caused by a sanity introduced by Sallie Krawcheck, it sure has a psychotic look to it. A complete about face in less than a year.
So, Merrill is rolling out the welcome mat for brokers of all production levels, according to InvestmentNews.com in its article, The New Merrill Mantra: We Want Broker, Brokers, Brokers.
Time to change firms and join Mother Merrill? We will analyze the package in another post but for anyone considering moving. Please have an attorney negotiate and review the compensation package. Those agreement are negotiable, and you can take some steps to protect yourself should your schizophrenic employer decide that it no longer wants to employ you down the road.
More>>>
It was not a difficult choice for many brokers, and they left. Undoubtedly, Merrill structured the retention bonus to entice the small producers to leave, as it seems that firms have decided that anyone producing less than $750,000 is not worth the trouble keeping.
But that was October, 2008. This is August 2009 and now Merrill has decided it wants small producers. While it may be caused by a sanity introduced by Sallie Krawcheck, it sure has a psychotic look to it. A complete about face in less than a year.
So, Merrill is rolling out the welcome mat for brokers of all production levels, according to InvestmentNews.com in its article, The New Merrill Mantra: We Want Broker, Brokers, Brokers.
Time to change firms and join Mother Merrill? We will analyze the package in another post but for anyone considering moving. Please have an attorney negotiate and review the compensation package. Those agreement are negotiable, and you can take some steps to protect yourself should your schizophrenic employer decide that it no longer wants to employ you down the road.
More>>>
Changes at the SEC. Benefit to Advisers?
Kamis, 06 Agustus 2009 0 komentar
When President Obama appointed FINRA chief Mary Schapiro as the new Chairman of the Securities and Exchange Commission, the nation was promised an overhaul of the agency and of securities regulation in general. Given the turmoil created by the financial meltdown and the Bernard Madoff mess, we are seeing those changes happen very quickly.
Indeed, we are seeing new rules and proposals, including the re-introduction of short-selling restrictions, increasing calls for registration of investment advisors and more tinkering with rules regarding the operation of public companies. At the same time, there is a renewed effort to toughen the enforcement of existing rules and regulations.
The real question for you is: How will these changes affect individual advisors? More>>>
Indeed, we are seeing new rules and proposals, including the re-introduction of short-selling restrictions, increasing calls for registration of investment advisors and more tinkering with rules regarding the operation of public companies. At the same time, there is a renewed effort to toughen the enforcement of existing rules and regulations.
The real question for you is: How will these changes affect individual advisors? More>>>
Rise in Broker Employment Disputes Noted
Senin, 03 Agustus 2009 0 komentarAs FINRA announces the significant increase in arbitration filings this year over last, many have assumed that the increase is caused by customers filing complaints against their brokers. That may not be the case.
Our law firm is seeing a marked increase in complaints by brokers over the termination of their employment at some of the major investment banks. We have confirmed with FINRA that the arbitration filing numbers include claims between brokers and firms. We have also confirmed that while FINRA breaks down its statistics for types of customer claims, in its total statistics it does not distinguish between customer cases and broker vs. firm cases.
The rise in cases filed in 2009 (which has now passed 4,000) may not be an indication of a significant increase in brokers accused of wrongful conduct, but rather an rise in disputes between brokers and firms as pressure mounts on firms to increase productivity and decrease costs.
Given the fact that we have witnessed a marked increase in inquiries from brokers at most of the major wirehouses over employment issues, the rise in arbitration claims may very well be in the broker-firm category of cases.
Our law firm is seeing a marked increase in complaints by brokers over the termination of their employment at some of the major investment banks. We have confirmed with FINRA that the arbitration filing numbers include claims between brokers and firms. We have also confirmed that while FINRA breaks down its statistics for types of customer claims, in its total statistics it does not distinguish between customer cases and broker vs. firm cases.
The rise in cases filed in 2009 (which has now passed 4,000) may not be an indication of a significant increase in brokers accused of wrongful conduct, but rather an rise in disputes between brokers and firms as pressure mounts on firms to increase productivity and decrease costs.
Given the fact that we have witnessed a marked increase in inquiries from brokers at most of the major wirehouses over employment issues, the rise in arbitration claims may very well be in the broker-firm category of cases.
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