A three-person Finra arbitration panel on Wednesday smacked Commonwealth Financial Network with a $3.5 million decision in favor of Edward Jones, from which Commonwealth had recruited a top team of financial advisors – with $1 billion in client assets – at the end of 2022.
The team of nine advisors and staff at the center of the trade dispute, called Cedarwood Financial Partners, has offices in Texas, New York, and the Chicago area, according to the firm’s website.
The large award in favor of Eddward Jones, under the aegis of Finra Dispute Resolution Services, comes at a time when the wealth management industry is seeing leading firms sue each other over recruiting each other’s financial advisors.
Perhaps most notably, Ameriprise Financial Services is in an ongoing legal battle with LPL Financial over recruiting its advisors, with Ameriprise targeting LPL in at least four lawsuits since the start of 2024.
“Unethical recruiting practices are out of control right now,” said Brandon Reif, an industry lawyer. “It is all too common for departing financial advisors to steal company data and use the stolen data to solicit customers with prepopulated account transfer forms. Because Finra is not stepping in, the firms are forced to engage in self-help with the courts and in arbitration.”
After the Cedarwood Financial Partners team left, Edward Jones sued Commonwealth Financial Network in 2022. The St. Louis-based brokerage is known for training and cultivating its loyal network of advisors.
Jones alleged, among a number of claims, that Commonwealth and the Cedarwood team “engaged in unfair competition and severely disrupted” Jones’ business throughout parts of Texas and New York when the Jones advisors resigned and formed their own financial services practice, registering with Commonwealth, according to the arbitration award.
“While we disagree with the arbitration panel’s decision, we are pleased to put this matter behind us,” wrote Peggy Ho, senior vice president, general counsel and chief risk officer, Commonwealth Financial Network, in an email to InvestmentNews.
"We are pleased with the arbitration panel's decision to hold the former financial advisors accountable for violating their obligations to Edward Jones, and Commonwealth for facilitating their wrongful activity," a spokesperson for Edward Jones said on Thursday.
Commonwealth Financial Network, a leading independent broker-dealer and registered investment advisor, is liable for the majority of the damages and legal costs in the matter. According to the arbitration award, Commonwealth Financial Network is liable for $328,000 in compensatory damages to Edward Jones, $225,000 in costs, and $1.275 million in legal costs, or roughly half the total award.
The remainder of the damages will be paid by the advisors who left Edward Jones, according to the award. The amount of damages to be paid by the ex-Edward Jones advisors varies, ranging from $31,000 to $602,000.
“The award assigned financial liability against the respondent financial advisors to repay Edward Jones money damages in specific amounts, showing the arbitration panel’s careful evaluation,” Reif said.
The move to charge data aggregators fees totaling hundreds of millions of dollars threatens to upend business models across the industry.
The latest snapshot report reveals large firms overwhelmingly account for branches and registrants as trend of net exits from FINRA continues.
Siding with the primary contact in a marriage might make sense at first, but having both parties' interests at heart could open a better way forward.
With more than $13 billion in assets, American Portfolios Advisors closed last October.
Robert D. Kendall brings decades of experience, including roles at DWS Americas and a former investment unit within Morgan Stanley, as he steps into a global leadership position.
Orion's Tom Wilson on delivering coordinated, high-touch service in a world where returns alone no longer set you apart.
Barely a decade old, registered index-linked annuities have quickly surged in popularity, thanks to their unique blend of protection and growth potential—an appealing option for investors looking to chart a steadier course through today's choppy market waters, says Myles Lambert, Brighthouse Financial.
