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by Kirk Loury and Douglas G. Goldberg

As an investment adviser or financial planner, you are in the knowledge business. Your “product” is in an intangible form of advice, counsel, and wisdom. Your work rests in your firm’s accumulated knowledge encapsulated in histories, experiences, processes, plans, and approaches.

If you were a retail store or a manufacturer, you would no doubt have a theft-detection and protection policy, but what about your knowledge business? The fact that your “product” is intangible does not make it less important to protect diligently.

Defining Trade Secrets

According to the Uniform Trade Secrets Act (UTSA), a trade secret is:

  • Information, including a formula, pattern, compilation, program, device, method, technique, or process
  • that derives independent economic value, actual or potential, from not being generally known to or readily ascertainable through appropriate means by other persons who might obtain economic value from its disclosure or use; and
  • is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.

If valuable information to your firm was developed independently and uniquely, it can be a trade secret. The legal standard requires that “the holder of the trade secret establish that reasonable precautions were taken to prevent disclosure of the secret information,” according to the Legal Information Institute at Cornell University ( In other words, if valuable information in your firm is not treated as a secret, then it isn’t a secret (and protected from misappropriation by the UTSA).

Is Your Information Valuable Enough to Protect?

At first blush, you may be hard pressed to think of trade secret information in your firm that you would want to protect from theft. To stimulate your thinking, we’ve put together a list of categories:

  • Client lists 
  • Client histories 
  • Prospect lists 
  • Investment research 
  • Market research
  • Marketing programs and results
  • Compensation methods and documents
  • Business structure
  • Company governing documents
  • Strategic business plans
  • Business histories
  • Regulatory interactions
  • Investment processes 
  • Due diligence results 
  • Service programs
  • Financial metrics
  • Internal tracking forms and checklists

Consider how you would react if your biggest competitor gained access to each information category. Would you lose business? Would you lose employees? Would it cause you financial pain? If so, then it is necessary to protect it.

Confidentiality Agreements and NDAs

Likely, you have captured employees’ signatures on a formal employment contract, or, at least, an expressed confidentiality or non-disclosure agreement (NDA). Confidentiality agreements seek to protect you against employees taking information they learned on the job and using it against your firm’s proprietary interest. Within the agreement itself, confidential information is defined and usage boundaries are established, but these provisions do not establish the needed foundation to protect your firm’s trade secrets from misappropriation.

When you buy a car, you have the sales agreement that establishes the car’s value and your ownership of it. The serial number makes the car unique to you. However, you aren’t protected against theft or damage until you execute an insurance contract. In the same way, the NDA defines what you, as the employer, own and that you consider it property that requires the employee’s care and protection, but a trade secret protection program serves as the insurance policy that, should theft or damage occur, provides the recourse to secure its value.

Protecting All Risk Exposures

It is incumbent on you to ensure that all people working formally or informally at your firm understand the importance of the information behind your front door.

In addition to employees, you should include these resources in your trade secret protection (TSP) program:

  • Part-time and temporary employees
  • Summer or seasonal interns
  • Technology, marketing, and janitorial service vendors or contractors

Do You Treat Your Information as Valuable?

The law is clear. If you do not treat confidential information as truly confidential then protection will not exist when you find the need to recover from theft. With few exceptions, a TSP program has minimal costs, but it does have a huge impact when needed to make a misappropriation claim.

The best way to prepare a TSP program is to approach the task as a would-be thief. Start outside at the front door and ask yourself: Who has keys? What other doors give access? Who is responsible for ensuring that the doors are locked when the office is closed?

As you enter your office, verify the procedures followed in the reception area.

  • Do we have a sign-in and sign-out register?
  • Are guests escorted to offices and conference rooms?
  • Is the reception desk and surrounding area devoid of confidential information?
  • Is the receptionist’s computer screen set to convert to a screen saver after an allotted time?
  • When the receptionist leaves for a break, lunch, meeting, or at the end of the day, are all papers put into a drawer?

After addressing the reception area, you get into the meat of the TSP program.

  • Are file cabinets locked?
  • Is hard-copy information deemed confidential identified as such on documents and folders?
  • Is electronic confidential information secured behind password-protected applications and/or server directories?
  • If a computer is turned on, is the logon password protected?
  • Are documents created and maintained on a computer’s local storage device backed up to your corporate server daily?
  • Are desks, credenzas, bookcases, and the floor clean of any confidential and valuable information?

Having a clear understanding of what is to be protected and the protection methods themselves, the final step involves internal communications.

  • Do you review the TSP program as a part of your new employee orientation?
  • Do you review your TSP program with temporary workers, interns, and for-hire consultants?
  • Do you have an annual update of the program for all involved?
  • When new ideas, services, and/or processes are identified as confidential, are all people alerted and agreements updated? 
  • Is old documentation shredded and the electronic versions archived and deleted? 
  • When you end an employee or contractor relationship, do you conduct an exit interview in which the signed agreement, confidential/secret content, and TSP program are reviewed in detail? Is an acknowledgment signed that documentation wasn’t “borrowed”?

As you can see, a TSP program costs little to execute. However, should you find yourself in a situation in which an employee is leaving your firm, being able to recite to the court not only the features of your TSP program, but to discuss its enforcement measures provides immense legal value should the ex-employee end up in a competitive situation.

Faced with an ex-employee working at a competitor, an active TSP program allows you to engage legal recourse with low cost but great impact. For example, providing evidence of the TSP program gives the court the evidence necessary to issue a temporary restraining order and with a realistic claim for injunctive relief should the ex-employee and/or the new employer proceed with the misappropriation. Often, the presence of a well-crafted and maintained TSP program will be sufficient to blunt the misappropriation immediately with little more than a strongly worded cease and desist letter from your attorney. As such, your payoff comes in two forms: eliminating costly litigation, and protecting your firm’s value from unfair competitive practices.

Confidentiality and Non-Solicitation Provisions

The true focus in any confidential information and trade secret protection program is preventing your current and future competitors from access to your valuable knowledge assets. More so than an existing competitor stealing your firm’s valuable information by hacking into your systems or rummaging through your trash, the unspoken fear for any firm is a trusted employee, in which you invested a great deal of money, time, effort, and emotion developing, leaving to compete with you.

Although there is a do-it-yourself pathway to enacting a TSP program, there may be benefits to having a legal expert set up and monitor the program. Consider:

  • Employees may better understand the importance of a TSP program in the presence of an outside legal expert.
  • As the employer, you can operate in the role of serving the best interests of the firm and let the outside lawyer communicate the harsh realities of a violation.
  • A legal review creates an accountability relationship to ensure the TSP program remains active.
  • An annual TSP program audit and employee update eliminates the risk of an ignored program that would substantially reduce legal leverage.

Lock the Door!

In a knowledge-based economy, information represents enormous value. Understanding this value and treating it as such leads to appropriate protective measures that bring with it the force of the law. A TSP program acts in the role of a lock on the door of your firm’s intellectual property and all the economic value it represents.

Kirk Loury is general manager of the Advisors Forum, leader of WealthCounsel’s practice development strategies, and head of Wealth Planning Consulting.

Douglas G. Goldberg helps individuals, families, businesses, and entrepreneurs plan their estates, protect their assets, and minimize their tax bills.

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