1: Get legal advice
Your legal strategy may be different from that of others who are taking the same path. While it’s possible to discuss some general legal considerations for advisors seeking independence, the reality is that no two situations are the same.
For this reason, it’s best to consult with a lawyer at the start of the planning process. They will help you to understand your obligations and develop an effective, customized approach.
“Our initial discussions with a client tend to be lengthy because we want to understand the full scenario,” says Voula. “Are you moving from a big bank to start your own practice? Are you leaving a boutique firm to open one of your own? Are you an investment manager, or a member of the C-suite? The answers to all these questions will impact how to move forward.”
2: Track down your employment contract
You may not have looked at your employment contract in a while; now is the time to track it down. (Ideally, locate the document in your files rather than through HR, which could raise concerns about your plans.)
Your contract is a great starting point because it outlines your obligations to your employer. The agreement may include terms such as intellectual property protection, “restrictive covenants” such as non-solicitation, non-competition clauses, and confidentiality/non-disclosure.
3: Be aware of confidentiality
Most people have a confidentiality clause written into their contract. Whether it’s in writing or not, there are ethical and legal obligations of confidentiality to your employer and its clients.
Make sure you know what information falls in this category. It may include everything from pricing to investment data to client contact information. “In getting to know our clients and working hard on their behalf, we want to think they are ‘ours’,” says Voula. “But technically they may belong to the institution and their information is confidential to that institution.”
4: Understand your non-solicitation obligations
Non-solicitation means that for a period of time – usually 12 months – and in a certain geographic area, you cannot take clients with you to your new practice.
“You’ll need to look at your contract to see what you agreed to, and what is practical,” says Voula. If there are particular clients with whom you have done an extensive amount of work, perhaps it makes sense to explore your options. A lawyer can help you in this process of “assessing” the employer.
And while you do not want to send out a departure email to clients encouraging them to bring their file to your new practice (“This is the kind of thing that will show up in litigation,” says Voula), if a client proactively finds you online and wants to follow you, that is their prerogative. Ultimately, it’s not the advisor’s decision or the firm’s decision where the client wants go – it’s the client’s decision.
5: Non-competition law is in your favour
In Ontario, recent legislation is in favour of the employee when it comes to non-competition. As of December 2021, employers are restricted from including non-compete clauses in employee contracts, with some exceptions. Though you’ll want to check with your lawyer on this point, any existing non-complete clauses from contracts signed prior to 2021 are generally considered invalid.
“Our system wants people working,” says Voula. “The courts have never favoured them – they generally say proper non-solicitation clauses should be enough.”
6: Plan early
If you’ve read other Business Builder articles about going independent, you know that preparation is the key to a smooth transition. The legal side of the process is no exception.
A good rule of thumb is to start planning months before you plan to leave your current employer. That being said, if independence is on your radar, it’s never too early to explore your options.
If you’d like to find out more about the legal aspect of going independent and how it relates to your situation, NBIN can provide referrals to employment lawyers as well as other experts.