What will the end of noncompete agreements mean for advisors?

investmentnews.com:

The days of noncompete agreements might be numbered, and that bodes well for advisors seeking to jump from broker-dealers to RIAs.

Not only will a rule passed in April by the Federal Trade Commission do away with noncompetes broadly when it takes effect in September, but New York City is considering a bill that would go even further. The regulatory has since been sued over its new rule.

“Any time there’s a loosening of that type of rule, it’s really good for the independent firms,” said Jodie Papike, partner at advisor placement firm Cross-Search. Restrictive employment agreements often keep advisors from leaving broker-dealers, regional firms, or even bigger RIAs that use noncompetes, Papike said.

“There are so many advisors who would like to break away from a wirehouse or a restrictive-type firm, but they’re scared,” she said. “There’ve been a lot of firms going after advisors that leave… Whenever that happens, advisors, rightfully so, get a little nervous.”

Often, advisors are uncertain about if and how they can bring clients with them, she noted. Even as non-solicitation agreements are becoming more difficult to enforce, advisors can’t be sure how their firms will act if they leave and end up with some of the clients, she said.

The FTC’s rule, which was finalized in April, will nullify nearly all noncompete agreements. About one in five people are affected by those, according to the regulator. An exception to the new rule is for senior executives who earn more than about $150,000 and have policy-making status at companies – those agreements will remain effective, but companies will not be able to include those in new contracts. Only about 0.75 percent of employees fall into that category, the FTC said.

A bill passed