Fidelity Bares Teeth Against Brokers Joining Other Firms
(Adds information in third paragraph from bottom about litigation against a former Fidelity broker who joined Merrill Lynch.)
Fidelity Brokerage Services has sued a former broker who worked with high-net-worth customers in an attempt to keep him from calling customers at an independent advisory firm he joined last week.
The lawsuit, filed Monday in U.S. District Court of Connecticut against former Greenwich-based broker Laurence Rollins, is the second in two weeks that Boston-based Fidelity Investments has brought against a big producer at its discount brokerage unit.
An Arizona judge last week granted Fidelity a preliminary injunction preventing brokers Chad Sewell and Felipe Medina from contacting former customers at a new office they had opened in Phoenix for IHT Wealth Management, a registered investment advisory firm and LPL Financial-affiliated office of supervisory jurisdiction. IHT uses Fidelity as one of three custodians for its customers’ advisory assets.
Fidelity has also filed requests for expedited Financial Industry Regulatory Authority arbitration hearings in both cases.
Sewell worked with a “select group” of about 487 households who had more than $636 million with Fidelity’s Personal and Workplace Investing unit, while Medina serviced about 452 customer households with more than $408 million of assets, according to an affidavit from their former manager filed in Arizona District Court on July 18.
The lawsuits, which cite breach of employment contracts and invoke federal and state privacy laws, highlight the contentions of discount brokerage firms that they, rather than advisors, own customer relationships because of their well-known brands. “Unlike others in the retail-brokerage field, Fidelity does not have its representatives…make ‘cold calls’ to persons who have no relationship with Fidelity or who were not referred to Fidelity,” both lawsuits say.
The relatively small group of Fidelity brokers who work with wealthy investors and have “vice president-financial consultant” titles are particularly reliant on internal referrals because Fidelity signals them when “triggering events such as Fidelity 401(k) distributable events” occur that “may lead to interest in Fidelity’s retail financial services,” the Rollins filing said.
Rollins has opened a Westport, Conn., office for Brenton Point Wealth Advisors LLC, a one-year-old registered investment advisory firm in New York City that is affiliated with investment manager Zweig-DiMenna.
“Brenton Point is confident that the court and Finra will not find fault with Mr. Rollins’ conduct, and we have every reason to believe that the allegations of misappropriation and client facilitation are unfounded,” Helena Ciechanowski, a lawyer for the RIA said. “Brenton Point is disappointed that Fidelity chose to initiate litigation against Mr. Rollins without contacting his new employer for assurances to address its concerns.”
Rollins, a 22-year brokerage industry veteran who began his career at A.G. Edwards, has qualified for Fidelity’s President’s Circle for the firm’s top 5% of producers in five of the last seven years, according to a July 23 press release from Brenton Point. He joined the RIA along with a former senior relationship manager from Fidelity, who is not named in the lawsuit.
Rollins had access to about 306 Fidelity accounts holding over $2.7 billion, called one customer on the day he resigned, has initiated LinkedIn connections with eight others in possible violation of his employment contact and looked up information on a $65 million account that was not his customer the day before he left, the lawsuit says.
“Fidelity is not yet aware of any Fidelity customers leaving to do business with Rollins,” it acknowledges, but would be “irreparably harmed by any such actual loss of customer relationships.”
Sewell and Medina, who in their Arizona court responses said they were dismissed on June 4 after giving two-weeks notice, succeeded in transferring several large accounts to IHT before Fidelity had a chance to contact them, according to Fidelity’s complaint.
Their former manager heard anecdotally that Sewell boasted at a client event that “when he leaves the company to work for an RIA, he’s going to pull his book of business with him” and also that he was not promoting Fidelity life insurance products because they were not portable, according to the complaint.
Sewell and IHT officials said they could not comment because of the ongoing litigation. Neither Sewell, who began his brokerage career ten years ago at Edward Jones, nor Medina, a registered rep for six years, have a complaint or disclosure on their BrokerCheck records.
Fidelity has been particularly aggressive in pursuing its departing elite group of brokers, going beyond the exemptive relief that traditional full-service firms seek when trying to retain customers of departed advisors, according to some brokers and lawyers, who commented on condition of anonymity.
In granting the firm’s request for an expedited injunction and restraining order against Sewell and Medina pending a Finra arbitration, U.S. District Judge G. Murray Snow ordered them to return and refrain from using “documents or information that was received or removed from Fidelity,” including “any Fidelity customer information that may have been created or recreated by Defendants from memory or by using memory to look up customer names in public sources, or derived from a list created or recreated by Defendants from memory.”
Lawyers who advise brokers planning to leave firms encourage them to build such mental contact lists.
Fidelity made similar arguments in seeking a restraining order and injunctive relief in March against Christopher Corcoran, a former Houston broker who joined Merrill Lynch in December. Corcoran had access to about 200 customer households with more than $528 million, according to Fidelity’s complaint that was filed in the District Court for the Southern District of Texas and that named both Merrill and Corcoran as defendants. The parties agreed to stay the courtroom proceeding in June, pending resolution of Fidelity’s arbitration complaint against the broker.
“While it is our policy not to comment on ongoing litigation, we take the protection of our customers’ information very seriously,” Fidelity spokeswoman Sophie Launay said in an e-mail, in response to a query about whether the mutual fund giant has stepped up its campaign against departing brokers.