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Firms Continue Aggressive Tactics Against Departing Advisors

By Katherine S. Bowles, Esq. and Carter E. Watkins of Shustak Reynolds & Partners, P.C. posted on Wednesday, November 21, 2018.

Kara Siegel

Kara Siegel

Senior Attorney

Both Protocol and Non-Protocol firms have continued their sue-first-ask-questions-later litigation strategy against departing advisors, and advisors should be on high alert even when they are making a Protocol transition. Firms have increasingly been taking a highly critical look at what advisors do prior to and during their transitions and many are aggressively going after advisors that make any misstep.

In September, a Federal District Court in Illinois denied Morgan Stanley’s request for a temporary restraining order, which would have barred a team of six departing advisors from soliciting former clients following their jump to Stifel Nicolaus. The denial does not grant the team carte blanche to actively solicit their clients, but rather, it did find Morgan Stanley failed to convince the court such a severe order was necessary to prevent alleged further harm to Morgan Stanley. Nonetheless, Morgan Stanley has continued to pursue a permanent injunction against the advisors that would severely restrict their ability to contact their clients while the companion FINRA action continues.

The team of advisors has not remained passive in response to Morgan Stanley’s efforts. The team filed two motions to dismiss Morgan Stanley’s complaint against them, setting forth several reasons why they believe Morgan Stanley’s claims fail. The latest motion to dismiss not only attacks the factual basis for the allegations, but also it cuts to the enforceability of Morgan Stanley’s policies and employment agreements–which serve as the basis for Morgan Stanley’s claims. Put simply, the advisors allege Morgan Stanley’s complaint is supported by nothing but “speculation, suspicion, conjecture, guesses, and hunches.”

While a ruling on whether Morgan Stanley’s amended complaint can proceed is not expected until mid-December at the earliest, this delay in entering a temporary restraining order or injunction is considered a crucial win for the advisors who are going through the process of transitioning their clients to Stifel. Additionally, the denial is a setback to Morgan Stanley’s aggressive sue-first-ask-questions-later litigation strategy it has taken since exiting the Broker Protocol.

In mid-October, Wells Fargo filed a complaint for a temporary or preliminary injunction against a group of five advisors alleging the team took more client information than the Protocol allows. The complaint, filed in conjunction with a FINRA arbitration, was filed shortly after the advisors left, and showed that Wells Fargo did an extensive investigation into the advisors’ actions in the months leading up to their departure.

While Wells Fargo continues to stay in the Broker Protocol, this suit signals that they will be keeping a close eye on advisors that try to leave and will aggressively pursue any perceived violations of the Protocol. It is more important now than ever for advisors to ensure they have a solid exit strategy in place before they take the plunge to join a new firm.

Shustak Reynolds & Partners, P.C. focuses its practice on securities and financial services law and complex business disputes. We routinely represent broker-dealers and financial advisors in arbitrations, financial advisor transitions, broker protocol disputes and related matters. Please contact us today for a confidential, complimentary consultation.


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