Even as Merrill Lynch moved to a $40 million settlement in response to a class action lawsuit this week, some experts ask whether it will be enough to satisfy some several thousand advisors who left the firm following its acquisition by Bank of America.
"I don't know if this is the start of a resolution or the creation of a tinder box of further litigation," David Gehn, a partner at Gusrae Kaplan Nusbaum, who has represented claimants with deferred compensation claims against Merrill Lynch, said Friday.
The settlement is in response to a class action lawsuit brought against Merrill Lynch in 2009 by two Alabama-based financial advisors formerly employed by the firm. In their claim, those advisors alleged that the change in control from when Bank of America purchased Merrill Lynch significantly changed their employment terms enough to trigger the payment of certain deferred compensation awards when they left.
The terms of the settlement that was initiated in a New York federal court on Friday allow for a total sum of about $40 million in deferred compensation to some 1,467 financial advisors who were formerly employed with the firm and had production levels of $500,000 or less.
The settlement focused specifically on that segment of the financial advisor population because the terms of their compensation was most negatively impacted by the acquisition by Bank of America. A total of about 3,300 to 3,500 financial advisors left following the combination of the two firms.
For Michael Taaffe, partner at law firm Shumaker Loop & Kendrick LLP, who represents about 1,000 financial advisors with claims against Merrill Lynch, about 570 of those fall below that $500,000 production mark. That leaves roughly half of his clients who are not part of the settlement terms. And with the terms of the settlement agreement resulting in just 25 to 30 cents on the dollar for advisors who are included, some may opt to proceed through arbitration instead, Taaffe said Friday.
Unlike arbitration, where the outcome varies from case to case, participating in the settlement provides a more certain outcome, according to Gehn, another lawyer who has worked with Merrill Lynch advisors on the claims. But the settlement will also show the advisors more details of what they are owed, he said, which may also backfire on the firm.
"I think you might be enlightening folks even more, and if you enlighten someone and at the same time insult them, they might feel played," Gehn said. "If it turns out that this truly would represent a fair and reasonable settlement, then people will by and large take it and move on."
As more financial firms have turned to large merger and acquisition transactions in recent years, Merrill Lynch's settlement might just be the latest deal to show the signs of strain that those combinations can have, said Alois Pirker, research director at Boston-based financial services research firm Aite Group.
"It's not just compensation contracts. It's everything. It's clients suing firms and regulators fining firms and the former employees going after firms," Pirker said. "It comes from all angles, and we certainly haven't seen the end of that as we're still working through the whole crisis."
News that Merrill Lynch agreed to this settlement could inspire more financial advisors who worked at other firms that have undergone transitions to look at their employment agreements again, according to Pirker.
"Conceivably, you could have those clauses in other contracts as well," Pirker said. "Certainly what it could cause is people go back to their contracts, start having a look and say, 'Maybe there's some money for me in there as well.'"
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