Stockbroker Forgivable Loans, Promissory Notes & Retention Bonus, Retention Awards

The securities (stock brokerage and other FINRA, NYSE member financial services firms) industry has issued forgivable loans, promissory notes or retention awards as compensation since 1982. Forgivable loans in this context, is a loan by a brokerage firm (or a bank’s broker dealer affiliate or subsidiary) to registered representative forgiven over a period of years. In other words the broker usually does not repay the loan in dollars as long as he/she stays and remains in good standing at the firm. Customers are usually unaware of this broker compensation which may lead to churning, unauthorized trades, suitability, violations of industry custom and practice and or create other potential conflicts of interest and unintended consequences.

There are many common as well as unique factors in each note, loan or award, depending on the broker dealer, representative, team, group, foreign or domestic – based customers, specialized assets or investments, outside business activities, means and costs of marketing, advertising and promotion, heightened supervision issues, trailing gross production, assets under management or control, mix of products and services, commission and or fee – based revenues, compliance record, license status, whether or not there is or was an external and or internal recruiter, branch, regional and national managers involved in recruitment and or at the time the note was issued.

Chris McConnell, AIFA® has over 35 years including nearly twenty years of actual hands-on experience including all elements of the forgivable loan process including firm-wide management, IT, tax reporting, accounting, administration, support, approval, analysis and supervision; and on-the-ground individual broker and team negotiation, recruitment transition period and process.

Elements of a forgivable loan, promissory note, retention award or other name for the instrument include, but are not limited to:

Negotiation of note terms
Issuer and structure of note
Forgiveness of note
Interest rate
Tax reporting and implications
Accounting for forgivable loans – firm, regional and branch P&L levels
Insurance of forgivable loans
Violation of note terms
Termination, separation, resignation or retirement from service
Change in control or successor interest in note
FINRA arbitration note cases between a stockbroker or financial advisor and the firm are referred to as disputes between an Associated Person and Member

Each note is unique as the parties to the note, prior to, during negotiation, at origination and thereafter including the brokerage firms (successor firms are a very common occurrence), branch, broker or team and book of customers, product mix; these are not an all exhaustive list but important facts to consider in evaluating promissory note forgivable loans disputed amounts.

Marriage of Finby Analysis may be useful to the parties and the court or mediators, as we have over 35 years of direct, hands-on experience with thousands of such situations (all over the US) covering all elements of securities, banking, investment, finance industry banker, financial advisor, CFP, financial planner, wealth manager, etc.) compensation and or remuneration. These elements can include but are not limited to hard and soft dollars spanning salary, draws, commissions, marketing allowances, sales, research and trading support, office space, satellite, remote and or home office (sometimes referred to as OSJ office) space, titles, award clubs recognition rewards, advanced trainings, special conferences, forgivable loans, loan write-offs, loan forgiveness, tax reporting, firm and regulatory compliance and marketing related issues, hring and retention awards or bonuses, referral bonuses, sunset or retirement compensation plans and any other type of investment advisor, hedge fund or private equity industry affiliated person, licensed or non-licensed.

For more information contact@fiduciaryexpert.com or (310) 943-6509