We defend many financial advisory firms and individuals in restrictive covenant and trade secret litigation. When an advisor moves from one firm to another, we help manage legal risk, and, if necessary, defend against the resulting lawsuit from the prior firm.

An allegation we repeatedly see is that an advisor misappropriated the prior firm’s information by disclosing and using client names. The claim alleges that “client names” are confidential (under a non-solicit or non-disclosure agreement) or trade secrets (under statute), so when the advisor left the firm to join another, she breached her duties by disclosing and using “client names” of the prior firm. Common sense shows how silly this is. So does the law.

Statutes typically define a trade secret as “a formula, pattern, compilation, program, device, method, technique, or process” that “derives independent economic value” from being secret. Someone’s name? No. The slightly more difficult question is whether a name could be “confidential information” if the advisor has signed a non-disclosure agreement defining that information to include “client names”. But even there, most courts hold a non-disclosure agreement must be reasonable and narrowly tailored to protect only a legitimate interest. There’s a good argument that preventing the mere utterance of a name is neither reasonable nor necessary.

Most restrictive covenant agreements we see go even further in their folly. They say that “all client information” is confidential and cannot be disclosed or used after leaving the firm. Here is the problem—and the source of this article’s title. Nearly every advisor we’ve ever represented manages his/her mom’s money. So when the advisor switches firms, the advisor is contractually prohibited from wishing his mom happy birthday—because mom’s name and birthdate are information relating to the client.

We think what firms really intend to protect in their restrictive covenant contracts and litigation are their relationships with clients, not the client names themselves. The fact someone obtains financial services from a firm may not be public information, so it is actually something a firm can assert as secret. And that information can be useful to an advisor seeking clients. Not everyone uses financial advisory services, so knowing that someone does may mean they are a better target for solicitation.

Some firms do a better job in defining their confidential or trade secret information to be “client lists” rather than “client names.” That’s far more defensible. Courts generally agree that client lists–versus individual client names—can be protectable, because they are a compilation of information that can take much effort to create. But as litigators, we still see claims of misappropriation untethered to the information actually protected. The scenario: advisor switched firms and contacted her former client (i.e., used a client name), therefore advisor violated her duties (not to use a client list).

Here is what firms seeking to protect their information should do instead:

• In business, appropriately define confidential information in handbooks and policies, and take steps to protect that information and keep it secret.
• In contracts, define confidential information to include the firm client’s “relationship with the company.” That—rather than merely the client’s name—is what really may be secret, and may be useful to an advisor who switches firms.
• In litigation, tie the bad behavior to the protected information. If the advisor didn’t steal a client list but only used client names to solicit, don’t claim misappropriation of a client list.