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Reasons Financial Advisors Find Themselves in Court

Simms Law, P.C. June 14, 2022

Financial advisors sometimes find themselves involved in litigation. Often, lawsuits are initiated by investors who accuse their financial advisors of fraudulent activities, such as churning, misrepresentation, breach of fiduciary duty, and failure to execute. However, there are also reasons unrelated to fraud that financial advisors find themselves forced to appear in court or before arbitration panels. Below are some common reasons that financial advisors find themselves in court.

Broker Raiding

Broker raiding is a common source of financial advisor litigation. Broker raiding is the act of one firm trying to recruit another firm’s financial advisors. When this occurs, litigation often follows, as broker raiding has the potential to severely harm raided firms. In addition, litigation often ensues when a financial advisor leaves his or her firm and has other advisors follow suit.


Solicitation is the act of contacting an individual and requesting that he or she do something. It is considered solicitation each time a financial advisor recommends that a client invest in a prospective investment. In addition, financial advisors sometimes solicit their former customers and clients after accepting employment at a new firm. However, there are rules in place governing this process. When these rules are violated, litigation often ensues.

Promissory Notes

Promissory notes are often used by brokerage firms to entice financial advisors and brokers to join them. These notes, which are basically loans, are forgiven after a financial advisor or broker has remained with a firm for a specific amount of time. However, when a financial advisor resigns prior to the expiration of a note, the brokerage firm typically seeks repayment, and this sometimes leads to litigation.

Broker Protocol

When a broker or financial advisor switches firms, the advisor’s previous employer is often concerned that his or her clients will also leave. This is a common source of litigation between financial advisors and their former firms. In order to minimize these types of lawsuits, major firms formed an agreement called “the protocol.” Pursuant to the protocol, when a broker or financial advisor leaves a firm, two lists are created. Each list contains customer information. However, the firm’s list contains customer account numbers, and the financial advisor’s list doesn’t. This allows the financial advisor and his or her former firm the opportunity to solicit customers on each list. And while the protocol is intended to minimize lawsuits, it doesn’t eliminate all potential litigation.

Fort Lauderdale Financial Advisor Representation

At Simms Law, P.A., we have a reputation in the industry for honesty, integrity, and aggressiveness, and one of our primary areas of practice is the representation of financial advisors. Our representation of financial advisors covers a wide range of issues, including the expungement of disclosures through FINRA expungement proceedings, compensation issues, raiding-related claims, and matters pertaining to the successful transition from one firm to another. If you are a financial advisor and need legal representation in Fort Lauderdale or elsewhere in Florida, please contact us by phone or through one of the contact forms on our website to schedule a free consultation.