Do Firms Sue When They Are Afraid to Compete?

Just in the last week, Morgan Stanley Smith Barney made an attempt to use the legal system as a bludgeon against a team departing to HighTower while Goldman Sachs did the same with a team departing to Credit Suisse (note to some cynical readers: Sarch has no stake in either transaction, though clearly a biased, yet correct, opinion on the ability of Advisors to change jobs freely). Way back in 2004, three of the major firms (UBS, Merrill Lynch, Smith Barney) came up with a Protocol for Recruiting. If a departing broker followed these rules and moved from one Protocol firm to another, then the new firm and the newly hired Advisor would not get sued by the losing firm. The Protocol, now signed by over 400 firms of all shapes and sizes, was designed to stop the Temporary Restraining Orders (TROs) that had become a cash cow for a small group of attorneys and also to protect legitimate privacy issues that concerned legislators. In the pre-2004 “old days”, an departing Advisor would take his account statements to Kinko's in the middle of the night and deliver his or her copies to the new firm. This way, new account paperwork could be completely filled out before the Advisor resigned from the old firm. Certain clients resented that their personal information could be provided to a new institution without their explicit permission. Fair enough. Let's all acknowledge that there is something unsavory and unprofessional about this type of clandestine activity. The Losing Firm would then insinuate all types of things about the Departed Advisor: “I don't know where Stacy went. Hopefully she will contact you soon, if she can. I think she had to leave.” OR “Joe was fired for bad performance. I'm your new Advisor now.” Let's acknowledge that there is something unsavory and unprofessional about this type of smear tactic. The Losing Firm would also run off to court, claiming that the Departing Advisor was “stealing” its property. Of course, the Losing Firm would also become the Winning Firm the following Friday and the same attorneys would be using the exact opposite argument in front of the very same court. Let's all acknowledge that there is something hypocritical about this type of behavior. As far as I know, Goldman Sachs is not part of the protocol. Perhaps the team that left Morgan Stanley Smith Barney violated some part of the Protocol. Maybe they didn't. With or without the Protocol, do these firms really want the courts to force a client to stay at their firm? Is that the way that a service industry keeps its customers? The Protocol was designed to stop these bullying tactics, these smear campaigns, while protecting the client's privacy. It was a tacit, if not explicit acknowledgment, that ownership of accounts by a Company, or an Advisor, is an illusion. After all, how can you “own” someone else's money? The Advisor leaves and attempts to take “his” clients with him to the new firm. The old firm attempts to convince “its” clients that they are better off staying where they are. That's called Competition. Without litigation, without smear campaigns on either side, compete for the business.