Schwab Pursues Advisors Who Jumped to Morgan Stanley
Charles Schwab & Co. asked a federal court on Friday to enjoin two high-net-worth brokers who left the firm’s offices in Red Bank, New Jersey and Orlando, Florida, last week from contacting customers about joining them at Morgan Stanley.
Schwab sought a temporary restraining order and preliminary injunction against Christopher Armstrong and Randall Kiefner, pending the outcome of an expedited Finra arbitration hearing, according to the filing with the U.S. District Court for the district of New Jersey.
The litigation furthers a trend of discount brokers aggressively pursuing brokers who worked in units dedicated to wealthier investors from taking client-contact information with them to rival firms.
Lawsuits seeking judicial restraining orders against brokers contacting former clients had been a hallmark of full-service firms, but eased after large firms created the Protocol for Broker Recruiting more than a decade ago to lower legal costs in what they acknowledged was an expensive zero-sum game of raiding each other for big producers.
Morgan Stanley dropped out of the Protocol in late 2017, but after an early flurry of TRO requests has eased its litigious tact. The change reflects, in part, care that hiring firms have given departing brokers to ensure they meet the letter of their employment contracts.
Firms that traditionally service self-directed customers such as Schwab, Fidelity Investments and E*Trade, however, have in recent months stepped up lawsuits against brokers who leave units dedicated to servicing wealthier investors than their standard customers.
A Morgan Stanley spokeswoman declined to comment on the Schwab lawsuit.
Armstrong and Kiefner have been registered representations for 26 and 25 years respectively, including more than ten years with Schwab, according to their BrokerCheck histories. The lawsuit says they violated their employment contracts by removing confidential information about clients who held over “three quarters of a billion dollars in assets” in Schwab accounts, and by failing to give four weeks’ notice in advance of their resignations.
“At the very same time they were supposed to be working to assist Schwab in transitioning clients to other Schwab advisors, Armstrong and Kiefner were working to transition clients away from Schwab to MSSB,” the lawsuit says, using the initials for Morgan Stanley Smith Barney.
The lawsuit also says that Orlando-based Kiefner and Red Bank-based Armstrong, who jointly serviced primarily New Jersey high-net worth clients, contacted at least 15 clients within two days of their “surprise resignations” on March 29, allegedly using confidential information they took with them. Schwab services more sophisticated clients through three-person teams consisting of a financial consultant (Armstrong), a private client advisor (Kiefner) and an administrative assistant, the lawsuit says. Armstrong also serviced some clients outside the private client program, it says.
“Kiefner printed out some or all of his entire practice list three times shortly before he resigned, and Armstrong, without any apparent legitimate business reason, reviewed in rapid succession 148 client-overview screens in a proprietary database about a week before he resigned,” the lawsuit says.