In the old days (pre 2004), firms would sue each other when an Advisor went from one firm to the other. “We own the book!” they cried (as if any firm or individual could somehow “own” someone else's money). Merrill Lynch invented this technique and an entire law firm in Pennsylvania was dedicated to scaring other firms from hiring Merrill Lynch Reps. Then Merrill Lynch started recruiting too. The same attorneys would show up in the same courtroom on consecutive weeks somehow trying to convince the judge that “this case is different and we're entitled to recruit and argue that the broker owns the book even though last week we made the case that the firm owns the book.”
In 2004, Merrill Lynch, Smith Barney and UBS authored a “protocol” which, when followed by the adherents, meant that the lawsuits would stop. The Protocol even held up in cases where the departing Advisors followed the Protocol, even when they joined a non-Protocol firm. Judges denied the TROs and declared the Protocol was the de facto standard in the industry.
But now there is “Garden Leave.” Wikipedia defines “Garden Leave” as “the practice whereby an employee who is leaving a job (having resigned or otherwise been terminated) is instructed to stay away from work during their notice period, while still remaining on the payroll.” Think of a 60 day vacation, courtesy of your old firm, while presumably you tend to your “garden” instead of working. Some firms made this a policy for Managing Director level employees.
Why is this unfair? First, the employees themselves are forced to abide by a policy change which affects their ability to change jobs. They were not given “consideration” or compensation for this change. They had a proverbial gun to their head which said “sign this, or else.” Or, even worse, the change in policy declaring that a Garden Leave policy exists is just hidden deeply in a new employee manual. Second, in the financial services industry, high end employees are either salary + bonus (with the salary being the far smaller component) or on commission. How does Garden Leave, then, compensate them fairly for those two months?
Wells Fargo hired Tom Isaacs to be their NYC Market Area Manager, out of Merrill Lynch in Jacksonville, FL. Yet, Mr. Isaacs is on Garden Leave for 60 days, ending at the end of this month, because Merrill Lynch is enforcing their Garden Leave clause. (Full disclosure: this is not Sarch's deal). Merrill has been recruiting a group of Smith Barney managers recently. Are they being told about what will happen if they ever decide to leave?
Just today, we are seeing a far more egregious example. Patrick McBrien and Scott Zelnick departed Deutsche Bank on Friday April 16th for Barclays. Amongst the most talented Advisors in the country, McBrien and Zelnick have appeared on the Barron's list of top brokers for many consecutive years (Full disclosure: this is not Sarch's deal either). Yet today, Wednesday, these gentlemen are reportedly back in their Deutsche Bank office, perhaps playing cards, and hanging out, because DB is reportedly enforcing their “Garden Leave” clause. Presumably, some members of their team are still at Barclays feverishly working transferring their book. I imagine that the two companies are duking it out in court.
In the meantime, clients are not able to talk to their trusted Advisors. Meanwhile, DB is on its own recruiting spree, attempting to attract Advisors to join them. I wonder if they are recruiting any Advisors that have their own Garden Leave and arguing, with their legally “dirty hands”, that such Garden Leave clauses are unfair to clients. I wonder if they are disclosing to those Advisors that they are recruiting that DB is, as one DB Advisor told me, like the Roach Motel: You can check in, but you can never leave.