The new hyper-compliant world has left many advisors with a pink slip in hand, thinking they have reached the end of their career. Yet there are steps you can take to get back in business.
I have written multiple times in the past decade about a heightened and ever-changing regulatory environment catching even compliant advisors in its crosshairs. Today, as we stand at the threshold of a new world prompted by the DoL’s Fiduciary Rule, we find advisors dealing with even greater levels of scrutiny and zero tolerance policies as the new norm.
Too many times in the past year alone, I have been the recipient of a frantic call from a quality advisor who was just given notice—or lack thereof. In almost every case, what started off as a typical day quickly turned into a nightmare—a termination without notice and a security escort to the door. When that happens, advisors find their entire careers and relationships with clients in jeopardy.
In this new hyper-compliant environment, advisors are often completely unaware that their activities (or those of their team) are in any way non-compliant in the eyes of FINRA or their firm. And by the time they find out that what might have been overlooked by compliance departments in the not-too-distant past, it’s too late—and it is now the very act that brings about their unforeseen demise.
While no one likes to think about the unthinkable, it would be foolish not to be fully aware of what you need to do should you find yourself holding the metaphorical pink slip.
The 5 steps a terminated advisor needs to take—immediately!
1. Take a deep breath and gather your belongings.
There will be plenty of time to grieve later, but time is of the essence. Your only goal right now is to get hired by the best firm as quickly as possible.
2. Call a trusted recruiter.
Because time is of the essence and – depending on the severity of the reasons for termination – you will need to be open to considering all kinds of firms. It is critical to leverage the expertise of someone who is well-connected across the swath of the industry landscape and can arrange meetings for you without delay. A good recruiter will advocate tirelessly on your behalf and provide the critical elements of objectivity, credibility and optimism at this very emotional time.
Your recruiter should know what options are most realistic given the size and nature of your business and the reason(s) for termination. He or she will coordinate efforts with legal counsel to move the process forward in a timely manner; this is extremely important, as each day that goes by increases the potential for losing clients. In some cases, depending on the reasons for termination (sales-practice violations being most toxic), major firms may not be able to hire you. And while a firm’s local manager expresses initial interest in you, it may take days or weeks before you learn that the compliance department has vetoed the hire. In addition to meeting with every possible wirehouse and regional firm, we believe strongly that terminated advisors should also open doors with firms you may have previously considered “second-tier”. A terminated advisor needs as many “oars in the water” as possible.
Best-case scenario: You took meetings that were unnecessary. Worst-case scenario: In order to salvage your career, you land at one of these second-tier firms. Truth be told, this does not have to be the death knell to working with high-net-worth clients. Many advisors who reluctantly ended up at second-tier firms have done quite well, because open architecture makes it possible for them to continue to serve those clients as they had done previously. We hear from many folks in this position who said, “My termination was a blessing in disguise—it allowed me to land at a firm that offered me much greater freedom and flexibility than I had previously and I would never go back to a major firm.” Nonetheless, with 2 or 3 years of an untarnished compliance record, should you desire, you can likely find your way back to the majors.
A recruiter can also advise on options you might not have otherwise considered. For example, you may want to evaluate the RIA space, because greater flexibility and control is what defines your newly found “independence”. Registered investment advisors are also not subject to an employer’s criteria—their only master is the regulatory thresholds. Plus, RIAs have the freedom to tailor the investment strategy, asset allocations and products they offer to meet their clients’ individual needs.
3. Hire a lawyer.
The firm that just terminated you is legally bound to file public disclosure Form U-5 within 30 days. It will contain the reason for termination and the wording is one of the most important barometers of your future success.
“A terminated advisor should immediately retain an attorney to negotiate the specific disclosure language regarding the basis for termination on Form U-5 before his Form U-5 is filed,” says Barry R. Lax of Lax & Neville LLP, a New York City litigation firm that specializes in the financial services industry. “Prior to the filing, there are many instances where a broker dealer is open to a recommendation as to the reason for termination and the disclosure language as long as the disclosure remains truthful.”
Make no mistake: This is a negotiation process with a finite expiration. Once the door closes (i.e., when the firm files the Form U-5 or the expiration of 30 days, whichever comes first), it’s a nearly impossible door to reopen.
4. With your attorney’s blessing, stay close to your clients.
Let them know what happened and assure them that you have always acted – and will continue to act – in their best interests. They need to be assured that their assets are safe and are being monitored in your absence, and of course, that you expect to land elsewhere soon.
5. Create a timeline and personal narrative.
While you wait out what feels like a painfully long 30 days for your U-5 to be filed, you can be productive by preparing your personal narrative—a written description from your perspective of the events that led to the termination. This timeline of events will help your attorney advocate best on your behalf, and any firm considering you will need one along with the Form U-5. Note: Personal narratives are not meant to be sales pitches; they are meant to give a compliance officer an honest accounting of the facts.
A terminated advisor must take responsibility for his actions. The kiss-of-death for anyone who wants to be hired by another firm is to act defensively or to blame others. Contrition and remorse are the watchwords. The very best course of action is to acknowledge any mistakes made, explain what happened in an evenhanded way, and then to send the message, “I have been scared straight and this will never happen again.”
How does an advisor protect himself?
In hindsight, termination is rarely a complete surprise. Many times there are warning signs in the weeks or months leading up to the termination; even a wayward glance from management can be a sign something is amiss. Unfortunately, many ignore their own instincts and accept assurances from management that “everything will be fine”—that is, until that fateful meeting.
The truth is that despite very best efforts, the compliance landscape has become a complex one and as long as an advisor is an employee, he is not in complete control of his professional destiny. So consider these steps to protect yourself:
- Seek counsel at the first sign of anything out of the ordinary.
- Always keep your eyes and ears open; get and stay educated about the industry landscape.
- Make certain that the way you run your business is approved by management, so there are no surprises.
- Continue to be a good ambassador for your firm, a fiduciary for your clients, and a solid member of your work community.
- Be open to good counsel from trusted advisors.
- Always have a “Plan B” at the ready.
Should you find yourself being ushered out of the place where you built your business life, do not assume this is the end of the road. Navigating this new terrain will require you to be proactive and gather the right team to help you regain control of your destiny. And only then can you ensure that your career will not be left in ruins, but instead rebuilt in the best way possible.
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