Merrill Lynch was awarded more than $1.4 million last week following arbitration with a former advisor who had allegedly violated the terms of a client transition program he signed on December 1, 2018, according to the Financial Industry Regulatory Authority filing.
John M. Palombo left Merrill Lynch in December 2020, according to BrokerCheck, and joined Baird Financial Advisors in Houston on December 2, 2020, according a firm press release.
Neither Palombo nor Merrill Lynch could be reached by press time.
In April 2020, before his departure, Palombo filed a complaint alleging discrimination, retaliation and a hostile work environment, breach of contract and fraudulent inducement in that Merrill Lynch “materially misrepresented information to him about its Client Transition Program (“CTP”) and then breached the CTP agreement entered into between claimant and respondent,” the filing said.
He asked for $7 million in compensatory and punitive damages, plus attorney fees and costs, according to the document.
Like many large wirehouses with advisory practices, Merrill Lynch offers an opportunity for aging advisors to “sunset” out of the business, passing their clients to other advisors. The terms have been considered by many in the industry to be acceptable if that’s exactly what an advisor wants, but potentially constrictive under other circumstances.
For example, the Merrill Lynch transition program gives the retiring advisor a salary and a commission split with the replacement advisor. The retiring advisor can also choose payouts over two, three or four years. Once this period is past, the retiring advisor then officially resigns from Merrill Lynch and exits the industry for at least two years. Should the retiring advisor violate these terms, the firm will terminate any future payments and require that any prior payments in non-salary compensation be paid back.
It was unclear which, if any, of those criteria were referenced in the private hearings before Finra.
Merrill Lynch’s response to Palombo’s claim focused on the terms of the transfer program that Palombo had signed, and the counter claim asked for $595,370 for the program payments he was paid, interest of $32,541, lost profits of $1.4 million and about $350,000 in attorney fees.
On December 16, 2020, the panel granted Merrill’s request to dismiss Palombo’s claim that the transfer agreement was unenforceable as a result of a mutual mistake or fraudulent inducement. In its ruling, the panel said that when Palombo had accepted payments in accordance with those terms, his actions constituted ratification of the agreement.
In last week’s ruling, the panel dismissed Palombo’s claims of discrimination, fraudulent inducement and breach of contract. Instead, the advisor owes Merrill $627,911 in prior non-salaried compensation payments plus $696,000 in lost profits, which was less than half of what had been asked for. In addition, Palombo will pay $115,383 for Merrill’s attorney fees.