J.P. Morgan Bank-Based Broker Who Jumped to Merrill Agrees to TRO
(Updated on Oct. 15 with revised headline and story lead to reflect broker’s agreement to a stipulated preliminary injunction.)
A former JPMorgan Chase bank-based broker who jumped to a Merrill Lynch office in New Jersey last month has agreed to refrain from actively soliciting customers he formerly serviced, pending resolution of an arbitration hearing with a Finra panel on the bank’s request for permanent injunctive relief.
The stipulation, signed on October 12 by representatives of both parties, settles a court action J.P. Morgan brought last week in U.S. District Court in New Jersey seeking a temporary restraining order prohibiting the broker’s solicitations. The agreement does not prohibit Ruiz from responding to client inquiries or requests for information or meetings or require him to admit any liability or acknowledge any wrongdoing, according to the court order.
It also makes no findings as to whether the broker violated his employment agreements with J.P. Morgan.
Ruiz worked at JPMorgan Chase bank branch offices in Edison and Clinton, N.J., prior to joining Merrill on September 19, according to the lawsuit.
The TRO request was at least the second that JPMorgan filed against a former private banker who joined Merrill, and illustrates the continuing efforts of firms to use courts to help them retain customer assets and prevent sales staff from bolting to competitors. The bank filed a motion for a temporary restraining order against two Chicago-based brokers 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.
In its initial filing, J.P. Morgan accused Ruiz of violating 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.”
Ruiz’s solicitation efforts have “unfortunately…proved successful,” the lawsuit said, noting that about four households he had serviced “indicated that they intend to move their accounts from JPMorgan to Merrill Lynch, totaling in excess of $4 million in assets.”
The lawsuit did 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 Merrill Lynch Wealth Management official said on Monday that the firm has no plans to leave the Protocol, despite exits by competitors Morgan Stanley and UBS Financial Services late last year.
The Protocol exits raised cries from some brokers and headhunters that the departing firms were suppressing customer and advisor choice by threatening lawsuits if the brokers moved.
While broker outflows from Morgan Stanley and UBS have slowed, their abandonment of the pact is unlikely to permanently handcuff advisors who are confident that they have loyal customers, as long as the brokers follow the dictates of their employment contracts, said brokers and lawyers at AdvisorHub’s “Industry in Transition Summit” in New York on Thursday.
“Happy clients move,” Joe Exner, head of Ameriprise Financial’s Northern States region for employee advisors said on a morning panel at the conference.
Exner was not speaking specifically about the J.P. Morgan lawsuit.
After Morgan Stanley and UBS left the Protocol at the end of 2017, Charles Schwab saw an initial slowdown in the number of brokers asking the firm to help them form independent registered investment advisors, but the pace of breakaways resumed after about a quarter, Tim Oden, head of business development at Schwab Advisor Services business told conference attendees.
“I’m not sure making it harder for people to have free choice ever gets a good response,” he said.
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.