Schwab Sues its Own RIA Client in Non-Solicitation Spat
(Updated to include comment from Highwater in the seventh paragraph.)
Charles Schwab is asking a federal judge to enjoin one of its own clients — a registered investment advisory firm — that it says attempted to unfairly steal clients when it hired a former broker from Schwab’s branch network, according to a complaint filed in federal court in Colorado.
Schwab claims that the registered investment adviser, Highwater Wealth Management, encouraged a former Schwab broker, Greg Giuffra, to aggressively solicit his former clients in violation of his employment agreements before and after he left Schwab’s own retail branch network to join Highwater, according to the complaint.
“Highwater openly received confidential information and actively assisted Giuffra’s efforts (both substantively and financially) to solicit and induce Schwab’s clients to divert their business to Highwater,” Schwab said.
Schwab is seeking a permanent injunction to block Highwater and Giuffra from contacting former clients as well as unspecified damages and attorneys’ fees.
The case shows how the long-simmering channel conflict between the RIAs who custody with Schwab’s Advisor Services unit and the company’s own branch network under Schwab Investor Services also creates complications for Schwab internally.
Highwater, which has $144 million in client assets, according to its most recent ADV, had been a custodial client of Schwab’s since October 2013, according to the complaint.
“We will vigorously defend any allegation of wrongdoing on our part,” said Dickson Griswold, president of Highwater. “We question why Schwab is pursuing a small, Denver-based company under these circumstances.”
Griswold declined to comment on the status of their custodial arrangement with Schwab.
Giuffra managed “millions of dollars” for over 100 high-net-worth clients and generated “hundreds of thousands of dollars” for Schwab before he left for Highwater in August 2015, Schwab said in the complaint.
The company alleged that Highwater encouraged Giuffra to conceal his departure from Schwab for at least a month in order to pre-solicit clients to join him at his new firm. Giuffra agreed, and one month before he resigned from Schwab, he took a client out to play golf at Schwab’s expense and told the client he planned to change firms.
“Giuffra told that client that Schwab was no longer focused on existing clients, but rather, it was more focused on growth,” Schwab said. “Giuffra falsely told the client that Schwab was changing its model to a less personal and more volume focused model.”
Giuffra, who is not named as a party in the lawsuit, did not respond to a call for comment.
After he left and “with Highwater’s approval, aid and encouragement,” Giuffra violated his non-solicitation agreements by engaging in “aggressive ‘drip’ marketing tactics,” Schwab said. That included calling clients multiple times per week, inviting them to events and sending them gifts paid for by Highwater, Schwab said.
“In the course of pursuing clients, Giuffra regularly reported to his supervisor at Highwater on the status of his efforts to solicit and induce Schwab’s clients,” according to the complaint. “Giuffra freely disclosed confidential information that he learned at Schwab about Schwab’s clients to Highwater, and Highwater accepted this information even though it knew it was unlawful for Giuffra to use and disclose it.”