(Dow Jones) Bank of America is suing a team of breakaway advisors from its U.S. Trust private bank, contending they aren't covered by rules that would allow advisors from another of its units, Merrill Lynch, to walk away with certain client data. Legal documents suggest the operations aren't absolutely separate, however.
The case highlights different industry standards that can apply to employment within units of today's megabanks, which went through a string of turbulent mergers in the 2008 financial crisis. It also reveals the potential for confusion as those banks try to, on the one hand, keep certain operations distinct while, on the other hand, streamline activities where they can.
Bank of America is accusing former advisors Michael C. Brown and Charles F. Britton and their new employer, Dynasty Financial Partners in New York, of illegally taking client data and soliciting its customers.
The bank argues that a formal set of guidelines used by many brokerages, known as the Protocol for Broker Recruiting, doesn't apply to U.S. Trust, which it acquired from Charles Schwab ) in 2006. A New York state court judge found enough merit to that argument to issue a temporary restraining order against Dynasty and the advisers on Dec. 9, prohibiting them from soliciting U.S. Trust customers.
A Dynasty spokesman said the advisors "rigorously followed" the protocol. The judge also denied Bank of America's request to prohibit the two from accepting account transfers from Bank of America clients who want to work with them, he says.
More than 500 securities firms have signed on to the protocol, which is designed to reduce legal conflict when advisors switch firms. Participants agree not to sue each other as long as advisors take only certain customer information.
Bank of America sent letters to protocol signatories in late 2009, explaining that employees of U.S. Trust and Bank of America weren't covered by the protocol. There could be a wrinkle, however, to that argument: While their jobs were at U.S. Trust, licenses for Brown and Britton were registered to Merrill Lynch, which is a protocol signatory, according to regulatory documents.
A Bank of America spokeswoman says it integrated its broker dealer platforms after acquiring Merrill Lynch, which now holds securities licenses for many of the company's registered employees. That doesn't mean those employees, however, are Merrill Lynch-registered representatives, she says.
The type of information that Brown and Britton are said to have taken, client names and certain contact information, is typically protected when advisors move between protocol firms, say lawyers. Dynasty is a signatory.
In its suit, Bank of America argues that what matters is the advisors' official employment at U.S. Trust, not broker registration through Merrill. What also matters, it says, is that the businesses are separate and distinct. U.S. Trust caters to a high-net-worth crowd and "comprehensively manages and controls" client assets, the company says. "Merrill Lynch generally does not manage assets, but instead performs a more transactional role," it says.