Posted October 11th, 2016 at Eccleston Law LLC by Eccleston Law
Advisors Sheree Arnston and Jamie McCreary left Arnerich Massena to form an independent registered investment advisory shop, Allium Financial Advisors in Portland, Oregon. The team has $1 billion in assets under management.
On September 30, 2016, advisers Darren Lehrman, Brian Marzulli, and Lucille Costa left Stifel Nicolaus &; Company to join RBC Wealth Management in Parsippany, New Jersey. This team of advisers has $300,000,000 in assets under management and $1,500,000 in production.
From the Desk of Jim Eccleston at Eccleston Law LLC:
An effort to repossess stock awards from two advisers not only failed but produced costly consequences for Ameriprise Financial. In March, FINRA arbitration panels awarded the two advisers with more than $500,000 for Ameriprise’s alleged misconduct including unfair trade practices and breach of the Broker Protocol, a legal framework governing how advisers can transfer to new firms.
The conflict began when the two representatives left Ameriprise in January of 2014 to work with Janney Montgomery Scott. They worked in the same office, but, according to attorneys, were not a team. Before working with Ameriprise the two brokers worked in the advisory unit of H&R Block, which was sold to Ameriprise in 2008. Upon the acquisition, Ameriprise Financial, parent company of Ameriprise’s brokerage unit, issued a stock award to advisers as an incentive for them to stay on with the new firm. The stock award had a five year vesting period that ended January 2, 2014. One representative sold his shares four days after the vesting period and subsequently resigned on January 27, 2014.
The parent company quickly after tried to reclaim the stock awards by using the American Arbitration Association (AAA), claiming that, as a separate entity from the brokerage unit, it was not bound by the Broker Protocol. It then used this status to arbitrate outside of FINRA. This marked an unusual play in employment disputes between advisers and firms, as they are almost always resolved in FINRA’s arbitration process. In the event that the advisers had lost, a precedent might have been set allowing firms to dodge the protocol.
Fortunately for the brokers, they were able to use their W2 forms to trace the awards back to the Ameriprise brokerage unit. The parent company claimed that the brokers should repay the award on the grounds that they broke the contract by competing against Ameriprise Financial Services (the brokerage unit). However, the arbitrators with the AAA ruled in favor of the brokers, asserting that Ameriprise’s claims had no basis. In Griffith’s case arbitrator Wade stated that Ameriprise, “failed to carry its burden of proof to demonstrate that it suffered an actual loss due to the transfer of the stock to Griffith.”
The case presented before the AAA by Ameriprise contained important details that significantly affected the outcome. In review of the arbitration documents, there were irregularities. To begin, Ameriprise sought $567,000 from one representative, but when it came time for the hearing Ameriprise representatives revised its claim to $873,000. Ameriprise was adamant about the clarity of the incentive award leading up to the hearing, so the arbitrators were surprised by such a sudden increase in the figure. One arbitrator said, “[Ameriprise’s effort to ratchet up the damages against Respondent by a significant amount for the first time at the hearing, and its contentions that it was justified in doing so in the face of [Ameriprise’s] filings in the case, affected the credibility of [Ameriprise’s] claim.”
The final blow to Ameriprise came with parallel cases filed with FINRA in which the two brokers sought damages against Ameriprise for unfair trade practice and breach of Broker Protocol, among others. The two won an additional combined $505,000 for damages and attorney’s fees. The FINRA arbitration panel did not publicly explain its decisions which is customary.
The attorneys of Eccleston Law LLC represent investors and advisers nationwide in securities and employment matters. Our attorneys draw on a combined experience of nearly 65 years in delivering the highest quality legal services. If you are in need of legal services, contact us to schedule a one-on-one consultation today.
From the Desk of Jim Eccleston at Eccleston Law LLC:
For three years FINRA has attempted to pass a rule that would make brokers’ employment transitions more transparent for clients. Last Wednesday FINRA passed the rule. The rule is designed to encourage investors to access important information relating to their accounts in a broker’s transfer to another firm.
The new rule requires that transferring brokers send an educational communication to investors if they are trying to persuade them to move to the new firm. FINRA will author document, and it will outline possible considerations for the clients such as whether the financial incentives at the new firm create a conflict of interest, whether any portion of the client’s assets cannot follow them to the new firm, and any potential fees or costs the client might face.
As the SEC views the rule, it will encourage customers to make inquiries to brokers which can help to increase communication between the two regarding potential implications of transferring assets. Moreover, the SEC feels that the increase of communication between the two will serve to benefit the customers when deciding whether or not to transfer.
An initial proposal required transitioning brokers to disclose details about their new compensation packages, but, after facing industry resistance, was modified to the current “educational communication” model. FINRA is confident that the new proposal is satisfactory to both investors and advisers. The fundamental concern being that the investors remain educated and the advisers receive consideration for the privacy of recruiting compensation that is often involved with transfer.
Industry professionals support the new rule, especially citing the balance it holds between both investors and advisers. Danny Sarch, president of Leitner Sarch Consultants, says, “It’s a sophisticated transaction and most clients don’t want to learn to that extent about it.” In his experience clients are less concerned with discovering the recruitment compensation package and more concerned with personal fees and restrictions.
A minor concern associated with the new rule may be that it accelerates the transfer of advisers who may be on the fence and hoping to get the jump on any new standards imposed by regulators. But Mindy Diamond, president and chief executive of Diamond Consultants, says that “for most quality advisers who have a deep relationship with clients, it will be a non-event.” She doesn’t expect that this should be a significant effect in the industry, at least for quality advisers. Mr. Sarch says that he typically advises brokers to reveal their recruiting package to clients in the first place. Through his experience in broker recruiting, previous firms will show the new compensation package to clients in an effort to deter clients from transferring anyway.
The attorneys of Eccleston Law LLC represent investors and advisers nationwide in securities and employment matters. Our attorneys draw on a combined experience of nearly 65 years in delivering the highest quality legal services. If you are in need of legal services, contact us to schedule a one-on-one consultation today.
From the Desk of Jim Eccleston at Eccleston Law LLC:
Jason Medvec submitted a Letter of Acceptance, Waiver and Consent (AWC) to FINRA for the purpose of settling alleged rule violations in connection with that he sent emails sent between January 2nd and 3rd, 2014 containing confidential customer information.
Medvec allegedly sent the January 2nd email from his Merrill Lynch email account to a personal account. The email contained the names, account numbers, and telephone numbers of 50 clients. This unauthorized transfer of the firm’s files was in violation of the firm’s policies requiring employees to protect confidential customer information. On January 3rd Medvec resigned from Merrill Lynch and joined Edward Jones. On the same day, FINRA alleges that he sent another email from his Merrill Lynch account to his personal account with an attached spreadsheet named “vacation.” The AWC asserts that the attached file contained the names of 8 more Merrill Lynch clients and 9 of their account numbers.
Edward Jones discharged Medvec on January 8th after reports that “the firm received notification from his previous employer that he transmitted client information to his personal email address.” Additionally, FINRA found that Medvec’s actions caused Merrill Lynch to violate Regulation S-P and FINRA Rule 2010. Titling the attached file “vacation” was evidenced as an intent to conceal his conduct and FINRA fined Medvec $5,000 and imposed a 10 business day suspension.
Financial advisors need competent legal counsel (not just a transition on a boarding team) to ensure they remain compliant.
The attorneys of Eccleston Law LLC represent investors and advisers nationwide in securities and employment matters. Our attorneys draw on a combined experience of nearly 65 years in delivering the highest quality legal services.
From the Desk of Jim Eccleston at Eccleston Law LLC:
Ahead of the announced Barclays’ merges with Stifel, two big producers, Jim Ertmann and Ben Foster have left from Barclays to join Merril Lynch.
The team reportedly generated $5.8 million in production during a seven year stint at Barclays. They now are part of Merrill’s Private Banking and Investment Group in Chicago.
Even though Stifel has offered lucrative incentives for those Barclays advisors who remain, Barclays’s wealth unit has lost over $6 billion in client assets and about 50 advisors, since news of the merger was announced.
The attorneys of Eccleston Law LLC represent investors and advisers nationwide in securities and employment matters. Our attorneys draw on a combined experience of nearly 65 years in delivering the highest quality legal services.
From the Desk of Jim Eccleston at Eccleston Law LLC:
Original post can be found here.
Financial Service Firms Engage in Raiding Suit
MetLife Inc. and LPL Financial, two large financial services firms, have entered a heated dispute over the poaching of 60 brokers. In an unresolved claim from May, MetLife claims LPL poached the large amount of brokers since October 2014. The actions allegedly have done irreparable harm to MetLife.
In the claim, MetLife states that LPL “shows no signs of stopping.” While MetLife did not specify the damages it seeks, the company did ask for LPL to be enjoined from soliciting more MetLife employees or customers.
For a successful raiding claim, a firm normally must take at least a third of an office’s revenue and have harmful intent. LPL employed six of MetLife’s top-producing brokers, a group who collectively managed about 490 million in assets. In its defense, LPL is expected to use the “lifeboat defense.” That means that reps were going to jump ship anyway, so the company simply gave them a place to land.
In recent years, MetLife made policy changes that purportedly upset employees. The company switched the employment status of brokers from employees to independent contractors. That caused a lower payout and reduced benefits for brokers.
Additionally, MetLife is changing clearing firms and is moving to Fidelity’s National Financial Services. That change made it a good time for brokers to switch firms because clients already would be transitioning to a new platform.
MetLife reportedly has shed thousands of brokers in recent years due to company shake-ups and falls in variable annuity sales.
The attorneys of Eccleston Law LLC represent investors and advisers nationwide in securities and employment matters. Our attorneys draw on a combined experience of nearly 65 years in delivering the highest quality legal services.
From the Desk of Jim Eccleston at Eccleston Law LLC:
In what looks to be a growing trend for London-based Barclays, a group with $3 billion in assets under management has decided to leave the firm rather than joining Stiffel. The group’s defection appears to be just one of many after Barclays announced that it will be selling its U.S. wealth management operations to the brokerage and investment banking firm.
The team’s six advisors—Jack Petersen, James Cantelupe, Peter Lee, Tom Palecek, David Romhilt and John Scarborough—left Barclay’s to open Summit Trail Advisors, an independent advisory firm. Peterson, the new firm’s managing director, stated that being a part of an independent firm will allow the advisors to provide better research, investment solutions, and reporting technology to their clients.
The attorneys of Eccleston Law LLC represent investors and advisers nationwide in securities and employment matters. Our attorneys draw on a combined experience of nearly 65 years in delivering the highest quality legal services.
From the Desk of Jim Eccleston at Eccleston Law LLC:
A battle between Wells Fargo Advisors and a former employee turned ugly when emails leaked showing the employee purportedly had funneled business to his new firm, while still employed at Wells Fargo.
Wells Fargo accuses the rep of funneling business for eight months before he officially left the company. He is alleged to have breached his fiduciary duty and to have engaged in a “civil conspiracy.” Wells Fargo is asking for more than $1.7 million in damages.
The attorneys of Eccleston Law LLC represent investors and advisers nationwide in securities and employment matters. Our attorneys draw on a combined experience of nearly 65 years in delivering the highest quality legal services.
From the Desk of Jim Eccleston at Eccleston Law LLC:
In its latest round of restructuring, Morgan Stanley has altered the number of management roles at their branch, complex and regional levels. The top positions affected are Associate Complex Managers (ACMs) and Complex Business Development Managers (CBDMs).
Morgan Stanley wants to expand the role of Associate Complex Managers and their latest changes appear to be doing just that. By early June, Morgan Stanley is looking to increase the number of ACMs by 30, leading to each of the wirehouse’s 82 complexes having an ACM.
In contrast to the increase of ACMs, there will be a reduction in the number of Complex Business Development Managers. After the restructuring, there will only be 56 CBDMs–a 14- person decrease from the previous number of 70. Many CBDMs will need to cover offices in more than one complex to account for this change.
In total, Morgan Stanley’s restructuring will result in a net increase of 16 management positions. This increase, however, will not be spread evenly. Some complexes will end up with a headcount higher than it is today, while others will see a decrease. The complexes which see an increase will be those that Morgan Stanley arbitrarily deems “fertile for growth.”
The attorneys of Eccleston Law LLC represent investors and advisers nationwide in securities and employment matters. Our attorneys draw on a combined experience of nearly 65 years in delivering the highest quality legal services.