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Morgan Stanley loses round 1 in fight with ex-team over clients

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Morgan Stanley lost its bid for a temporary restraining order against a $660 million team that jumped to Stifel, though the wirehouse may get a second shot at seeking relief in court.

Judge Joan Gottschall denied the firm’s motion in U.S. District court in Illinois, giving the six-advisor team breathing room to continue speaking with clients at their new employer, Stifel Financial.

It’s the second time in a week that a major brokerage firm seeking to assert control over client relationships suffered defeat in federal court. In late September, a federal judge in Indianapolis denied JPMorgan’s request for a temporary restraining order against the team that moved to Raymond James and which the bank accused of violating non-solicitation agreements.

In the Morgan Stanley case, six brokers based in Bourbonnais, Illinois, denied the firm’s accusations that they had violated non-solicitation agreements contained in employment contracts and a joint production agreement.

Morgan Stanley claimed in court filings that clients had complained about being solicited by the advisors. The firm did not name the clients, but it did point to a Facebook post by a wife of one of the brokers. The post congratulated the brokers on their career move, and had been liked and commented upon by clients, according to Morgan Stanley.

In their defense, the Stifel advisors emphatically denied soliciting clients and taking any information belonging to Morgan Stanley.

The team further argued that Morgan Stanley made no specific complaints against four of the six advisors. And the non-solicitation agreements, they said, are not enforceable under Illinois law.

They also criticized the firm’s exit from the Broker Protocol as a “bait-and-switch” tactic. Their joint production agreements were signed on Nov. 3, 2017, just three days before the firm formally left the industrywide accord, which permits advisors who switch firms to take basic client contact information with them.

Although the firm’s withdrawal was not made public until Monday, Oct. 30, it had sent notice to the law firm that administers the industrywide accord on Oct. 24, expressing its intent to withdraw from the protocol.

Smith Barney, a predecessor firm of Morgan Stanley, was an original signatory to the protocol in 2004.

The Bourbonnais team, which moved to Stifel earlier this month, includes advisors Zachary Birkey, Ronald Ouwenga, Jeff Schimmelpfennig, Myron Hendrix, Brian Thomas and Michael Bruner.

The group generated $4.2 million in annual gross revenue while at their former employer, according to Morgan Stanley’s lawsuit.

After the advisors denied Morgan Stanley’s charges, the firm filed another brief with the court reasserting its claims. In Morgan’s view, the team had not proven they had not breached their contracts. The firm questioned how advisors would be able to call clients without retaining company information on those clients.

“Unfortunately, however, after carrying out their mass departures with near military precision, defendants have set about to execute on their ultimate objective — to divert as many Morgan Stanley clients to Stifel as possible,” the firm said in court documents.

John Pierce, head of recruiting at Stifel, praised the judge’s ruling, saying “FAs are not indentured servants.”

"I will agree with [Morgan Stanley] on one point, we do execute all non-protocol moves with military precision because we value the FA and their relationship with their clients,” he said in an email. “Look, financial advisors own their client relationships and they should be at a firm that accepts and appreciates that fact. Fear and intimidation won't drive loyalty and retention."

Dynasty, Raymond James and Stifel are among the biggest beneficiaries of recent advisor moves.
September 21

Stifel has been on a recruiting tear recently, picking up more than two-dozen advisors in September, including the Bourbonnais team. Like other regional brokerage firms, Stifel has benefited from a stream of wirehouse recruits, some of whom have said that they are looking for firms with less bureaucracy and more flexibility.

In a similar case, JPMorgan sued a three-member team that left the bank to join Raymond James, another regional brokerage firm that has been aggressively courting advisors at its larger competitors. On Wednesday, a federal judge denied JPMorgan’s request for a temporary restraining order against the team, saying that the bank had not sufficiently demonstrated that the brokers had violated non-solicitation clauses.

In the Morgan Stanley case, the firm may have another opportunity to seek a preliminary injunction, according to court filings from the judge’s office. The two sides were due to meet in court Friday to hear oral arguments on behalf of Morgan Stanley to conduct limited discovery and to set a possible hearing date for a preliminary injunction hearing, according to court records. Attorneys for the two sides were unavailable for comment as of late Friday.

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