Two former Focus Financial advisors are suing the RIA aggregator to kill what they call “profoundly anticompetitive” non-solicitation and confidentiality restrictions.
According to the lawsuit filed this week in federal court in New York, advisors James Patrick and William DeButts resigned from Edge Capital Group shortly after it was fully acquired by SCS Financial, a Focus subsidiary acting as one of the “hubs” in the firm’s ongoing consolidation efforts.
However, the advisors claim that after their resignation, Focus and other defendants “sought to drive” them from the industry through arbitration, defamed them to customers, business contacts and at least one representative at Goldman Sachs, and “engaged in other misconduct designed to improperly restrain competition” to “accomplish indirectly what they are not entitled to accomplish legally.”
The two advisors frame the legal struggle as an underdog battle against Focus, which they note in their complaint is “believed to be funded by private equity firms with comparatively unlimited resources” (in 2023, Focus approved a $7 billion sale to PE firms Clayton, Dubilier and Rice and Stone Point Capital).
“Collectively, defendants, Focus Financial Partners Inc. and the private equity firms that control them to a common design represent a significant impact on certain sectors of the financial services industry, such that anticompetitive activity by them has a significant impact on the financial services industry and is worthy of court and regulatory scrutiny,” the plaintiffs wrote.
According to the complaint, Patrick and DeButts joined Edge Capital in 2014. Focus subsequently acquired the firm in 2018, offering the plaintiffs and other partners small minority interests in a separate entity.
The advisors entered into management agreements with Focus, but claim those agreements are “grossly overboard, illegal and unenforceable.” Among other alleged requirements, Focus would prohibit the advisors for two years from soliciting, marketing or selling advisory services to anyone “that, within the preceding two years, was an actual or prospective client” of Edge Capital or any of Focus’ affiliated companies, according to the complaint.
In 2024, following the sale to CD&R, Focus launched an ambitious plan to consolidate about 90 independently operated subsidiaries under a handful of large firms, or “hubs” for the Focus ecosystem.
Among those hubs was SCS Financial, which moved to acquire Edge Capital Group in late 2024. Focus unveiled the deal in January, with Edge Capital adding about $6.98 billion in managed assets to SCS. Patrick, DeButts and other Edge Capital partners would become “at-will” SCS employees after the deal.
In their complaint, the advisors also claimed they were told that “basic structure of the arrangement” they had with the firm would change as part of the deal; while they’d keep the majority of their clients, they’d do so “on terms that were less favorable to the clients and to them.”
While the advisors opposed the deal, most partners approved it, and Patrick and DeButts announced their intention to leave. But on Jan. 6, Focus locked the advisors out of their office, cut them off from emails and stopped them from servicing clients.
Focus purportedly called the advisors’ clients to sell them on the deal while falsely claiming the duo had already resigned (and also claiming to a Goldman Sachs rep that they’d had to “get rid” of the duo to make the SCS deal happen).
Patrick and DeButts eventually joined NewEdge Wealth as RIAs, and say many of their clients want to follow them upon learning of their resignation. However, they claim Focus is still pursuing them, allegedly sending cease and desist letters, demanding mediation for supposedly lost revenue that was unsuccessful, and filing arbitration claims before the American Arbitration Association.
“(Focus’) continued threats and refusal to acknowledge the unenforceability of the covenants and initiation of arbitration is having a chilling effect on plaintiffs, their clients and their potential clients,” the complaint read.
Focus Financial did not return a request to comment prior to publication.
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