Non-Compete, Non-Solicit, and Confidential Information Agreements in the Securities Industry, PART THREE


Confidential or Proprietary Information Provisions

Brokerage and advisory firms obtain and develop a large quantity of private and confidential information regarding their clients, products, compliance practices, and business methods. There is a great deal of regulation regarding the protection of client information, and firms have an interest in safeguarding certain information. To further that interest, they require their representatives to sign one or more documents acknowledging the confidentiality of certain information, and agreeing that the information is the property of the firm.

While the firm may be concerned about its responsibilities under Regulation S-P or the Gramm-Leach-Bliley Act, regulatory issues are not the firm’s only concern. A major motivation behind such clauses is to prevent a departing representative from taking information that may help them identify clients and the status of their accounts, their immediate investment needs, etc. when the representative leaves. Thus, the inclusion of such provisions is usually just as much for competitive reasons as it is to ensure compliance with information regulation.

Confidentiality provisions are also included in an effort to give certain information, such as client contact and account details, “trade secret” status for the firm. The overwhelming majority of states have adopted the Uniform Trade Secrets Act (or have a similar statute), which grants certain information special status as a “trade secret” if the information and circumstances surrounding its creation and safeguarding meet the statutory requirements. Assuming information does have trade secret status, then firms can include a claim for damages against a departing representative for “misappropriating” the information. This just means the former employee has taken the protected information without authorization and has used it for his or her own benefit.

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