Advisors Need Employment Details In Writing

(Dow Jones) Financial advisors are typically lured to new brokerages with generous promises, but promises don't buy happiness. Contracts do.

Whether it's the corner office, a higher payout or back-end bonus-or all three-the details need to be put in writing in a sample contract or a letter of intent, and then signed ahead of time, lawyers say. Otherwise there's nothing to guarantee that the hiring firm will deliver on them.

"One of the key things that any financial advisor should consider when moving from company to company is leverage," says David Harmon, an attorney with Norris McLaughlin & Marcus. "Once you leave company A, your ability to negotiate different employment terms with company B is weakened, so you want to have everything in writing before you leave company A."

Brokers have been known to arrive for work at the new company and find that the terms of employment-spelled out in a stack of paperwork dropped on their desk-have been altered.

"Back in the day, it was all based on gentlemen's agreements," said Brian Hamburger, securities attorney with MarketCounsel and the Hamburger Law Firm. "They would just shake on it, which was fine when the paperwork they'd sign later reflected the original terms of the deal."

But that's not always the case these days.

"Once they've already terminated their prior employment, the clock's ticking," Hamburger said. "What're they going to do? If they don't sign it and start working, they're going to lose their clients."

Some brokers who find themselves in this situation eventually grow unhappy and try to find a way out of their contract and the job. They can try claiming they were pressured into signing and therefore shouldn't have to pay back a signing bonus. But such maneuvers typically fail.

"Unfortunately for us, a contract is a contract, and the fact that they signed it under duress isn't much of a defense," Hamburger said.

Despite the conflicts that develop between brokers and new employers, it's still unusual for the brokers to get their own lawyer for the hiring process or to insist on written and signed terms in advance.

"It goes against social norms when striking a deal, to insist on seeing the final paperwork before you leave your current firm," he said. "The receiving firm doesn't want to be seen as infringing on an existing contract you have elsewhere. It's like they're saying, 'You've got to stop dating the other guy before we'll ask you out.'"

Lawyers believe they can help negotiate not just an up-front signing bonus, but also terms for payout, office space, retirement benefits, expense counts and a sales assistant.

"Sometimes the hiring firm will offer up their attorney. But you need your own attorney who will act in your best interest, not the firm's," says Deborah Aronson, senior consultant with Diamond Consultants, a New Jersey-based financial advisor. "The cost is pennies, compared to the deal."

Advisors can even ask that terms include repayment of at least part of their legal fees once the transition is complete.

Lawyers favor getting in writing, in advance of hire, other details as well, including technology and back-office support, travel accommodations to visit clients, marketing and advertising allowances, terms for performance hurdles, and even employee termination issues, such as repayment of the note if the broker leaves the company.

Even when branch managers have the best of intentions to keep the promises they made to a new recruit, some decisions are out of their hands. Companies generally don't want to break promises and develop a reputation that hurts recruiting, but market conditions and other factors can prompt them to make changes in how they compensate and otherwise treat employees.