Making the leap from employed financial planner to self-employed principal can be an exciting but tricky venture.While it offers you the chance to pursue your goals, it can be hard to know how to navigate the legal framework that comes with starting your own financial advice firm – particularly when you’re exiting the institutional model.Let’s walk through some common contract clauses that an employed adviser may face and the precautions you can take to avoid any potential litigation.
A non-compete clause (or NCN) refers to a condition by which an employee agrees not to enter into competition with an employer after either resigning or being terminated.Competition can refer to either new employment or starting your own business. Since non-compete clauses are dependent on time and geographical area, and whether the conditions of the clause are reasonable, it is worth asking your lawyer to go through your contract before determining whether to wait out the non-compete period.1“The purpose of restriction of trade clauses are to provide that, following departure of an employee that has a close personal relations with his or her employer’s clients, the employer is given an opportunity to introduce new employees to such clients and to permit a new relations to be formed between them.” 2
Non solicitation is critical to understand when you have left an organisation and you are thinking of approaching clients.The word ‘solicit’ in its simplest form means ‘to ask’, however how the word should be construed has been highly disputed in court. At first glance, ‘to solicit’ implies actively seeking business from a client. However, what if your former client is seeking advice from you, could you still be in breach of your contractual obligations?The enforceability of non-solicitation clauses is a complex area that is constantly changing.It is worthwhile addressing with your lawyer what the protocol is for when a former client approaches you to continue servicing them whilst you are still in your non-compete timeframe.
Clauses relating to confidentiality (or non-disclosure agreements) are usually binding without a specific timeframe and can last long after your employment with a particular employer is over.It is important to consult your lawyer before signing a non-disclosure agreement in order to understand whether the information you are asked to keep confidential will impact future changes in your career.3 Areas to consider here are client lists and personal identifying information that relates to client details.
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If you are considering making the transition to your own financial advice firm, you can watch Ryan Goodfellow's recent webinar Planner to Principal - your guide to business ownership by clicking on the button below.
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2 Entello Pty Ltd v Firooztash  QDC 50 Justice Farr