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Regulation and Compliance > Federal Regulation > FINRA

‘Brutalized’ Breakaway Brokers Speak Out: 7 Stories From the Road to Independence

By Jane Wollman Rusoff

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Advisors who break away from wirehouses or big regionals don’t expect a goodbye kiss. Instead, they often get hit right in the gut.

ThinkAdvisor’s recent story about Edward Jones’ alleged treatment of feisty breakaway advisor John C. Lindsey, who fought back and won when the firm sued him for $5 million, struck a major chord with other advisors, especially those whose dream jobs turned into nightmare alley when they resigned.

The advisors’ spurned employers “brutalize them through court activity, trying to restrict them with injunctions and driving up their legal fees,” Lindsey told ThinkAdvisor.

In top producer Lindsey’s case, a Financial Industry Regulatory Authority arbitration panel in 2013 dismissed Jones’ suit of breach of contract, breach of fiduciary duty and unfair competition. The advisor is now happily helming Lindsey & Lindsey Wealth Management in Westlake Village, Calif., and giving guidance to other advisors who want to break away, too.

Unlike Lindsey, most advisors who leave large firms can’t brag that their departures turned out hunky-dory. Here are seven stories, representing varying degrees of satisfaction, that advisors related in interviews with ThinkAdvisor.

Mark Mensack says FINRA proceedings drove him into bankruptcy..‘FINRA Is a Kangaroo Court’

Mark D. Mensack, 51, filed a whistleblower suit against Morgan Stanley four years ago and is still reeling from the consequences. Following a bunch of legal battles, “my financial situation is dire,” he says. “FINRA forced me to file for bankruptcy in order to maintain my license and earn a living.”

Soon after joining Morgan Stanley, which, in hiring him, claimed they could support his expanding 401(k) plan business, Mensack found his practice severely restricted. Brokers were told to sell 401(k)s essentially from pay-to-play companies only, he says.

“I would have had to lie to clients. The firm was putting me in a position that would violate my integrity and restrict my ability to do any business that I know is legal,” says Mensack, a former ethics instructor at the U.S. Military Academy in West Point, N.Y.

After 14 months with the wirehouse, in Mt. Laurel, NJ, he split and filed his whistleblower suit. By 2011, Morgan Stanley had taken him to FINRA arbitration over his promissory-note signing bonus. He lost and was ordered to pay $1.2 million: the remaining $750,000 of the note, plus Morgan Stanley’s legal fees.

“FINRA ruled 100% against me even though we proved that Morgan Stanley’s witnesses were lying under oath and fabricated evidence,” Mensack says. “They completely ignored the fraudulent-inducement issues we proved. The complex manager who recruited me lied through his teeth.”

Mensack filed an appeal and obtained a copy of the court record, only to find that eight hours of the 18-hour audio-recorded proceedings were missing – in 14 different places. The deleted bits were vital to substantiating his claim. Then he received an ultimatum from FINRA to “pay the money, file a motion to vacate or file for bankruptcy,” he recalls.

“If I didn’t do one of those three things within three weeks, they were going to suspend my license.”

When he requested an extension to seek a complete copy of the record, FINRA turned him down.

Bottom line: “They contended that I signed a contract, took the money, left the firm and didn’t pay it back. All they paid attention to was the contract,” he says. “I had no choice but to file for bankruptcy.”

Last year Mensack tried once more: He filed a federal suit against both Morgan Stanley and FINRA. That one was dismissed on grounds that FINRA had already ruled on his complaint.

“Wall Street has its own private judicial system: FINRA — and Wall Street controls FINRA,” Mensack maintains. “FINRA is a kangaroo court: it can do anything it wants.”

According to its Web site, FINRA defines itself as “an independent, not-for-profit organization authorized by Congress to protect American investors by making sure the securities industry operates fairly and honestly.”

As for Mensack, “My legal battle is over. I don’t have the money or any recourse,” he says. “I went from being pretty comfortable financially to spending my retirement savings and my kids’ education fund.”

He is now an independent fiduciary consultant and an RIA with Piedmont Investment Advisors, in Lansdowne, Va.

Mensack’s advice to advisors is clear:  “Make sure you sign a two-sided contract.” ’Pain and Humiliation’

Another advisor who lost a so-called recruiting-inducement case is Robert B. Rowe Jr., a former top producer at three wirehouses in Chicago, who says his business is “absolutely destroyed.”

“At 64 years old, I’m basically broke and trying to figure out what to do with the rest of my life,” he said.

In 2005, Rowe and his team of eight left Morgan Stanley to join Raymond James & Associates, Raymond James Financial’s employee broker-dealer. He made the move chiefly because he was given assurance that it could support his qualified defined-benefit retirement plan business and allow him to market to outside advisors a proprietary equity methodology he’d devised.

But “all the promises Raymond James made suddenly evaporated,” Rowe says. Within six months of arriving at the firm, he lost a $100 million account with a university because the firm had no tech capability to supply the performance reporting his client required. Further, without a suitable platform, he says, he was unable to prospect for new clients for either qualified plans or the equity methodology.

“It would have been very unethical and dishonest,” Rowe insists. “I had believed [the RJ recruiting manager], but he was an out-and-out, baldfaced liar. He had no intention to follow through. All they were looking at was the $2.4 million in production my group represented. They didn’t have any of the capabilities he discussed.”

Rowe continues. “Being lied to time and time and again, I had no choice but to file a complaint” five years after he joined the firm and upon completion of his contract. He was also embroiled with Raymond James in a dispute about his signing bonus.In the complaint, Rowe charged fraud and misrepresentation. The brokerage’s response was instructing him to sign an arbitration agreement. He refused. If he didn’t sign by 2 p.m. the following day, they said, he would be fired.

“Two o’clock came around, and I still said no. I was let go for ‘failure to comply with company policy,” Rowe recalls.

He lost his circuit court case, which was remanded to FINRA arbitration. He didn’t win that one, either.

“FINRA said that if I didn’t pay $355,000, the remainder of my [note], within 30 days, they would revoke my license,” he says.

Like Mensack, Rowe was effectively forced into bankruptcy. “I have no business now. When I left Morgan Stanley, I had an estimated net worth of at least $3 million,” Rowe says. “I don’t want others to go through the pain and humiliation, financially and personally, that I had to. It’s absolutely cruel.” 

He calls FINRA “corrupt or horribly failed.” “It isn’t due process,” he says. “How come 93% of cases coming before the arbitration panel are lost by the FAs?”

A FINRA spokesperson responds: “It is not surprising given that the vast majority of these are promissory note cases, which are contractual disputes.”

Rowe, who is now an RIA, and founder of Enhanced Investment Partners and Rowe Consulting Group, in Chicago, has this message:

“If you do a different type of business or a more sophisticated business, make absolutely certain the firm you go to can handle it. Be sure to talk to the producers.”

Morgan Stanley ordered Benjamin Weiner not to call his clients for a year after he broke away, but 70% of them sought him out.’There Was Just a Coldness’

In contrast to Mensack and Rowe, Benjamin Weiner, 51, chose to avoid legal confrontation with his former firm. He’d been with Morgan Stanley, in Winter Park, Fla., for 29 years, 23 of them in partnership with his father, Richard, who retired in 2009. For 47 years, the elder Weiner had been employed by what ultimately became Morgan Stanley; he had joined the early predecessor firm, Shearson, Hamill & Co., in 1962 and stayed through a succession of mergers.

Ben, dismayed that the firm had, in his view, changed from a family-type culture to a “top-down environment” and frustrated with its ongoing tech integration woes, handed in his resignation in November. Heading a group that managed more than $550 million in assets, he had decided to go independent, linking up with Raymond James Financial Services as his broker-dealer, which, he says, has “all the feelings and trappings of a big firm but the culture of a family environment.”

When he resigned, Weiner was floored by Morgan Stanley’s reaction. “We were pretty much asked to leave right away. They were almost insulting to me. Considering the near-50-year continuum,” he says, “it was not what I expected. There was just a coldness, no statement of, ‘We’d like you to stay.’”

Not only that, but within four hours of Weiner’s leaving, Morgan Stanley attorneys served notice that the brokerage was enforcing a non-solicitation clause in his dad’s retirement agreement.

Not realizing that stipulation would apply to him because it referred to “clients moved to the receiving broker,” the advisor, shortly after resigning, had called a few of his biggest and best clients.

“My father and I had worked together for more than 20 years, since 1987,” he says. “In my mind, none of the clients were moved or transferred to us.”

In Morgan Stanley’s mind, they were. The wirehouse threatened to bring a temporary restraining order if Weiner did not agree to cease and desist from contacting his clients for the next 12 months.

A securities attorney that Weiner hired advised him not to file suit  if in fact he expected to bring over 80% or more of the clients within a year. So Weiner agreed to the non-solicitation agreement — and in only the first four months of being on his own, has seen 70% of his business follow him.

“Clients sought us out. The Internet can be a wonderful thing!” says the advisor, dually registered and principal of Winter Park Wealth Group.

Still, Weiner’s former employer is apparently relentless in monitoring him: When a merchant sent Thanksgiving wine, in error, to a few clients of his former partner, who remained at the firm, Morgan Stanley lawyers immediately shot Weiner a letter.

"Don't sell your soul," said Margaret Wittkopp of Veritas Financial Services.‘Don’t Sell Your Soul’

Margaret Wittkopp left Edward Jones in 2004 after a decade as the firm’s advisor in Plymouth, Wis. Within 15 minutes of submitting her resignation, company personnel appeared at her office.

“I loaded up my things and was out of there. But I knew they would lock down the office because that’s the nature of the business,” she says. “It’s done under the guise of confidentiality for the investors’ sake.”

What Wittkopp did not foresee was Jones’ attempts to damage her reputation by “saying things about me that were untrue,” she recalls. For one, “they told people that I was going to be fired. That certainly wasn’t the truth: I had just been offered a limited partnership with lots of golden handcuffs.”

The advisor resigned because she “no longer trusted” Edward Jones, she says. Earlier, when the firm was involved in lawsuits concerning revenue sharing and mutual funds — which she identifies as “kickbacks” — Jones executives deflected her questions.

“I was trying to find out the truth because my clients’ funds were dropping to the ground. But Edward Jones seemed like they couldn’t care less. You’re afraid — but if you asked too many questions, boy.”

She continues. “For about a year before I left, I was kind of dead in the water because I wasn’t able to function in that environment,” she says. “So I had to leave. It was an integrity thing. How could I put my clients in those funds if I couldn’t trust the source?”She launched an RIA, Veritas Financial Services, in Plymouth. “We don’t deal with companies that do revenue sharing,” she says. “That’s a total conflict of interest.

Wittkopp’s advice to advisors: “Don’t sell your soul to the ‘devil’ — a firm’s bad behavior. What are you willing to trade off for a paycheck?” ‘It’s the Relationships That Count’

An 18-year veteran of two large firms with 22 years in the industry, Amit Stavinsky, 49, finally left the wirehouse world four years ago to go independent.

“They were not happy to lose the assets, to say the least,” says the advisor, referring to his former firm, which he asked not to be named.

But attempting indeed to keep those assets, amounting to more than $140 million, under management, the wirehouse divvied up his book among other advisors.

“I didn’t expect anything other than that. I was prepared for it. So it didn’t bother me. If you leave, the standard in this business is to try to keep the assets in-house. They did that with me,” Stavinsky says. “But they didn’t do anything bad because that’s how things are done.”

The firm was not successful, however, in holding on to Stavinsky’s clients – some who had been with him for more than two decades. The advisor was able to transfer almost all his clientele; plus, he picked up additional assets held at other institutions.

“Wirehouses consider your clients their clients. So you need to expect them to reach out to them when you leave,” Stavinsky says. “But at the end of the day, it’s the relationships you carry with your clients that count.”

Heading his own RIA, Tamar Securities, in Woodland Hills, Calif., and now managing about $196 million in assets, the advisor stresses: “Before you decide to move out, ask yourself how good you are and how strong the relationships are that you have with your clients.”

A ‘Quite Positive’ Breakup Experience

Todd D. Knickerbocker, 47, started at Edward Jones fresh out of college. But after more than 13 years with the firm, he was “disgruntled.”

“I saw the business transitioning, but I didn’t see the company keeping up with the transition in the world,” he recalls.

Three years later, in 2005, Knickerbocker, by now a regional leader and general principal, resigned.

“I think they were in shock. I believe I received a few calls from some of the partners.” But, oddly, he says, there was no exit interview “to figure out why, after so many years there, one of their partners and regional leaders resigned.”Nonetheless, he calls the breakup “quite positive.”

“I did things correctly and made sure I covered all the bases. I didn’t do anything in my approach that would raise red flags and suspicions. If you do the transition correctly, by and large, they’ll leave you alone. They didn’t try to come after me,” he says, adding: “I know they’ve gone after people.  And it’s a kind of conundrum: It’s OK for them to get others to move with their book. But if you leave them, it’s not OK.”As a regional leader, Knickerbocker had been responsible for helping Jones contact clients of departing brokers. Now, five advisors at the firm were splitting up his own book. Even so, the advisor wound up with 90% of his clients joining him at Raymond James & Associates in Northville, Mich., where he heads The Knickerbocker Group.

“Ultimately, clients identify with the financial advisor, not the brokerage firm,” says Knickerbocker, who has more than doubled his production since leaving Jones. At Raymond James, “I own my book of business. That’s very powerful. My clients are my clients.” ‘No Animosity’

It is the rare advisor, to be sure, who breaks away and suffers no angst: Meet Fran Hoey. He was with Merrill Lynch for 12 years when he left in 2008 — the middle of the financial crisis — to gain more control over his business, chiefly by giving clients a broader choice of product.

Hoey, whose AUM at the time was about $60 million, encountered no impediment to his departure. “I sat down with the manager of my office — we were good friends — told him I was leaving and handed him my resignation letter,” he recalls. “We talked for a little while. He was very sorry to see me go but wished me well. I got in my car and drove away. They called me for the next couple of days and tried to get me to come back, but I felt I had made the right decision.”

Following the Broker Protocol to the letter, Hoey initially joined a small BD. In just two weeks, he had converted 100% of his clients. For the past four years, has had his own RIA, Hoey Investments, in West Chester, Pa., just a hop away from Exton, where he worked for Merrill Lynch.

Sometimes he runs into his former manager, and they say “Hi.”

“There’s no animosity toward me, and I don’t think ill of Merrill,” he says. “I enjoyed my time there. When I wanted to leave, they were sorry to see me go, but they understood why I left.”

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More from Jane Wollman Rusoff on ThinkAdvisor:

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