J.P. Morgan Seeks Restraining Order Against Broker Who Jumped to Merrill
(Updates with information on Chase’s Protocol coverage in seventh paragraph.)
J.P. Morgan Securities has filed a request for a temporary restraining order against a broker who left the firm last month after almost two years to join a Merrill Lynch office in New Jersey.
The legal action, which seeks to restrain the broker from soliciting his former clients pending resolution of an arbitration proceeding JPMorgan concurrently filed with Finra, illustrates the continuing efforts of firms to prosecute even relatively experienced bank-based brokers joining the ranks of wirehouses seeking to replenish their salesforces.
The broker, Manuel Ruiz, worked out of JPMorgan Chase bank branch offices in Edison and Clinton, N.J., prior to joining Merrill on September 19, according to the lawsuit that was filed late Wednesday in the U.S. District Court in New Jersey. In August, J.P. Morgan filed a similar request for a restraining order against two of its private bankers who joined Merrill Lynch’s private banking and investment group in April.
A Merrill Lynch spokesman said he could not immediately comment on the lawsuit.
According to the filing, Ruiz violated his confidentiality and non-solicitation agreement by immediately calling and soliciting JPMorgan clients to move their accounts to him at Merrill Lynch after resigning.
“[A]t least eight JPMorgan clients have reported to the firm that they received calls from Ruiz, many on their cell phones and some during the weekend, the numbers to which he would not have had access to but-for his employment with JPMorgan, soliciting their business or asking for a meeting with the client,” the lawsuit said. “The clients have reported that the calls are more than Ruiz simply announcing his new change of employment, but that he is requesting meetings with the clients to discuss doing business with him at Merrill Lynch.”
The lawsuit does not mention the Protocol for Broker Recruiting, which permits brokers to move among signatory firms with rudimentary client-contact information. J.P. Morgan Securities subscribes to the Protocol for advisers in the traditional retail brokerage business that it inherited from Bear Stearns & Co. during the financial crisis, but brokers in the Chase wealth channel where Ruiz worked are not covered by the pact.
A J.P. Morgan spokeswoman declined to comment on the lawsuit.
The bank’s lawsuit notes that Ruiz’s solicitation efforts have “unfortunately…proved successful.”
Approximately four households he had serviced “have indicated that they intend to move their accounts from JPMorgan to Merrill Lynch, totaling in excess of $4 million in assets,” the lawsuit says.
The lawsuit comes as Merrill competitors Morgan Stanley Smith Barney and UBS Financial Services have dropped out of the Protocol, raising cries from headhunters and some brokers that they are suppressing customer choice in threatening to sue advisors who move.
“Happy clients move,” Joe Exner, head of Ameriprise Financial’s Northern States region for employee advisors said Thursday morning at AdvisorHub’s “Industry in Transition Summit” in New York.
Exner was not speaking specifically about the J.P. Morgan lawsuit, but was addressing Protocol restrictions and the tendency of advisor-centric clients to follow brokers on the move, particularly in rising markets.
After Morgan Stanley and UBS left the Protocol at the end of 2017, Charles Schwab saw a slowdown in the number of brokers setting up as independent registered investment advisors as they monitored how aggressive large brokerage firms would be in filing lawsuits, according to Tim Oden, head of business development at the firm’s Advisor Services custody business for RIAs. After a lull for about a quarter, the pace of breakaways from big firms to independence has resumed.
“I’m not sure making it harder for people to have free choice ever gets a good response,” he said at the AdvisorHub conference.
Schwab, the largest custodian that works with some $1.5 trillion of underlying RIA client assets, is on pace for a record year in 2018 in attracting new RIAs and client assets under management.