Breaking up is hard to do, as John C. Lindsey knows only too well: When the financial advisor broke away to go independent in 2012, Edward Jones sued him for $5 million.
But Lindsey fought back. After spending thousands of dollars in legal costs and sustaining much emotional wear and tear, he emerged victorious: the Financial Industry Regulatory Authority and an arbitration panel dismissed the case in July 2013.
Now, in a candid interview with ThinkAdvisor, Lindsey, 60, discusses the good, the bad and the ugly of his almost 16 years with Edward Jones in Simi Valley, Calif., and what he suffered when he left the fold.
A top producer and regional leader, he became a Jones partner in 1999 and was a general partner from 2001 to 2006. At the time he quit the firm, his was among its top 3% volume offices nationwide.
Now the CFP helms Lindsey & Lindsey Wealth Management in West Lake Village, Calif., partnering with Securities America branch office Cooper McManus, an RIA and office of supervisory jurisdiction (OSJ).
The feisty advisor’s personal mission is to embolden and help guide other advisors who are eager to break away from wirehouses or large regionals but feel trapped.
Jones’ suit charged Lindsey with violation of the California Trade Secrets Act, breach of contract, breach of fiduciary duty and unfair competition. In response, the million-dollar producer filed a counterclaim.
“Edward Jones had no objection to Mr. Lindsey’s departure, and the arbitration was never about that," says John G. Boul, Edward Jones’ global media relations manager, in an email. "The arbitration concerned the protection of client information, something we take very seriously."
He adds: “In the companion case filed in Ventura County Superior Court, the court ordered Mr. Lindsey to return all records taken from Edward Jones or any that contained information about Edward Jones’ clients. Ordered to surrender the records, Lindsey denied having any.”
ThinkAdvisor spoke with the Alabama-born advisor, a Navy fighter pilot’s son, who, prior to turning his hobby of investing into a profession, found a decade of success as an apparel industry executive. Here are excerpts from our conversation:
Why are you taking the time to give guidance to advisors who want to break away?
I was victorious; very few are. I want to let people know that they can be, too, if they believe in their conviction that they did no wrong. There’s no reason to feel trapped in your current employment. They’re just renting you; they don’t own you. You don’t have to sit there and take whatever the corporation feeds you. But few advisors go the distance because they get scared.
The Broker Protocol agreement allows advisors to take client names and contact info with them when they exit a firm. Jones isn’t a signatory. What impact does that have on advisors who leave?
They brutalize them through court activity, trying to restrict them with injunctions and driving up their legal fees. Jones is notorious for that. Then they try to get them to settle for about $30,000. And the advisor ends up signing a release saying they can’t say anything further about Edward Jones forever and ever.
Yes, they’re very successful at interrupting the advisor’s business, driving them to financial distress and preventing them from saying anything about them as they go forward. They’ve got, kind of, carte blanche with our legal system. And [Jones managing partner] Jim Weddle is on the FINRA Board of Governors. That’s a pretty cozy relationship with a firm that has a reputation for going after financial advisors and having FINRA arbitrations.
Why did you decline the settlements Jones offered you?
They were suing me for $5 million. If they had gotten $5 million, I’d be selling suits at Nordstrom!
You had the foresight to hire an attorney before you left.
I knew that as a high-profile top advisor, a partner and a regional leader, there was a strong chance they would come after me because they wanted my head on a platter.
By speaking out, you could be tarnishing the Edward Jones image as a wonderful place to be employed. This year, Fortune magazine ranks the firm No. 4 on its “100 Best Companies to Work For” list, on which it’s appeared — always in the top 10 at least — for 15 years now.
This is one of the things I want to try to make sure people understand: Behind the scenes, Jones is not necessarily that “wonderful place to work.” They have this pristine image they’ve generated over time with great public relations effort. But behind the curtain, they’re not nice people. They have very much a “Kool-Aid culture.” If you drink the Kool-Aid, you can get along just fine. But if you resist drinking the Kool-Aid, then it’s very much like John Grisham’s “The Firm”: you’re excommunicated.
I’m not just picking on Jones. I’m talking about anybody who’s with a wirehouse and wants to leave. I happen to have been with Edward Jones; but I could have been with Merrill Lynch or Morgan Stanley or UBS or any number of firms — and it would have been the same story.
What support are you providing to advisors who contact you?
I’m available. I’m getting calls from all over the country from people who have an interest in moving. They may ultimately have an interest in Securities America or Cooper McManus. A lot of the calls have been from Edward Jones advisors interested in breaking away.
But the suit cost you money and caused a great deal of stress. For those reasons, maybe advisors are afraid to break away.
They have to weigh that. If they’re willing to sell out to the corporate situation, then they deserve what they get. I’m trying to encourage people to have the courage to stand and deliver.
From what you’ve said, it’s odd that you wanted to stay with Jones for 16 years. You must have liked working there at some point!
Most of the time I did. But they had become quite a bit different in how they treated their financial advisors. Over time, they were geared more toward taking care of the management within the partnership.
They give partnerships away so that advisors will come in from the field and live in St. Louis; otherwise, very few want to go there. That leaves little or no partnerships to give to the field — [that is,] the advisors doing the work. Ninety-four percent of all partnerships are held by the home office general partners, and this has become more prevalent during the last 10 years. What some Jones executives are making, I’ve heard, is obscene.
Any other changes that you observed?
They had become a “corpocracy,” a corporate bureaucracy. I thought I was getting something completely different, and in the early years, I did. I was one of 2,300 advisors when I signed on; and I was very, very successful. Toward the end, I became one of 14,500 advisors. But that was fine. I pretty much could get anything done I needed to get done.
So why did you leave?
I would have stayed. I was fat, dumb and happy. I was 59 years old. How many people change jobs significantly at that age? I was doing exceptionally well. But the first thing that happened was that after I became a registered Kingdom Advisor [ministry of Christian advisors using biblical principles to invest if clients prefer] about 10 years after I joined Jones, they wouldn’t allow me to hang up my certificate.
Later on, was there a straw that broke the camel’s back?
Yes. The issue was my succession plan. I wanted my daughter Christina [Lindsey Orta], Series 7 licensed and a CFP, to come on board and be part of my business for 10 or 12 years and then take it over. But Jones said, “We can’t have more than one person in an office.” Actually, they have about 200 two-FA offices that were grandfathered in from years ago. They told me they didn’t want any more of those. But in some cases, they’ve made exceptions. It depends on who likes you. Jones is pretty discriminatory about that stuff.
What did they propose as a succession plan?
They didn’t have one, though I understand they do now — I was a catalyst for that change. They said the only way I could bring Christina in was if I retired in three years — and they would give only half my business to her. The other half of my clients would be given to somebody they had never laid eyes on. I didn’t think that was fair: I built my $170 million-plus office from scratch. There were zero assets when I started — no one in my market knew who Edward Jones was.
What happened about the succession plan?
It became a major issue for two years. Jones kept saying, “We’re working on it; it’s going to work out.” But I got fed up, did two years’ due diligence and got offers from five different firms, including two in the $3 million-plus category from wirehouses. But I chose the firm that gave me the most freedom and the most encouragement to do what’s right for the client. Securities America’s offer was the lowest one — because that’s not what they do. But I was given the most freedom. Christina has been on board with me since January.
In this industry, you can’t give two weeks’ notice. If you do, firms will freeze your U-4 [Uniform Application for Securities Industry Registration or Transfer]. So you can’t hang it up, and you’re suspended from doing business for 30 days while the charges are investigated. In that amount of time, they would have kept all [my] clients.
When did you hand in your resignation letter, then?
The morning of the day I left and moved my license, Friday, March 30, 2012. By that afternoon, Jones had put a team in my office calling my clients and telling them: “John left very abruptly.” They tried to cast aspersions on my character and really scared some clients.
How many clients did you leave?
I intentionally left a good deal — clients that you hate having to talk to when they call. You’ve got to not invite them to come along with you. I left only about 10 clients that I wanted. I went from 500 households down to 160 but kept 70% of the assets. I was at $170 million AUM; now I have about $130 million AUM.
Tell me about the court proceedings.
We had to withstand Jones’ bullying with lots of legal maneuvers and trying to drive up my legal fees, which they were successful in doing. That whole process is an abuse of the American legal system, and they do it because they can. But in the arbitration, we caught them in a lie.
What did they claim?
They told the court I had stolen and used client mailing labels. First they said it was 500 pages of names. But the arbitration panel got them to admit it really was 500 names. They said we had taken the labels with us and used them to solicit our client base. We did not. We used them to send out an approved letter on Jones letterhead in early February telling clients that if they needed to contact me during tax season, here’s my cell phone number.
On what did Jones base their contention that you stole the labels?
They thought that because I was so successful at bringing people over, I had taken their mailing list. They swore up and down that I had taken it and used it on my own letterhead at my new firm. But I purchased a list from an outside company that went to 17,000 homes over $400,000. It went to three zip codes and caught just about all my existing clients. People responded to me through an [enclosed] card. This was separate from the tax mailing I did. Jones knew I had printed out labels because their database told them. But those were for the tax letter, not to solicit clients.
How did you prove that?
My brother-in-law’s girlfriend eventually found the tax letter we had sent in her files, and we brought it to court. This was at 5:00 on the afternoon before the last day of arbitration. It was a Perry Mason moment! [Jones’ counsel] turned as white as a ghost.
Any chance that the firm will appeal?
No. Once it’s adjudicated, it’s adjudicated.
What’s been the most challenging about being on your own?
In the beginning, it was Edward Jones. Now it’s about finding time to learn as much as I can about alternative investments that are appropriate for the client but were never available to me at Jones. They have a very limited number of investments they pay to be on their platform. That’s what very few clients know.
But isn’t that pretty much standard?
Not necessarily. In some cases, it’s called “revenue sharing.” In other cases, it’s called “let’s make a deal,” which to large degree, is the way many of the vendor relationships have been maintained at Edward Jones.
Any regrets about leaving?
No, it’s by far the best move I’ve ever made except for marrying my wife.
By inviting advisors to speak with you about breaking away, isn’t it hard to get past the trauma?
It’s an emotional issue. But with many blessings, come many responsibilities. We were blessed enough to prevail. If I don’t do this, who will? I’ve got big, broad shoulders in my convictions. It’s up to me to let other people know that they can do it too: they don’t have to be bullied by someone who abuses the legal system. One day Jones will end up in very, very hot water in a class-action suit. And I will feel triumphant and vindicated.
Do you know if Jones is doing much advisor recruiting nowadays?
Their new philosophy is to recruit from wirehouses. They didn’t used to because they wouldn’t pay signing bonuses or underwrite first year’s earnings. Now I understand they’re giving those bonuses. So they’ve gone and sued people like me for taking their book but now are encouraging wirehouse advisors to take their books and come to them. That’s talking out of both sides of their mouth.
More by Jane Wollman Rusoff on ThinkAdvisor: