A former Edward Jones broker who found himself in hot water over accusations that he violated his non-solicitation agreement can breathe a sigh of relief. When John Lindsey left Edward Jones to go independent in March 2012, he took about half his clients with him. Edward Jones promptly filed a request for an injunction and temporary restraining order, in Ventura County Superior Court, Calif. The firm claimed he had violated his one-year non-solicitation agreement by misappropriating client information and wrongly soliciting clients.

In a May 2012 Superior Court ruling, Judge Tari Cody granted the injunction, upholding Edward Jones' non-solicitation agreement, which prohibits an advisor from soliciting clients of the firm for one year after the advisor's departure. However, in her ruling she stated that nothing in that agreement prohibited Lindsey from servicing Edward Jones clients who reached out to him directly.

After that ruling, Edward Jones had asked FINRA to make the injunction permanent on Lindsey and requested $5 million in compensatory damages. Both requests were denied by the arbitration panel on July 26, 2013. The two rulings, especially FINRA's refusal to award damages, makes it clear that the bodies regulating advisors will not block them from servicing clients who wish to follow them from their old firm. The arbitration result also reaffirmed previous guidance given by FINRA's predecessor, the National Association of Securities Dealers, which had issued a notice stating "that obtaining temporary restraining orders to prevent customers from following a registered representative to a different firm may be similar to the unfair practice of delaying transfers" of clients to a new advisor.

"FINRA's position on this has been that firms can do nothing to stop clients from going to a broker of their choice," says Brian Neville, a founding partner with Lax & Neville who frequently represents securities firms and brokers.

Judge Cody's 2012 court ruling reflected a similar position, stating that "Nothing herein [the non-solicitation agreement] shall prohibit Lindsey or anyone else from: (a) continuing to provide services to Lindsey's clients who have already moved business away from Edward Jones; (b) providing services to persons who have indicated that they wish to transfer their accounts from Edward Jones to permit Lindsey to continue as their financial advisor." Without the judge's ruling on the limits of the non-solicitation agreement, Lindsey would have been prohibited from talking to former clients even if they reached out to him first about moving their accounts, according to Lindsey's attorney, Shirley Hayton of Gartenberg Gelfand Hayton & Selden.

Lindsey, who started his career with Edward Jones in 1996, managed approximately 542 households totaling about $163 million in assets. Hayton argued that according to California law, Lindsey could speak to those clients before the one-year non-solicitation period if his clients contacted him or if their phone numbers were available publicly, provided that he did not use trade secrets or information gleaned from Edward Jones.

"Dozens of customers have chosen Mr. Lindsey to continue to represent their financial interests," Hayton wrote in a filing opposing the court injunction. "A [temporary restraining order] would interfere with their choice and the potential choice of other customers."

It's a central focus of the debate, as evidenced by Edward Jones' most recent employment agreement (not the same one Lindsey signed), which reads: "...You shall not, during your employment with Edward Jones and for a period of one year thereafter, contact or communicate with any Edward Jones client about whom you have confidential information or Edward Jones Trade Secrets, regardless of who initiates said contact or communication, for the purpose of inviting clients to transfer from Edward Jones to you..."

In those cases, state law about soliciting clients often supersedes the firm's contract, Neville says. "The definition of solicitation is not necessarily controlled by how [the firms] define it," he explains. "In some states, you're allowed to provide notice [to clients that you've left your firm] regardless of what your contract says. If it's not solicitation by state law, there's nothing Edward Jones can do to change it no matter how they define it."

Edward Jones pointed to the injunction it won in civil court as evidence of victory. "Edward Jones takes the protection of its client information very seriously," the firm wrote in an emailed statement. "While the FINRA arbitration panel declined to enter a monetary award, in the companion case filed in the Ventura County Superior Court, Calif., the Court granted Edward Jones the injunctive relief it sought against Mr. Lindsey."

The firm declined to comment further. "The injunction speaks for itself," its lawyers said.

Retention of top brokers and their clients is more of a concern for Edward Jones because of its unique business model, Neville says. Edward Jones rarely spends money to recruit established brokers with large books of business and instead invests time and money in training first-time advisors like Lindsey and placing them in one-man offices.

"Edward Jones specializes in operating one-person offices in small- and medium-sized markets that have not traditionally been serviced by the larger investment firms," Edward Jones said in its request for the injunction. "The successful operations of Edward Jones' offices in these markets, dealing virtually exclusively with individual investors, is the result of many years of effort, research, promotion, advertising, time, expense, marketing and good will expended by Edward Jones."

As such, Edward Jones, along with J.P.Morgan and a handful of others, is one of the few firms yet to sign on to the Protocol for Broker Recruiting. More than 600 firms have already signed the agreement, which allows an advisor to take certain client information, such as names and addresses, without the fear of arbitration. Still, large claims and non-solicitation agreements are common in the industry, and many firms make broad-based claims restricting brokers' interactions with their clients, according to Mindy Diamond, president and CEO of Diamond Consultants.

"It's probably no different than what's in the [non-compete] clauses in other firms," Diamond says. "It's as hard or as easy to leave Edward Jones as it is any other firm."

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