When Tom Costigan and a colleague decided to leave the independent registered investment advisor firm they had worked at for several years and build their own practice, they weren’t expecting to be locked in a face-off over clients with their ex-boss.

After all, they had been employed at an RIA fee-only fiduciary, not a wirehouse, where such action is common.

Costigan had worked at Exchange Capital Management in Ann Arbor, Mich., for 13 years. His partner, Kate Slocum, had been there for five years. Things changed and they did not agree with the direction that the owners were taking the firm. So, they left and formed ArborFi Advisors, also in Ann Arbor, in September.

“Naturally, some clients found us and wanted to follow us, and they did,” Costigan said, adding that about 25 clients with roughly $25 million in assets followed them.

That did not go over well with their former boss, who sought a temporary restraining order (TRO) against Costigan and Slocum.

A judge found no evidence to halt the firm and denied the TRO, Costigan said. However, he noted, the case is still ongoing as Exchange Capital Management continues its attempt to gather evidence of soliciting.

Mike Reid, a partner at Exchange Capital Management, declined comment. 

Many firms abide by the Protocol for Broker Recruiting, which was established in 2004 with four of the biggest wirehouses: Merrill Lynch; Morgan Stanley; Smith Barney and UBS. It allows advisors leaving firms to take some client information without the worry of lawsuits and restraining orders that often harm advisors and clients. But in 2017, Morgan Stanley and UBS broke ties with the protocol, making it harder for advisors to connect with their clients and exposing them to lawsuits.

As noted by Costigan, traditionally it is the wirehouses that stand in the way of recruitment when an advisor changes firms. For one thing, hiring a lawyer to take action against advisors who jump from one firm to another is not cost-prohibitive for larger firms. But smaller national firms—including RIAs—with deep enough pockets are now taking legal action against advisors who move on.

Costigan said there was nothing to prevent the wave of clients from following he and Slocum. "We did not have a non-compete in place with any other firm, but there was a non-solicit," he explained. "And because there was a non-solicit, that’s enough for these firms to go and file a lawsuit seeking a temporary restraining order [and] trying to shut you down and prevent people from leaving to follow; and also kind of send a message and harm you from getting up and running.” 

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