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Financial advisor in the securities industry..

Fargo, ND |

I am in the financial services area for work and I recently switched companies and relocated my family to the city where my employer is. When i switched firms, my current firm gave me an "upfront" bonus(130k over 8 years) and i signed a contract to be here for 8 years, otherwise i would have to pay the bonus back pro-rata if i left before than(Been at the new firm 1 yr) They promised me a "book" of business and thats the reason why i left my previous firm. Now they are saying there isnt a book of business for me in the new city. Im wondering if I can get out of this contract without having to pay the "upfront bonus" money back. What are my options with this?

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Attorney answers 2


If the financial advisor resigns from the brokerage firm, or is terminated, before the loan is forgiven, the broker is contractually obligated to repay the outstanding amounts owed on the loan and the brokerage firm will often move to collect the outstanding amount still owed on the loan.

Typically, the brokerage firm does this by sending a "demand letter" requesting that the financial advisor repay the money owed on the promissory notes. If the brokerage firm does sue the former financial advisor, such suit will likely be filed with FINRA (formerly the NASD) since virtually all brokers at the onset of their employment with their now former employer agreed to arbitrate any dispute between themselves and their employers through FINRA arbitration as part of their employment agreements. If the brokerage firm takes their claim all the way to hearing and gets an award against the financial advisor, the financial advisor is required by FINRA Rules to pay the award.
There are a few ways to avoid being paying an award (including agreeing with the brokerage firm to settle the award with payments over time, declaring bankruptcy, or demonstrating to FINRA a legitimate inability to pay the award) but generally speaking a financial advisor is obligated to pay the award if the brokerage firm prevails.
Fraudulent inducement of employment occurs when an employer makes a false statement to an employee about something to make them take a job, or continue working a job, when the employee would not have taken or kept the job had they know the truth of the statement.
In order to sue an employer for fraudulent inducement of employment, an injured employee must prove that:
1.The employer made an intentional misrepresentation of a fact,
2.The misrepresentation was material to the decision to accept or continue employment,
3.They reasonably or justifiably relied on the the misrepresentation, and
4.They suffered some injury.

An employee who is injured because of a false statement by an employer can have alternative means of recovery too. They include suing for:
■Fraudulent concealment,
■Failure to disclose
A California Court ruled A man who moved from India to California for a job can sue his employer for misrepresenting the terms of his employment in violation of California Labor Code section 970 California Labor Code section 970, which prohibits knowingly making a false representation to induce an individual to relocate for employment. The case will now go back to a jury (Singh v. Southland Stone, U.S.A., Inc., Cal App, July 2010).

The materials available at this web site are for informational purposes only and not for the purpose of providing legal advice. You should contact your attorney to obtain advice with respect to any particular issue or problem. Use of and access to this Web site or any of the e-mail links contained within the site do not create an attorney-client relationship between Howard Roitman, Esq. and the user or browser. The opinions expressed at or through this site are the opinions of the individual author and may not reflect the opinions of the firm or any individual attorney.


I agree with my colleague - if you are in the securities industry, the claim against you and any counterclaim or defenses will be handled with one arbitrator in a FINRA arbitration proceeding (see FINRA Regulatory Notice 11-22 discussing the updated procedures for promissory note cases and removing the requirement for employment discrimination background for such cases). As stated, upon your departure, the disputed employee forgivable loan (as it is typically structured), generally becomes due and payable immediately.

However, I do suggest you tread lightly in this area. While there has been some high profile cases in which the representative has been victorious, the majority of the promissory note cases do go in the favor of the firm. It is an uphill battle on the side of representative to successfully dispute the loan. Certain defenses include fraudulent inducement, failure to perform, unconscionability/adhesion contract, impossibility, frustration of purpose (i.e. stability of firm), breach of the implied covenant of good faith and fair dealing, loan was really a bonus or compensation, and lost opportunity cost, may be in favor of the representative, but even a successful defense may not forgive the entire balance of the loan either. Arbitrators may look to equity, not just to law, in determining an outcome of an arbitration, including principles of unjust enrichment of the representative.

Another option, for both you and a competent securities counsel, to consider is a potential settlement of the note and avoiding arbitration all together. Basically, reaching a compromise with the firm as to the outstanding principal amount owed and reasonable repayment terms. Thus, both you and the firm avoid the significant costs of arbitration (including FINRA forum fees and attorney's fees), achieving finality of the outcome, while avoiding the risk of unfavorable arbitrator findings.

I have attached the link to FINRA's Arbitrator Awards Online where you may search for awards regarding promissory notes to give you a better understanding of the historical results. Although, please keep in mind that FINRA arbitrators rarely provide any rationale for an award so it will be difficult to determine the arguments presented on both sides.

I do suggest you contact an attorney with experience in handling these matters prior to making any decision regarding your current firm, including one with potential to negotiate with the firm as you transition, including dealing with any U-5 issues upon resignation.

This answer was provided for general informational purposes only, and should not be construed or interpreted as providing legal advice or as creating an attorney-client relationship. I am licensed in the State of California. The law in your state may differ and your best answer will always come from a local attorney in your state that you meet and discuss the important facts related to your particular matter.