Advice on training agreement

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Feb 27, 2008 6:49 am

All,

I have an odd situation, and could use advice from someone who's been through it....

I'm 7 months into productions , doing well (tier 1 production - barely, tier 2 assets) and like my wirehouse, manager, etc.  It's all good.

However:

I've been approached by the manager at morgan stanley (where I interviewed in 2006 before taking the current job) at a social event and told he's actively recruiting and would like me to consider moving.  I'm a small fry trainee - top tier in production, tier 2 in assets - but small fry due to tenure, but we both see some fit.

I'm intrigued because MS is a better fit with my life, nautural market, commute, community activities I do, etc.  Plus, I was hoping to go there in the 1st place.

Of course, I've got a training agreement - which the morgan stanley manager knows about - and that issue will come up in our next discussion next week (our next step).

This seems like a lot of risk to me - even if I or MS pay the fee in the training agreement.

Anyone got wisdom to share?

Thanks,

M P R

Feb 27, 2008 7:08 am

It doesn't look good to your clients to move so quickly after starting out.  You might have a hard time moving people.  It would be even worse if you made the move and then things didn't work out at MS.  But I also don't know your current situation.

Feb 27, 2008 8:17 am

Branch managers are virtually always "actively recruiting" brokers with existing books, much in the same way you are always "actively recruiting" new clients with assets to manage.  That's a big factor in how much BOMs are paid.

Whether he will still be actively recruiting you after he learns your specific numbers remains to be seen, but if he is still interested you should absolutely make it clear you could only consider a move if he was willing to pick up all costs to you, especially the training contract costs.  If he balks at that, you better want the MS name bad enough to pay back all training costs out of your pocket, because Jones will come after you for those costs.  I would run away fast if he refuses to pick up the training costs.

It seems odd he wasn't willing to extend an offer as a trainee 7 months ago but is now interested, unless he thinks you have shown yourself to be a surprise producer or - and watch out for this - he thinks he can poach you withOUT having to pay the training contract buyout costs.

I assume you are also aware of market rates for incentives for bringing over your assets, so I won't go into those details.

You should also be very clear on exactly what minimum production numbers he requires, as it may be much different from your Jones Tier 1, Tier 2 stuff, and after only 7 months in production you may be unpleasantly surprised at how many clients come with you.   I frankly have no idea what these tiers mean in terms of
real life or things like AUM or what type of business you do or book
you have.  I'm sure your fellow Jones people understand it perfectly,
but the rest of us - not so much.

Feb 27, 2008 10:26 am

He's not with Jones.

Feb 27, 2008 10:50 am

Ah so.  My mistake. 

Everything else applies equally to whatever b/d involved that uses these 'tiers' that I am not familiar with.  Where are you currently MPR?

Feb 27, 2008 12:20 pm

MPR, if "it's all good" as you say, I would be very, very hesitant to upset the apple cart and go elsewhere into an unknown situation.  You may think you know what it will be like to work for another company, but until you are there, you don't.  The MS guy may be pleasant at social functions, but may be an asshole to work for.  Likewise, he may be fine, but the other brokers in the office may be assholes.  The product offerings may not match what you're doing now, etc.,etc.,etc.


My point is, think long and hard about burning a bridge at a place where things are going well unless you can virtually guarantee that the new set-up will be better than what you have.  In my mind, it makes more sense to jump when there is a good reason to jump, such as lower grid payout, reduced product availability or conflict with management.  This may very well happen where you are, but it may be at your new employer day one.  In my mind, fewer moves are better and make you more marketable later when you really have something to sell (i.e., a substantial book).  Employers like stable long-term employees.


...and do us a favor...come back and let us know what you decided to do and how it's going.  There are plenty of people here who would be happy to learn from your experiences, both good and bad.  Good luck.
Feb 27, 2008 6:30 pm

All,

Thanks you for your thoughtful input....  Agree about stability, bridge burning, long term marketability, etc. - and assholes (don't think there are any in my case).

Just so you know....  The allure is downtown location (in my old suburb north of chicago), proximity to my natural market, close to where I participate in community activates, and "being part of the community" (that works for me, no kidding).  Believe it or not, it's not really about assholes or grid.

Most of my meager book would join me (at this point, it's the friends and family program), and I perceive that my prospecting wouldn't be too interrupted.

This is where I need a reality check:  I'd expect a deal on training expenses - but what really scares me is that I'd get sued, bankrupted, my wife and 5 children would be sold as slaves, my organs harvested and my house bulldozed.  If you read the agreement, that's all possible.  And since I only have one kidney, that still leaves an unpaid balance.

The big question:  What happens in the real world when people make move?  I know it happens, but what about all the stuff about proprietary information, etc.  Do I violate the agreement if I send a friend who is now a client a Christmas card (I think the answer is yes).

Sorry, I'm so terribly naive - but I am.

Grass always looks greener, right?  It may be filled with poison ivy.

But I'm still interested in your input....

Many thanks,

M P R





Feb 27, 2008 7:27 pm

I still don't know exactly what you really would be gaining at one wirehouse vs. another.  You mention "proximity to my natural market"  and "close to where I participate in community activates" and "being part of the community."  Do you really think the location of your office or the sign on the door matters that much to those things?  Think of your grass is always greener comment.

Maybe there is more to it than you are saying.  I hope so, because frankly nothing you have said sounds like a strong reason to jump from one wirehouse to another after 7 months.  It sounds more like you just like the idea of MS and are trying to come up with some reasons to justify an otherwise questionable move.  I'd say THAT is where you need your reality check.  And if your book is really "meager" friends and family stuff, I find it amazing the MS BOM would be willing to absorb your training costs - but that's up to him.

Having said that, and realizing you probably are not likely to listen to advice you don't want to hear, generally if you get proper legal advice on exactly what you can say and when, AND you have a new b/d willing to pick up your training and transfer costs, you shouldn't have to worry about losing any organs.  People change b/ds all the time.  But do get clear advice on what you can take  from your current b/d- it's basically your "Christmas List" (names, addresses, phone numbers). 

Feb 27, 2008 9:19 pm

I'll try to answer your question...


The norm when moving between wirehouses is that the hiring firm will PAY for any outstanding training agreement $. They will settle w/ your old firm BUT make sure you discuss this w/ your manager and get it in writting if you can. Your old firm will mail you a letter asking for the $ and you will turn that over to your manager for them to deal with. If you have a non-solicit then YOU BETTER FOLLOW PROTOCOL. MS (and if you're with a wirehouse so them too) are part of the protocol program meaning you can solicit your clients as long as you only take the information according to broker transfer protocol signed by the firms.
 
That's about at there is to dealing w/ training agreements when switching from wirehouse to wirehouse. You did not mention this but I would negotiate a transition package w/ MS. If you're new into the business you're probably getting some sort of salary and believe me that MS will be willing to put you on a transition salary as a trainee in addition to covering the training agreement costs.
 
Good luck.
Mar 5, 2008 2:14 pm

I recently received an offer from a major wirehouse, and the wording of the training agreement has really caused some concerns.  It states that even if I am terminated, I will be responsible for the repayment of the training costs.  Since I am new to the business I've got the pressure of succeeding in a business with a 90% failure rate but now I have to worry about repaying the training costs if I am terminated for not hitting my goals?

 
I spoke to a friend who is currently a trainee and he told me to "sign the agreement, they won't enforce it if you don't hit your goals". 
 
Can anyone give me their thoughts/opinions on this matter?
Mar 5, 2008 2:50 pm

Milo,

What states is your friend licensed to practice law in?

If you search old posts you'll find lots of information on this, so I'll just give you the short answer and leave it to you to do some legwork.

First, the terms of the contract give the firm the right to come after you to recoup defined 'training' costs for a specified time period, even if you are terminated.  In practice, they generally won't seek to collect if you wash out and leave the business and don't attempt to take any clients elsewhere.

If you stay in the business and try to take clients, absolutely expect them to come after you for the money.  Typically, you would negotiate with your new b/d to pick up these costs on your behalf as part of your negotiations, and they in turn would expect to negotiate a reduced agreement with your old firm.

You are right to be concerned about this.  As Bill Singer will no doubt tell you, the best protection is to hire your own attorney to review any proposed contracts BEFORE you join/sign them.  Most people don't do that and then seem somehow surprised down the road to find out that contracts they sign turn out to be legally binding.

At the end of the day, you won't have much choice if you're brand new to the business - if you want to be paid while you get trained, you'll have to accept such terms.  I'm not saying it's right, but it is standard in the industry.

Mar 5, 2008 3:21 pm

Thanks for the info Morphius. 


Obivously, I doubted my friends advice and that's why I decided to get some opinions from experienced FA's.   I think it's safe to say that my friend will be in for rude awakening once he realizes he can't leave the wirehouse and start working for a bank the next day.
Apr 14, 2008 2:39 pm

I'm looking to leave EDJ well within the 3 yr training agreement. What is the best way to do this if I plan to work for a bank or a discounter? Should I just quit producing and get fired? Will Jones pursue me if I am fired and continue to use my 7?

Apr 14, 2008 4:02 pm

I have no experience in leaving before the contract expires, however I doubt the best for you in the long run is to get fired.  If you decide to leave and go to a bank or another institution, I would suspect the company will try to get some comp for you leaving.  Is the new firm willing to pick up the this cost to get you?  If no...you might want to tough it out past 2 years to keep the cost affordable.  If yes...HEAD ON BROTHER!!!!! LIFE IS TO SHORT....

Apr 14, 2008 6:17 pm

Hi bspears,

 
Thanks for your response. I don't plan to stay in the industry long-term, but I need some reliable income, which the banks and discounters seem to provide. Since I don't plan to make a career of it, do you think getting fired would avoid going to arbitration for $75,000?
Apr 14, 2008 6:19 pm

Also, the banks and discounters I have talked to don't seem too willing to eat the cost of a training costs settlement, probably due my being in the industry just over a year.

Apr 15, 2008 12:25 pm

anybody? buehler?

Apr 15, 2008 1:06 pm

Out,

 
This is a strange situation you are in.  You say that you are not planning on staying in the business, but need the reliable income, and yet you are new in the business.  To me, it sounds like you should get a non-sales position in the industry, and not worry about the training costs.  If you get fired, you run a high risk of not being employable.
Apr 15, 2008 4:22 pm

Hi Broker24,


Thank you for the answer. In the article above, Bill Singer cited a case where a rep was sued for training costs and lost, even though he took a non-sales management position at a bank. Would Jones be this vindictive?
 
outofedj
Apr 15, 2008 5:13 pm

My answer is a pure guess, but here it is.  I would guess that if you went to another finanical institution in a non sales capacity and didn't try to take your clients with you, Jones wouldn't go after you.   Their beef with going after training costs isn't for those people who get in, don't like it, and then leave the industry or at least the selling side.  Their issue is with guys going through the licensing, training, office build out, etc then jumping to some crappy firm like LPL.    (It's just a joke spears, don't get your panties in a wad.  Wait, you're b spears.  You don't wear any.) 


 
In your case I don't think you have anything to lose by calling your area leader or your RL and talking through it with him.