Financial advisors often opt for deferred compensation when they get hired, but they may be doing so without fully realizing that firms have ways of witholding that type of income.

That's according to attorney Thomas Ajamie, managing partner of Ajamie LLP and one of the lawyers who represented plaintiffs in a case involving Wells Fargo and advisor deferred compensation.

Robert Berry, who was at the center of a $79 million settlement with Wells Fargo, had his compensation withheld by Wells Fargo under a clause that allowed such action if an employee resigned to go work for a competitor or to launch a business. The precedent-setting class action settlement, which was finalized last month, covered more than 1,000 former financial advisors who said they were forced to forfeit deferred compensation when they left the company.

Ajamie said deferred compensation can be a positive thing. But some firms figure out ways to hold it back and that has been going on in the industry for a long time, he said.

Ajamie said his firm had people reaching out and complaining about issues with deferred compensation at a lot of firms. “It didn’t seem right. The general concept of keeping someone’s compensation is just wrong,” Ajamie said. “It’s just not the norm in law that you should keep someone’s income unless they did something really bad."

“If they had to fire them for cause because they did something wrong like theft or sexual harassment, they might be able to keep their compensation, but not for little things like, oh, you can’t go compete with us or you can’t go to another firm,” he said.

Berry said he gave up nearly $200,000 in deferred compensation when he resigned from Wells Fargo in 2014. He started with the company in 1999. He now owns Berry Financial Group in Lexington, S.C., an affiliate of LPL Financial.

The agreement Berry acknowledged signing with Wells Fargo contained a forfeiture clause that authorized the firm to reclaim deferred compensation from employees who went to another financial services firm within three years of leaving the wirehouse.

But Ajamie said such agreements are not valid because they are in violation of the Employee Retirement Income Security Act (ERISA), which addresses the nonforfeiture of employees’ compensation and benefit plans. 

“A firm cannot force an employee to sign such an agreement, even though many people sign it,” he said. “It (ERISA) was meant to prevent employers from using their leverage over employees in all walks of life. The concept of ERISA is you work, you get paid, and you can’t sign that away.”

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