Wells Fargo Advisors has agreed to pay $7.42 million to settle a class action claim that the firm wrongly withheld incentive compensation from former advisers.
Two former
Wells Fargo brokers, Kennison Wakefield and William Stonhaus, argued as part of a class action claim that the firm unlawfully forced brokers to forfeit a portion of their deferred compensation when they moved to other firms, according to a complaint filed in September 2013.
The settlement will provide a total of $5.56 million to around 135 affected brokers in California and North Dakota, where the plaintiffs argued the compensation plans violated state law, according to court documents in the U.S. District Court of California, Northern District. The other approximately $1.86 million is reserved for legal expenses, according to court documents.
A spokesman for
Wells Fargo Advisors, Anthony Mattera, declined to comment on the case.
The firm's plan — known as the performance contributions and deferral plan — provided additional deferred compensation for advisers who met performance hurdles. That money, which plaintiffs argued was a “substantial” portion of their compensation, would vest according to a set schedule and become payable only if the adviser continued to work at
Wells Fargo Advisors or was eligible for retirement, according to the complaint.
Both Mr. Wakefield and Mr. Stonhaus were eligible for retirement under the terms of
Wells Fargo's plan. In that case, the firm agreed it would continue to pay out the unvested portion of their deferred compensation under the condition that they did not work for a competitor firm for at least three years.
But the two, who each went to work for competitor firms, said that the provision that required them to give up the remaining balance under their plan was anti-competitive and a violation of state labor laws.
“Despite the fact that they qualified for their awards, when plaintiffs and the other [financial advisers] in the class went to work for a competitor,
Wells Fargo forfeited their account balances,” the complaint said.
Mr. Wakefield moved to Morgan Stanley Wealth Management in October 2011, according to registration records. Mr. Stonhaus joined
UBS Wealth Management Americas in 2008 after working at Wachovia Securities, which was acquired that same year by
Wells Fargo & Co.
Mr. Wakefield could not be reached for comment, and Mr. Stonhaus declined to comment when reached by phone at his office. The plaintiffs' attorneys also declined to comment.
In its defense,
Wells Fargo argued that the claims should be barred by the statute of limitations and arbitration agreements, according to settlement documents. The firm also said that advisers who left the firm suffered no damages because their new firm paid them recruitment incentives, which covered potential losses, according to the settlement motion.
The firm also changed its contracts in 2012 for advisers in North Dakota and California so that it would not forfeit awards for retirement-eligible advisers who went to work for a competitor. Around a tenth of the firm's more than 15,000 advisers are based in those two states, according to the complaint.
The motion to settle, which was filed last week, was first reported by Law360.
