“Training is everything…cauliflower is nothing but cabbage with a college education.”
— Mark Twain
To this famous quote brokerage firms might add: “Financial advisors are but Avon salesmen transformed by their wirehouse-sponsored tutoring.” Such is the strength of the conviction that brokers are deeply indebted to the institutions that educated them in the ins and outs of the retail securities industry.
Anyone who doubts this needs to read the following, because the cost of not understanding a broker's training-related commitments is high. In recent months I have spoken with a number of clients who departed their firms on the heels of completing training programs. Each jumped ship believing either: (a) the firm would not bother suing to recover its training costs or (b) some law would prevent the firm from seeking such repayment.
As with so much Wall Street wisdom, these beliefs are dead wrong. Firms do sue to recover training costs and arbitrations panels will render such awards. Here is a short list of myths related to training costs.
Myth #1:
If you stay at least one year and leave production, the firm will not come after you.
In A.G. Edwards & Sons, Inc. v. Tony M. Stevens, Stevens had executed a Financial Consultant Agreement and Supplementary Training Agreement, which required pro rata reimbursement of trainings costs if he resigned within three years of registration. Stevens voluntarily resigned after one year's employment but refused repayment, claiming that he was unaware of the amount due and had quit to pursue a nonproducing management position. A.G. Edwards sued for repayment of $27,000 in training costs with 10 percent interest and $2,500 in attorneys' fees. The NASD Panel awarded the amounts sought, plus an additional $1,900 in filing and forum fees.
Myth #2:
If you counterclaim, they won't risk trying the case.
In Morgan Stanley DW, Inc. v. Jack Patrick Kovic, Kovic executed a Financial Advisor Trainee Employment Agreement but refused to repay training costs and counterclaimed that his former firm had tortiously interfered with his business and committed acts of unfair competition. The sole NASD arbitrator awarded the full amount sought of $16,666.68 at 6 percent interest but denied attorneys' fees. Notably, he wrote, “Training carries with it real expense for the provider. Employers must have protection from a person who, after training, would walk away to a ‘better deal’ now that he was more qualified. (Even our U.S. Military Academies have this policy.)”
Myth #3:
The most they will get is the training costs you owe them.
In A.G. Edwards & Sons, Inc. v. Ronald Cleveland, Cleveland executed a Financial Consultant Agreement and Supplementary Training Agreement but refused to reimburse the firm for training costs. The NASD panel entered an award for A.G. Edwards in the amount of $22,500 plus 10 percent interest, $2,100 in attorneys' fees, $750 in filing fees and $1,178.41 in airline and hotel expenses.
Myth #4:
If you can't afford a lawyer, you might as well not show up for the hearing.
In Ladenburg Capital Management, Inc. v. Daniel Haim, Ladenburg Capital sought $30,108.09, together with interest and costs arising out of an alleged breach of contract and failure to repay training costs. Notwithstanding that Haim appeared pro se and the employer was represented by counsel, the NASD panel denied the claim.
Myth #5:
You just can't win.
In Robert W. Baird & Co. Incorporated v. SunAmerica Securities, Inc., Glenn M. Ullmann, Aric Berquist and Deanna A. Calabrisotto, Robert W. Baird sought:
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Return of its original confidential and proprietary customer information and data.
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Compensatory damages in the amount exceeding $1.5 million, resulting from respondents' breaches of fiduciary duties, aiding and abetting such breaches and conspiracy, unfair competition, breach of contract and tortious interference.
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Reimbursement of unearned commission advances from Berquist in an amount exceeding $12,000.
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Reimbursement of training expenses from Berquist in the amount of $16,000, plus prejudgment interest and attorneys' fees.
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Reimbursement of training expenses from Calabrisotto in the amount of $32,000, plus prejudgment interest and attorneys' fees.
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Punitive damages in an amount exceeding $1.5 million from all respondents.
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Prejudgment interest.
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Attorneys' fees.
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Such other relief as the arbitration panel deemed just and proper.
The hearing panel denied all of Robert W. Baird's claims (as well as the respondents' counterclaims) and required the claimant to pay respondents' attorneys' fees.
Writer's BIO: Bill Singer is a partner with the law firm of Gusrae, Kaplan & Bruno. rrbdlaw.com