Smooth Transitions : Rob Radcliff : Texas Non-Compete Lawyer & Attorney : Gruber Hurst Johansen & Hail LLP Law Firm : Dallas Employment & Employee Departures : Smooth Transitions Law Blog

From late 2008 through 2009 financial advisors were on the move.  Thousands of brokers left their positions with firms like Merrill Lynch, Wells Fargo and UBS.  Many transitioned to new brokerage houses enticed by lucrative signing bonuses and compensation packages.  Others were simply unsure of ever changing policies and compensation systems that resulted from industry consolidation such as the Merrill/BofA merger.

There were non-compete/non-solicitation lawsuits many of which were discussed here.  With the protocol in place, many FAs can transition to new jobs without the fear of a lawsuit.  Nevertheless, moving your business to a new employer is work.  Some clients are loyal to the institution, others simply don't want to move, and the former employer will put a full press on to keep the departing brokers' business once they announce their intentions to leave.

According to a recent Reuters' article , the recruiting seen over the last year will calm down in 2010:

Veteran recruiter Michael King, of Michael King Associates, said movement will slow because so many brokers are now tied to their firms, either with retention plans or because they accepted recruiting packages with long-term commitments.

"The big wave was last year, from the end of '08 through the first half '09. A lot of the people who wanted to move, moved," King said. "And many of the people who have not moved are already under contract."

Companies will still offer lucrative incentives to move, but the pool available to transfer appears to have dried up for now.  Of course, the pool will repopulate after the deals inked in 2009 expire and some brokers look for the best new deal. 
 

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An update on Robert McCann's lawsuit challenging a non-compete agreement he entered into with Merrill Lynch.  McCann wants to work for UBS, but BofA won't let him.  BofA lawyer Steven M. Kayman's take on the lawsuit:

This man signed a contract.  He got paid a substantial amount of money for it. Now he wants the court’s permission to break it.

The Judge has reserved ruling and encouraged the parties to settle.  Turns out McCann left Merrill when he did not receive a bonus in 2007.  This was after a $6.85 M bonus in 2005 and $8.85 million in 2006.  Not so sure a jury would be very sympathetic.

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It's been a few weeks since I've discussed BofA but once again the company is involved in litigation, this time over a non-compete.  This time, BofA is on the receiving end of a lawsuit filed by Robert McCann, former head of Merrill Lynch's wealth management unit.  McCann's lawsuit challenges  the enforceability of a non-compete he entered into with Merrill.  The parties are currently in settlement negotiations.  McCann is reportedly going to work for UBS.

McCann's strategy of attacking the non-compete with a lawsuit  is often recommended but rarely used by departing employees.  Generally, most employees don't have the war chest necessary to take on their former employer and institute costly litigation.  Most employees would rather wait to see if the former employer is going to take legal action.  McCann most likely and rightfully assumed BofA would sue if he went to work for UBS.  Instead of defending a lawsuit he initiated it and now looks to be close to a settlement.  This can be a solid strategy in the right situation.

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A couple of quick hits on issues previously addressed:

Arbitration

BofA is one of a number of banks to drop mandatory arbitration provisions in their agreements with credit card holders. It follows JP Morgan Chase which stopped referring credit card disputes to arbitration last month.  The tide seems to be turning against arbitration in the consumer context.  We'll see if that sentiment has any effect in the employment arena.

BofA/SEC Bonus Settlement

Executive compensation at Merrill Lynch was covered at length in the media and this blog during the early part of 2009.  Merrill attempted to settle complaints raised by the SEC but a federal judge in New York put the brakes on the settlement and has yet to rule on whether he will approve the settlement.

Cuomo Sues Schwab over Auction Rate Securities

New York Attorney General Andrew Cuomo, who earlier in the year challenged Merrill bonuses, filed a lawsuit today against Charles Schwab over auction rate securities it sold to its customers. In a statement released today, Mr. Cuomo stated:

Charles Schwab owed its customers a duty to properly understand and make accurate representations concerning auction-rate securities. Today we commenced a lawsuit to remedy Schwab’s repeated breach of that duty.

There are numerous auction rate lawsuits pending throughout the country as investors, large and small, are unable to obtain funds invested in these securities.

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Despite indications that it would join The Broker Protocol last year when it acquired Merrill Lynch, BofA has yet do so. The Protocol, which has been frequently discussed in this blog, allows departing brokers/advisors leaving a firm to avoid claims for breach of non-compete or non-solicit agreements.

A Merrill Lynch spokesman has indicated that Merrill is a member of the Protocol and anticipates Bank of America Investment Services will join the Protocol in the future, but there is no date that is certain.

There are approximately 300 members of the Protocol.  As long as Bank of America does not participate it retains the right to sue departing brokers or financial advisors for violation of non-compete or non-solicitation agreements.

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