Valenti Hanley PLLC

Be wary of any 'golden handcuffs' in your contracts

Are you a financial adviser who is thinking about leaving your current broker-dealer and moving on with your clients in tow? Maybe you want to go independent -- or maybe you just want to work somewhere else, under a different mantle?

Hold on. You'd better go read your current contract first because you may not be totally free to go where you want -- especially if you received a significant sign-on bonus when you were first recruited.

One of the most easiest traps a financial adviser can fall into is something called the "golden handcuffs" attached to their current contract. Broker-dealers sometimes promise a valuable financial adviser the sun, moon and stars with their contracts -- and sweeten the deal with a hefty up-front bonus (knowing they can't or won't deliver most of what they're promising).

That can leave the unwary financial adviser in a trap when the contract they've signed hits them with some steep financial penalties before they satisfy its terms -- including paying back the sign-on bonus.

"Retention and recruitment packages" from broker-dealer agencies are often designed to be opaque. The companies involved in such practices hope that a lot of the details will be lost in the fine print. That leaves those financial advisers who sign on in a precarious position if they aren't happy and want to seek other employment. As one attorney stated, many of the victims of these agreements "may not have fully understood the legal, tax and financial implications" of what they signed.

Ideally, you had an attorney carefully review any contract before you signed it. In the absence of that, however, make sure that you have an attorney with extensive securities law and litigation experience review your existing contract and discuss your options with you before you make your next move.

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