Broker Protocol: What Exactly is a Raiding Claim?

Brian J. Sommer 

By following the Protocol for Broker Recruiting (the "Protocol"), a departing financial advisor can reasonably expect to solicit their former clients without the threat of their former firm filing an injunction to stop the solicitations - provided, of course, that either the advisor's old firm, or their new firm, or both firms are Protocol signatories. However, contrary to what many think, compliance with the Protocol does not eliminate the threat of all legal action against the departing advisor because Protocol signatories have expressly reserved the right to pursue raiding claims. Consequently, advisors - and more likely a team of advisors - can be sued by their former firm regardless of their Protocol compliance.

What then is a raiding claim and under what circumstances does a financial advisor or a group/team of advisors need to worry about a raiding claim being brought against them?

First, raiding is not an independent, freestanding cause of action. Rather, for pleading purposes, a raiding claim must be brought as a breach of contract claim, a tortious interference with a contractual relationship claim, a breach of a fiduciary duty claim, and/or a theft of trade secrets claim. Next, raiding claims are unlikely when only one individual financial advisor is moving from one firm to another as the former firm's size allows it to absorb the loss of one advisor's book of business. On the other hand, as a general rule, a raiding lawsuit is much more likely when a whole group or team of producers is recruited to leave one firm by another firm as the impact to the former firm is greater and thus more devastating.

So what can advisors and the firms recruiting them do to manage the risk of a raiding lawsuit?

At the outset, advisors need to review their agreements with their current firm for non-solicitation language that bars them from (a) soliciting other employees to join with them in transferring to a competitor and/or (b) soliciting client accounts that were assigned to them by the firm. If such language exists in their agreements, it is advisable to have counsel analyze in order to determine whether it is legally enforceable and, if so, and, if possible, how to avoid triggering liability for violating such provisions.

Next, if the desire to change firms is even partially motivated by grievances about the current work environment, then it is worth considering discussing those grievances with current management in order to effect change. In the event that the grievances are discussed but the advisor's current firm does nothing to address them, having documented an attempt to raise and resolve any grievances will help support both a number of affirmative defenses against any raiding claim as well as certain counterclaims.

Finally, complete compliance with the Protocol is necessary. By making sure that all members of the departing team do not take any client information beyond what the Protocol allows, advisors can avoid certain kinds of claims being filed against them such as theft of trade secret, breach of duty of loyalty, and some kinds of breach of contract. Alternatively, Protocol compliance creates a compelling defense to such claims should they be filed by the former firm.

But more than these steps, and others that can be taken, it is absolutely critical for teams or groups of advisors planning to move together work with counsel to be proactive in order to avoid or at least minimize raiding lawsuits.

This material is for informational purposes only.  It is not and should not be solely relied on as legal advice in dealing with any specific situation.