I’m planning on leaving my current broker-dealer, which is not a signatory to the Broker Protocol. What information can I take and can I contact my clients?

When an employer is not a signatory to the Broker Protocol, the issues relating to non-solicit/non-compete agreements depend on the contract and the jurisdiction you’re in.

Generally, courts require a non-solicitation provision to be reasonable in scope and no broader than necessary to protect an employer’s legitimate interests. Many states define “legitimate business interests” to include: trade secrets; valuable confidential business or professional information; substantial relationships with specific prospective or existing clients; client goodwill associated with an ongoing business, a specific geographic location, or a specific marketing or trade area; and extraordinary or specialized training. The general rule is that customer lists will probably qualify as trade secrets if: there is evidence that they are the product of great expense or effort; are distilled from a larger list; or, include information not available from public sources.

Although there are some cases holding that an employee is not soliciting former clients if the clients approach him or her on their own without being actively solicited, there are also many cases that hold otherwise. In any event, the main issue for you is the restrictive covenant in your contract. This prohibits you not only from soliciting your clients, but also from selling to any person to whom you were assigned, whose name became known to you, or to whom you sold any product or service offered by your broker-dealer. This provision is not a non-compete clause in the traditional sense but, rather, only prohibits you from providing services to the clients serviced by your employer or for whom you were named Agent of Record. And it doesn’t prohibit you from selling the clients “any” services, only those that were marketed or sold by the company. The limited nature of the clause means it would be very difficult to overcome.

Even if the clients come to you on their own, you would be precluded from providing them with the same services you were authorized to provide through your employer. Depending on your relationship with the firm, I’d suggest you try to negotiate purchasing your book of business. If your employer is unwilling to negotiate or sets too high a price, at least you’d be no worse off than if you hadn’t tried at all, since any attempt to take these clients will likely result in an injunction and arbitration.  

In your August column you answered my question about being called in by FINRA for an on-the-record interview more than a year after I was terminated for allowing a husband to sign a form on behalf of his house-bound wife without her written authorization. On advice of counsel, I entered into a Letter of Acceptance Waiver and Consent with FINRA and was fined $5,000 and given a 30-day suspension from association with any FINRA member firm. Since I am not currently associated with a FINRA member firm, when does the suspension start?

The suspension goes into effect immediately. Even though you are not currently registered with a broker-dealer, the clock has already begun to run on your suspension. In fact, while  your suspension is in effect, you would not be permitted to submit a registration to a broker-dealer and if you tried to do so it could result in additional sanctions. Consequently, it actually works in your favor that you’re not currently registered with a brokerage firm. This does not prevent you from becoming registered with a registered investment advisor.

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