A Financial Industry Regulatory Authority arbitration panel has denied a claim by financial advisor Alan P. Niemann that he is owed more than $1 million from the supervisor of three advisors who left Niemann’s firm and profited from client assets they took with them, Finra announced today.
The advisors, who are identified in the ruling only by their initials, were legally free to go to another firm and any fees they owed should rightly have been paid to their new supervisor, Finra said
The action by the advisors was not unreasonable and, therefore, did not require compensation to be paid to Niemann and his firm, Finra said in the arbitration ruling.
The dispute arose when the advisors left one independent Royal Alliance office of supervisory jurisdiction (OSJ) to go to another Royal Alliance OSJ, according to Spencer F. Smith, an attorney with McAfee & Taft of Oklahoma City, Okla., who represented the head of the Royal Alliance OSJ where the advisors moved to.
The dispute revolves solely around whether the advisors had the right to take clients’ assets with them and generate new client revenue, and not around their legal ability to move from one firm to another, Finra said.
“The ruling reinforces the advisors’ right to freely affiliate with any firm they choose,” Smith said.
Niemann claimed he was due compensation as the supervisor of the OSJ of between $1,186,000 and $1,206,000 for work generated by the advisors after they left his Royal Alliance OSJ and went to work for an OSJ headed by Brian Basil Heapps, who is named as the respondent in the claim.
The advisors signed agreements with their original Royal Alliance firm to provide compensation to Royal Alliance that were applicable when the advisors worked for that particular OSJ. However, once they left one Royal Alliance OSJ for another, the payments were no longer required, Finra said.
To allow Niemann to claim damages once the advisors had left his OSJ “would—inequitably—confer a windfall on him. He would be provided what amounts to a long-term annuity extracted out of the three advisors’ production, even if that production was generated outside the relationship created by” the original agreement, the ruling said.
In September 2020, Niemann sent letters to customers of the advisors requesting them to transfer their accounts to him. All parties involved had the right to terminate the agreement that was originally signed in 2013 and the advisors and Niemann all had the right to go to work elsewhere, Finra said.
The dispute is over whether Niemann “retained an interest in the advisors’ books of business, such that he retained the right to receive an override from their production in their new OSJ,” the ruling said. Finra ruled he did not have such a right.
The advisors were acting reasonably when they decided to terminate their original employment and go to work elsewhere, Finra said.
“When productive brokers, who have built up good working relationships with their customers over the years, have the door closed on them at their place of work but wish to continue working in the industry, they should be able to do so without imposing a huge financial obligation on their new boss,” the ruling said.
Heapps had the right to the payments from the advisors because it was “the reasonable compensation an OSJ supervisor in the industry such as the respondent can expect to receive for carrying out his supervisory duties over producers who come into his organization.”