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 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.”
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.’”