Employment Matters

Gregory B. Simon Law, LLC has significant experience representing financial advisors in a variety of employment-related matters:

Wrongful Termination

While most financial advisors are at-will employees, meaning that they can be terminated at any time without any reason, a wrongful termination claim may be pursued where the firing was in violation of the law (e.g., the termination was based on a person’s race, religion, gender, age, or other factors protected by labor laws), or where the termination was in violation of public policy. A financial advisor with a written employment contract may have rights not afforded to typical at-will employees. Additionally, if a financial advisor’s employer discloses an inaccurate or false reason for the advisor’s termination on a Form U-5, that advisor may be able to pursue a claim for defamation, as discussed below.

Form U-5 Defamation

FINRA member firms must file a Form U-5 within 30 days after the termination of a financial advisor’s registration with the member firm. Firms are required to disclose the termination reason and provide a written explanation where the termination reason is “Permitted to Resign,” “Discharged,” or “Other.” Furthermore, firms can disclose whether an individual was under investigation or internal review at the time of termination as well as whether the termination occurred after allegations that the financial advisor violated industry rules, regulations, laws and/or standards.

The accuracy and truthfulness of the information disclosed in this form is imperative as the information is used for a variety of reasons by multiple entities. For example, FINRA uses the information to identify and sanction advisors who violate industry rules, laws and regulations; firms use the information to assist them in making informed employment decisions about advisor candidates; and customers often view disclosure information on BrokerCheck when deciding to hire a financial advisor. Depending on the nature of the statements disclosed on the Form U-5, it might be impossible for an advisor to obtain employment with other firms and/or secure new clients. Advisors who believe that the information disclosed on their Form U-5 is false or inaccurate may be able to pursue a defamation claim against their employer.

Expungement Actions

Keeping a financial advisor’s regulatory record clean and accurate is of the utmost importance. When a financial advisor’s regulatory record contains false or inaccurate disclosures, such as customer complaint allegations, FINRA’s rules permit such information to be expunged under certain circumstances. In order to expunge any customer dispute information, the advisor must obtain an arbitration award that finds that:

  1. the claim, allegation or information is factually impossible or clearly erroneous;
  2. the registered person was not involved in the alleged investment-related sales practice violation, forgery, theft, misappropriation or conversion of funds; or
  3. the claim, allegation or information is false.

Information concerning employment termination decisions reported on a Form U-5 can also be expunged where the arbitration panel finds that the language was defamatory, misleading, inaccurate, or erroneous.

Promissory Notes and Employee Forgivable Loans

Financial advisors are often lured away to competitor firms with the promise of large upfront payments, as well as additional payments that can be obtained if certain asset or revenue targets are met. In order to receive these payments, financial advisors are required to sign promissory notes requiring the funds to be repaid over a period of time, usually 6-9 years. Provided that the advisor remains with the brokerage firm, a portion of the funds is earned out or forgiven each year. However, if the advisor leaves the firm for any reason before the full loan period, the outstanding balance becomes due and repayable.

Most brokerage firms aggressively pursue financial advisors for repayment of their promissory note balances. However, there are various defenses that may apply to the enforcement and repayment of a promissory note. Furthermore, a financial advisor may be able to assert certain counterclaims against his/her prior employer which can potentially reduce or eliminate the loan balance owed. Common counterclaims include wrongful termination, breach of contract, and fraud in the inducement.

Employment Transitions

Financial advisors often face a host of issues when moving their business to a new brokerage firm. The attorneys at Gregory B. Simon Law have the experience to advise financial advisors on a wide range of transition issues, such as,

  • reviewing employment agreements and advising on an advisor’s contractual obligations, including non-compete and non-solicitation covenants;
  • advising on an advisor’s outstanding monetary obligations to his/her prior firm, such as promissory notes;
  • negotiating Form U-4 and U-5 language;
  • counseling on any regulatory inquiries or state registration issues stemming from the transition; and
  • compliance with the Protocol for Broker Recruiting, if applicable.

If you are a financial advisor with a question regarding an employment issue, please contact Gregory B. Simon Law today for a free, confidential consultation.

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