AIG Brokers in Turmoil – Advisors Who Jump Ship Should Protect Themselves Legally


Restless registered representatives of AIG Advisor Group are showing signs they may leave in droves to move to other advisors. These departing broker dealers should exercise caution to assure that their interests are legally protected.

The advisors from three broker dealers — FSC Securities Corp. of Atlanta, AIG Financial Advisors of Phoenix, and Royal Alliances Associates of New York — are uncertain about their future with the company in light of the events of the past month that included the federal bailout of their parent company. Top executives of AIG have announced plans to sell the broker dealers to raise cash, in part, to help repay the federal government. As of yet, however, no deal has materialized.

In the meantime, the individual advisors are being inundated with offers to move to other firms. Some have already begun to jump ship. AIG’s largest group of advisors, The Financial Services Network of San Mateo, California, and its 230 advisors have just joined LPL Financial of Boston, according to an October 20, 2008 story in Investment News. More defections would only make the AIG units either less attractive or cheaper to potential suitors.

Jonathan Henschen, president of a Minnesota-based recruiting firm Henschen & Associates, has predicted that unless the reps are reassured by a story detailing their future with the companies, they will “just scatter,” according to an October 6 Investment News article. In the meantime, AIG executives are frantically trying to keep the reps from jumping ship. Jeff Auld, president and CEO of AIG Financial Advisors, urged his reps in a recent letter “to defer any important career decisions until the new opportunities that will emerge with our change in ownership become clearer and better defined.”

Defecting advisors should always be careful to protect themselves. Even if your firm has a reputation of protecting its own, once you decide to leave you are probably no longer within that circle of protection and may find yourself the object of unwarranted legal actions or threats of legal action. It is important to know how to avoid breaching any obligation owed to your employer and how to tell bogus threats from real ones.

Even before any dispute arises, documents relating to your employment will be critical and should be preserved. You must keep a copy of all documents relating to your employment status, including offer letters, employment contracts, employee handbooks, codes of conduct, compliance manuals and bulletins, benefit plans, deferred compensation plans, stock options plans, restricted stock plans, performance appraisals, bonus awards, promissory notes, records of payments and/or forgiveness of promissory notes, letters, email communications, and memoranda. Make sure that you have a copy of every document that you have signed. You should also include all documents relating to any sales awards or distinctions the firm has awarded to you, such as, for example, admission to the President’s Circle. Finally, it also may help if you save any thank you notes and cards from satisfied customers.

There may be instances when a manager makes oral promises or representations to you. If the manager will not confirm them in writing, then you should keep careful notes of such promises or representations at the time when they are made.

These copies should be organized and filed in one place ? preferably at home ? so that you do not have to worry about grabbing that file in the ten minutes you may have to gather your personal belongings after you are advised that you are being laid off. Although your firm’s Human Resources Department should have copies of all these documents and should turn them over as part of discovery in an arbitration, it will be easier if you already have them before any arbitration is filed.

While you are certainly entitled to keep documents related to your employment, you must be careful not to copy and take documents that contain trade secrets and/or proprietary information of your employer. If you do so ? even if it is unintentional ? the firm may be able to bring charges against you for improper conduct.

Unless you are laid off at the end of the calendar or fiscal year, you will have worked for several months for which you will not receive your annual bonus. As all who work on Wall Street know, the year-end bonus is an essential and often a large part of your total compensation package. Your soon-to-be former employer may try to tell you that, unfortunately, since you will not be an employee when the bonuses are awarded and paid, you are just out of luck. You should know, however, that ex-employees have successfully sued their former employers in arbitration for the pro-rata portion of their bonus for their final partial year of employment. Of course, each situation is unique, and any recovery will depend upon your particular circumstances.

When you receive a lay-off notice, you will most likely also be advised of the terms of the firm’s proposed severance package. These usually include some money based on the formula of one or two weeks’ salary for each full year of service. Firms often take the opportunity offered by a severance package to try and get the employee to agree to burdens and obligations that the firm could not impose any other way. These severance packages may also include an agreement not to compete, which would prevent you form soliciting your own customers, and an agreement not to solicit other employees to keep you from trying to lure away other brokers to your new employer. You will also likely lose any unvested stock and options in your deferred compensation plan.

Firms usually take a hard line with the severance package, and it can be extremely difficult to negotiate for more money, for early vesting of stock and/or options, and for relief form some of the obligations the firms may seek to impose. It is worth consulting a lawyer experienced in both securities and employment areas to explore these possibilities. Even if no concessions can be negotiated, counsel can explain to you exactly what you are agreeing to in any severance agreement and what your rights are under the law.

If you owe money to your employer on a promissory note, your firm will most likely demand repayment. Very few promissory notes have a provision that forgives the remainder of the note when there is a termination without cause. You must be ready to document all repayments made on the note and all amounts that have been forgiven by the firm. Firms take a hard line in seeking to collect on such notes and the assistance of an attorney is often essential. Many arbitrators view a termination without cause as a justification for forgiveness of such a loan. Again, the result in your situation will depend upon your particular circumstances.

Finally, if you do negotiate a severance agreement with your employer, you should ask for copies of the standard severance package and certain other documents to ensure that you are receiving at least the standard severance package. You must also be prepared to monitor you ex-employer’s compliance with the terms of any severance agreement. Our firm represented an experienced broker who signed a severance contract, and his former employer wasted no time in violating it. Last year, a FINRA arbitration panel found that the ex-employer had violated the severance agreement and awarded that broker nearly $1.7 million dollars.

Page Perry is an Atlanta-based law firm with over 125 years collective experience representing investors in securities-related litigation and arbitration. The firm also has an active practice in representing individuals in employment disputes with brokerage firms. The firm is currently involved in representing several brokers in such disputes. In the past year, the firm has won arbitration award for clients in employment disputes in the amounts of $1.7 and $3.9 million. For further information, please contact