Promissory Notes

Promissory Notes or Employee Forgivable Loans, commonly known as EFL’s, are commonly offered by brokerage firms to retain brokers with significant business or to potential hires with a demonstrated track record. EFL’s are used as a recruiting incentive as well as assistance to a broker or team of brokers transitioning to a new firm.

EFL’s or promissory notes are based in part on a broker’s revenue most often calculating by the representatives trailing 12 month commissions. EFL payments are routinely conditioned on a term that typically ranges between 6 and 8 years with a percentage of the overall loan forgiven each year. If the financial advisor leaves the firm before the expiration of the term, a broker may owe the balance due to the employer.

Promissory Note disputes by Wall Street employers are conducted by binding securities arbitration at the Financial Industry Regulatory Authority (FINRA). There may be circumstances that justify a refusal to repay the outstanding portion of the loan or promissory note, including fraudulent employment law practices, misrepresentations, wrongful termination, or breach of contract. Such circumstances could form the basis for a claim against an advisor’s employer. Disputes also arise when an employer engages in wrongful conduct requiring the employee to leave the firm. Often such employment disputes are heard as a single case before a panel of FINRA arbitrators.

Post termination issues including EFL’s need to be addressed in a timely manner. Aidikoff, Uhl & Bakhtiari has assisted industry professionals with disputes over Promissory Notes and Employee Forgivable Loans.