It has long been the practice of many broker-dealers, wire houses, and other financial firms to put provisions in employee contracts allowing them to recover so-called “training fees” after a broker or financial advisor (“FA”) leaves. Precisely how these firms decide the value of the training they provide remains a mystery, but they tend to reach nice round numbers, like $25,000, $65,000, or $75,000. Over the years, these provisions have given enough heartburn to brokers and FAs to keep Pepto Bismol, Tums, and whoever else you can think of, in business in perpetuity. Most of the time, training fees provisions apply during the earlier stages of a broker or FA’s career. In other words: the time when they cannot afford to repay them. Accordingly, the enforceability of such provisions has been subject to much speculation, and, unfortunately, some wishful-thinking.
Some believe that financial firms will never follow up on their demands for payments. Some think that a simple counterclaim will be enough to scare a former employer away. Some find the idea of paying back training fees so patently unfair that they refuse to entertain the notion at all.
Whatever one may think about the fairness of “training fees” provisions, the fact remains that the decision of whether to take legal action to enforce them lies with the employer. What’s worse is that, although perhaps not in every case, financial firms are doing it, and winning.
Take, for example, Wells Fargo, which, in 2012, obtained an Award against one of its former employees for $25,000 in training fees. See Wells Fargo Advisors, LLC v. Shawn Orin Higley, FINRA Case No. 11-03197. To add insult to injury, the broker was ordered also to cover Wells’ filing fee. Id. The very next year, Wells got another Award, this one worth $37,000, against another former employee. See Wells Fargo Advisors, LLC v. Austin Jambor, FINRA Case No. 13-02681.
In 2014, Merrill Lynch obtained an award of $20,000 in training costs. See Merrill Lynch Pierce Fenner & Smith Incorporated v. Jason B. Morgan, FINRA Case No. 13-01809.
Showing a long-term commitment to these types of actions, in 1997 Merrill received an award of $19,000 in training costs, plus an additional $18,908 in attorneys’ fees, and $2,912 in costs against a former broker. See David A. Grasch v. Merrill Lynch Pierce Fenner & Smith Inc., NASD Case No. 97-01469.
In 2007, Edward Jones pursued arbitration and won an award against a former employee over only $9,375.00 in training fees. See Edward Jones & Co., L.P. v. James A. Valis, NASD Case No. 06-02903. It did the same thing the next year. See Edward D. Jones & Co., L.P. v. Giovani Difiore, FINRA Case No. 07-02532.
We could go on listing such cases for quite a while. The point, however, is that “training fee” agreements cannot be taken lightly. But, it’s not all “doom and gloom.” Financial firms do not always win these cases, and certainly do not always recover the full amount they ask for. See RBC Capital Markets, LLC, FINRA Arbitration 12-02576. (Employer’s claim for training costs, among others, was denied.) See also Wells Fargo Advisors, LLC vs. Aaron Hansz, FINRA Case No. 10-04938. (Wells recovered only $22,000, including attorneys’ fees, of the $75,000 in training costs and $21,221.25 in attorneys’ fees it sought.) Among other available defenses, the training fees provisions in these contracts often look more like penalties (which are generally unenforceable) than liquidated damages provisions (which are permissible). Some of them also may be subject to arguments that they are unenforceable by reason of being unconscionable. Nonetheless, the balance of the cases referenced above shows that financial firms are winning enough of these claims to warrant taking them very seriously.
If you receive a demand from a former employer for the training costs that you promised to repay in your employment contract, ignoring it could have dire consequences. Your best bet is to contact competent legal counsel that is knowledgeable in this area, and has experience in front of FINRA. In many cases, financial firms may be willing to settle their claims for a fraction of the fee listed in the contract. As time goes on, however, and their attorneys generate fees through repeated attempts to collect, these firms often become less open to the idea. Obviously, if settlement isn’t on the horizon, and you’re ready to go to the mat to defend yourself, you’ll need attorneys with arbitration experience.
By retaining counsel to resolve your matter early, you may be able to save yourself substantial time, money, and heartburn. If an early resolution isn’t possible, you still want to make sure that you’ve got the right team protecting you. Put down the Pepto and pick up the phone. Your gut will thank you.
 In the interest of fairness, however, it should be noted that Merrill’s award came from counterclaims it filed in response to an arbitration initiated by its former broker.
 Jones was, however, also awarded partial payment of arbitration costs.