Wealth Management

Constangy partner John MacDonald authored an article published by Wealth Management providing strategic considerations for investment advisory firms to avoid legal pitfalls when onboarding new advisors.

Expanding your practice area through the addition of new talent can lead to a frequent influx of new hires, creating circumstances wherein firms overlook certain details that can be costly in the future. 

When transitioning from one firm to another and bringing along clientele, MacDonald stressed the importance of identifying if there is a current non-compete agreement in place and the likelihood of enforcement if there is. It is also vital for employers to establish their own agreements that are in line with state laws. 

Offering equity can serve as a strong approach to secure an employee to the business, as LLC agreements tend to have non-compete and non-solicitation clauses, and offering stake in the success of the business is an attractive recruiting tool. However, MacDonald warned that it is important to make sure that there is a clear way of divesting the individual’s equity if employment is breached. 

He went on to highlight the importance of not overlooking back-of-house employees when it comes to non-compete agreements. Anyone who has substantial access to clients should be considered as a candidate to sign a non-compete and non-solicitation agreement. 

“It’s easy and commendable to obsess over your advisory practice, but don’t let that stop you from taking the simple legal steps necessary to protect all your hard work,” he advised. “It may be easier than dealing with other compliance issues, and it can be just as valuable.” 

To view the full article, you may click here. 


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