Merrill Lynch is accusing Dynasty Financial Partners, Charles Schwab and a host of former advisors of running a “premeditated corporate raid” by luring a large, institutional-focused team out of the wirehouse to form a $129 billion RIA.
In the suit filed Tuesday afternoon in Georgia federal court, Merrill accused numerous principals of the wirehouse’s Atlanta-based Global Corporate and Institutional Advisory Services (GCIAS) of orchestrating the raid, claiming the breakaway RIA, OpenArc, could do “irreparable harm” to Merrill Lynch without the court’s intervention.
According to the complaint, GCIAS was one of Merrill’s “specialty” practice groups, with about 90 advisors offering consulting and planning to ultra-high-net-worth individuals, families, and institutions ranging from small businesses to multi-national companies.
The firm said that, unlike most Merrill advisors, the GCIAS advisors were purportedly given existing relationships and do not find new clients themselves.
Yet the defendants were “dissatisfied with earning millions of dollars annually” and opted to start a new firm backed by Dynasty Financial Partners, according to the lawsuit.
OpenArc executives said the move was driven by client demand.
“Our institutional clients have consistently told us that traditional brokerage models no longer meet the needs of their people,” said Jeff Crowell, OpenArc managing partner and one of the named defendants in the Merrill complaint. “From C-suite executives to entry-level employees, everyone deserves better tools, greater choice and personalized service.”
In the suit, Merrill sought an injunction to prevent the former advisors from disclosing any alleged trade secrets or soliciting clients for at least one year, in addition to damages.
“Through the spread of misinformation and strong-arm tactics, the defendants already have conspired to poach Merrill’s GCIAS business, including 170 financial advisors and support staff assigned to support GCIAS, and thousands of corporate and individual customers receiving services from or through GCIAS,” the complaint read.
But Dynasty struck back, arguing that the Protocol for Broker Recruiting protected the advisors’ actions, according to a spokesperson (the Protocol gives departing advisors in participating firms some leeway in taking information and soliciting clients to avoid onerous litigation).
“We are also strong advocates for advisor and client choice and believe that leadership by fear is not a long-term strategy on how to retain the best advisors and serve their clients over time,” the spokesperson said.
The OpenArc leadership team
Merrill alleges the OpenArc leaders named as defendants encouraged senior GCIAS team members to move to the new RIA. They allegedly required GCIAS employees to sign non-disclosure agreements about those breakaway discussions, and offered financial incentives for junior GCIAS staff, according to Merrill.
The defendants also “used scare tactics to encourage employee departures, such as threats of lawsuits and spread baseless rumors that Merrill would shut down GCIAS and terminate any junior-level employee who remained behind,” according to the complaint.
According to Merrill, two of the original GCIAS leaders retired in 2018. Afterwards, several defendants signed agreements saying that the information gleaned from those retirees was trade secrets belonging “exclusively” to the wirehouse, and that they could not “directly or indirectly solicit” clients for one year following the end of their employment.
The wirehouse tried to pre-empt the ‘Broker Protocol’ defense, arguing that the departing advisors lost that protection by violating their non-solicitation agreements.
“Additionally, since the individual defendants were not moving from Merrill to Dynasty, and Schwab is not a signatory to the Protocol, the Protocol does not protect the individual defendants’ disclosure of confidential, trade secret and proprietary information to the corporate defendants,” the complaint read.
In a statement, a Schwab spokesperson said the firm’s business was “rooted in respect for individual choice and fair competition. Any allegations to the contrary are unfounded, and we will defend ourselves against them.”
Dynasty officially announced the OpenArc team’s launch on Wednesday.
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