Morgan Stanley's aggressive move against former employee puts brokers on notice

Wirehouse's pursuit of New Jersey broker through courts shows firm intends to enforce non-solicitation agreements, experts say

Dec 14, 2017 @ 4:22 pm

By Bruce Kelly

Morgan Stanley's pursuit last week of a temporary restraining order against a New Jersey broker who resigned December 8 is a clear sign the firm will aggressively enforce one-year non-solicititation agreements in contracts with brokers, industry observers said.

"This shows that Morgan Stanley will take an aggressive approach," said James Heavey, a partner at Barton LLP.

"I would definitely agree," said Louis Diamond, vice president at Diamond Consultants, a recruiting firm. "Clearly, Morgan Stanley is going to go after whomever they can."

A federal judge in New Jersey last Wednesday agreed to a temporary restraining order against the broker, John Fitzgerald, who left the firm to move to Commonwealth Financial Network. Two days after Mr. Fitzgerald resigned, Morgan Stanley filed its complaint against him to stop him "from soliciting Morgan Stanley customers he had serviced while employed by Morgan Stanley and to require him to return all customer information he took with him," according to the lawsuit.

Morgan Stanley's complaint is being closely watched by the industry, particularly by brokers at large firms who may be considering changing employers.

A spokeswoman for Morgan Stanley, Margaret Draper, said the firm had no comment about the case involving Mr. Fitzgerald. Anthony Paduano, Mr. Fitzgerald's attorney, did not return a call to comment.

Morgan Stanley at the end of October said it was leaving the broker protocol for recruiting, informing advisers that the firm would enforce client confidentiality and non-solicitation agreements. It was the first wirehouse to withdraw from the protocol, which was created by a handful of large firms in 2004 to limit costly lawsuits against brokers when they moved from one firm to another.

UBS Wealth Management Americas said near the end of November it was also leaving the broker recruiting agreement; Merrill Lynch on December 4 said it would remain in it.

The judge, Renee Marie Bumb of U.S. District Court, New Jersey, ordered that Mr. Fitzgerald had 24 hours to turn over any documents he removed from Morgan Stanley, including emails, and couldn't use confidential client information to solicit Morgan Stanley clients, according to a court order.

But, Mr. Fitzgerald could return phone calls and emails from his clients, process account transfer requests from clients and keep documents given to him by customers, according to the order. His attorneys can argue next month why a preliminary injunction should not be ordered.

While the restraining order clearly benefits Morgan Stanley, the order was positive for the broker because it "recognized the client's choice of adviser and the freedom of client," noted David Gehn, an attorney with Ellenoff Grossman & Schole.

0
Comments

What do you think?

View comments

Recommended for you

Featured video

INTV

Ron Carson: If you aren't growing you're dying

There are two group of advisers, according to Ron Carson: Those that are expanding and those that are just "hanging on." So, which group do you belong to?

Latest news & opinion

LPL rolls back recruiting policy aimed at driving more assets to its corporate RIA

LPL erases $50 million hurdle for new advisers to join so-called hybrid firms.

Don't be fooled by the numbers — the industry is in a dangerously vulnerable state

Last year's stock market gains helped advisers turn in solid growth in assets and revenue, but that growth could disappear in the next market downturn.

Divided we stand: How financial advisers view President Trump

InvestmentNews poll finds 49.2% approve of his performance, while 46.7% disapprove. How has that changed over the course of his presidency?

10 states with the most college student debt

Residents of these states have the most student debt when you consider their job opportunities.

Ex-Wells Fargo brokers sue for damages, claiming they lost business in wake of scandals

In a Finra arbitration complaint, two brokers allege that Wells Fargo's problems damaged their business.

X

Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting investmentnews.com? It'll help us continue to serve you.

Yes, show me how to whitelist investmentnews.com

Ad blocker detected. Please whitelist us or give premium a try.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print