Contract / Promissory Disputes

Brokerage firms commonly recruit stockbrokers to gain access to their books of business. They do this by offering up-front payments or bonuses in the form of forgivable loans or promissory notes to lure brokers. Often, these payments are well in excess of $1 million dollars and are typically cash payments. If the broker stays with the new brokerage firm long enough - through the duration of the forgivable loan or promissory note, usually nine years or so - the broker is not obligated to repay the money if the broker then leaves the firm. But if the broker leaves before the loan or note is fully forgiven, the brokerage firm will insist that the broker pay back the unforgiven portion of the loan or promissory note. These amounts can be quite large in light of the huge bonuses awarded.It is not surprising then that stockbrokers change firms often, particularly after the duration of the promissory note term is over. Since most brokers who switch firms are able to take with them roughly 70% of their customer base, usually leaving behind theWhen the brokerage firm requests payment of the amount due (or sues), there may be counterclaims the broker can make to excuse his or her refusal to repay the note, including wrongful termination, fraudulent employment law practices, false promises, sexual harassment, discrimination, or breach of contract.  The result often is that the broker ends up paying a lot less than the firm says it is due or, the arbitration panel may declare the outstanding note paid and, to boot, award the broker compensation for the firm’s wrongdoing!These contract/promissory note cases are likewise conducted in FINRA arbitrations and not in court.FINRA enacted a new rule 2273, effective November 11, 2016 that requires for brokers who switch firms, the recruiting firm must provide an Educational Communication to customers that contains the following language:“Could financial incentives create a conflict of interest for your broker? In general, you should discuss the reasons your broker decided to change firms. Some firms pay brokers financial incentives when they join, which could include bonuses based on customer assets the broker brings in, incentives for selling in-house products or a higher share of commissions. Similarly, some firms pay financial incentives to retain brokers or customers. While there’s nothing wrong with these incentives in either case, they can create a conflict of interest for the broker. Whether you stay or go, you should carefully consider whether your broker’s advice is aligned with your investment strategy and goals.”FINRA acknowledges that the disclosure should prompt the customer to ask additional questions, like, “How much was that bonus you are being offered?

Contact Ms. Stoneman - Stoneman Law Offices - Texas & Colorado. (719) 783-0303 Free Consultation - Representing Clients Nationwide