MSWM Sues Junior FA For Taking Off with $1.2B Team’s Client List

Posted on May 4th, 2016 at 2:50 PM
MSWM Sues Junior FA For Taking Off with $1.2B Team’s Client List
This article was originally published on by Danielle Verbrigghe on May 4, 2016 

Morgan Stanley is suing a former junior advisor who left a $1.2 billion team to join an indie shop affiliated with LPL Financial.

The wirehouse is seeking a temporary restraining order to halt Brian Lynch from soliciting the team’s clients, as it also pursues an arbitration claim. Morgan Stanley claims that the former junior advisor violated his obligations to the firm by retaining a list of names and contact information from his former team’s clients, which he then solicited to move with him to his new firm, Kathmere Capital Management, which is affiliated with LPL Financial.

Morgan Stanley, a signatory to the Protocol for Broker Recruiting, argues that protections afforded under the protocol allowing advisors to retain client names and contact information doesn’t apply in this case. Although LPL, the brokerage at which Lynch’s registration is held, is a signatory to the protocol, his actual employing firm, Kathmere, is not. Morgan Stanley’s attorneys argue that this means that Lynch isn’t covered by the protocol.

In addition, the wirehouse’s attorneys claim that because Lynch left and the rest of his team remains at Morgan Stanley, the terms of the team partnership agreement supersede the normal protocol protections. While Lynch signed an agreement detailing that he could only retain contact information pertaining to clients for whom he was labeled a “designated joint producer,” which would have amounted to $40 million in client assets, he retained records for the team’s entire book of clients, representing $1.2 billion in assets, Morgan Stanley alleges.

Morgan Stanley’s first argument that the employing firm’s protocol status supersedes that of the firm of registration, raises some interesting questions says Jim Eccleston, an attorney with Eccleston Law, who is not involved in this lawsuit.

“These are untested and uncharted waters,” Eccleston says.

While it’s not surprising that Morgan Stanley is arguing that the employer-employee relationship should govern protocol protection status, it seems likely the broker’s attorney will argue that LPL’s status as a protocol signatory should provide him protocol protections.

“LPL has responsibilities even to those introducing brokerage firms, pursuant to securities laws, Eccleston says. “So that too is going to be really interesting to see how the Court comes out.”

Depending on the outcome, the case could have implications for the independent broker-dealer industry, Eccleston says.

“I would think that LPL, if it loses this case, will instruct its introducing brokerage members to sign up for the protocol agreement,” Eccleston says.

While this argument presents a “unique issue,” it’s likely a moot point, says Marc Dobin, principal of Dobin Law Group in Jupiter, Fla., who is not involved in the case.

That’s because the team issue appears to be more clear cut, Dobin says. The protocol includes explicit language relating to partners leaving partnerships, or team members leaving teams.

“Even if he’s successful in arguing that LPL is a protocol member, and therefore he’s protected, he’s still got a problem that he was part of a team,” Dobin says. “The protocol specifically anticipated teams not leaving en masse.”

Under the protocol, if a registered rep making a move is a member of a team, but the entire team does not move, the terms of the team agreement will govern, Dobin explains.

To protect against this type of litigation, advisors on a team should makes sure they understand their team agreement, and are properly documenting which advisors are working with which clients, and which team members have the right to solicit which clients, should they depart, Dobin says.

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