The Georgia ruling represents the latest blow to the industry protocol, which has already been weakened over the past year. At its peak, it covered the vast majority of advisors and included all of the largest wirehouses. In recent months, however, Morgan Stanley, Citigroup Inc. and UBS Group AG have pulled out. That’s left Bank of America Corp.’s Merrill Lynch, Wells Fargo & Co. and about 1,700 smaller firms as protocol members. JPMorgan Chase & Co. has tested the limits of the pact.
Walled Garden
Advance-notice provisions, sometimes referred to as garden leave, have become increasingly common in the money-management industry in recent years, according to Philip Aidikoff, a securities attorney in Beverly Hills, California. Employees who are held to such agreements often remain on the payroll (with so few duties they might as well spend their time gardening) but can’t begin building their new businesses.
“Firms realized that if a broker walks in July 1 and says, ‘I’m gone August 1,’ they can make a concerted effort to keep as much of his book of business as possible,” Aidikoff said.
The Georgia case involves four brokers who signed agreements saying they’d give Aprio, known at the time as HA&W Capital, either 60 or 90 days’ written notice before quitting. Instead, the advisors walked into the CEO’s office together at noon on a Friday in April 2014 and quit on the spot, according to Kopelman. By the end of the day, they had sent packages to virtually all of their former clients, encouraging them to transfer their accounts to Morgan Stanley, he added.
Evidence showed that Morgan Stanley assured the brokers the protocol would shield them from having to comply with their advanced-notice provisions, according to Cary Ichter, a lawyer who represented Aprio in the case.
“The brokers and support staff walked out the door together, leaving behind a group that didn’t even know who the customers are,” Ichter said.
In addition to its ruling on the advance-notice provisions, the Georgia appeals court vacated three breach-of-contract claims in the case and remanded them to a lower court for further consideration. The award of any damages will depend on the outcome of those claims and another against Morgan Stanley.
The case is HA&W Capital Partners LLC et al. v. Bhandari et al.
This article was provided by Bloomberg News.