Merrill Sues Schwab, Dynasty Over Mega-Team's Defection, Alleging Corporate Raid

The new firm said it will combine its “high touch corporate benefits advisory model” with Charles Schwab’s capabilities and Dynasty Financial’s advanced tech platform. Schwab Advisor Services will serve as custodian for OpenArc accounts; Charles Schwab holds a minority stake in Dynasty.

Merrill, in its lawsuit filed in U.S. District Court in Atlanta, accuses the individual and corporate defendants of collaborating to divert the GCIAS business from Merrill and open Dynasty and Schwab-affiliated RIA OpenArc. Individual employees named as defendants include leaders with double-digit tenures at Merrill, including one with 31 years at the financial services giant.

Merrill’s GCIAS business, comprising 90 financial advisors and 80 operational professionals, provides equity compensation services, retirement benefit plans and institutional consulting to ultra-high net worth individuals, national and multinational businesses, and institutional investors, the suit says.

“Through the spread of misinformation and strong-arm tactics, the Defendants already have conspired to poach Merrill’s GCIAS business, including 170 financial advisors and support staff assigned to support GCIAS, and thousands of corporate and individual customers receiving services from or through GCIAS,” the lawsuit says.

Merrill accuses the defendants of misappropriation of confidential information and trade secrets, tortious interference with its business relations with customers and prospects and contractual relations with employees, breach of loyalty, breach of contract, unfair competition and conspiracy. It also alleges breach of the Protocol for Broker Recruiting, to which Merrill and Dynasty are signatories.

Without court intervention, the suit contends, the alleged misconduct “will cause continued, serious, and irreparable harm to Merrill. Defendants have intentionally and willfully misappropriated Merrill’s proprietary information and trade secrets, interfered with and jeopardized Merrill’s relationships with its clients and employees, and harmed Merrill’s goodwill and reputation.”

Their goal was to get all 170 GCIAS employees to leave Merrill for OpenArc, “followed by the thousands of Plans and downstream accounts serviced by GCIAS, effectively diverting all of these employees and clients from Merrill’s Peachtree office to OpenArc — surreptitiously and without any advance warning to Merrill,” the complaint alleges.

“Dissatisfied with earning millions of dollars annually at Merrill, and while still employed at the firm, the Individual Defendants began conspiring with Dynasty and its shareholder and main custodial partner, Schwab, and taking steps to form a competitor entity, OpenArc,” the lawsuit contends.

"Notably, unlike many financial advisors at Merrill, those with GCIAS are given existing client relationships to service and expand; they are not required or expected to source the clients themselves," according to the complaint. "The Individual Defendants typically did not prospect new clients. Instead, they generated six- and seven-figure incomes from the downstream business derived from institutional clients already working with Merrill and internal referrals of potential clients from other segments of the Company."

A Dynasty spokesperson told ThinkAdvisor by email that 120 staff members, including 70 financial advisors, had moved to OpenArc.

“Dynasty takes the protocol for broker recruitment very seriously. We are also strong advocates for advisor and client choice and believe that leadership by fear is not a long-term strategy on how to retain the best advisors and serve their clients over time,” Dynasty said in a statement.

“Fear will not dictate the actions of the most independent minded advisors who seek the best outcome for their clients, teams, and their families. Our focus remains delivering modern technology, flexible platforms, better economics, and world class service to our clients; the RIAs who trust us as their partners on their independent journey,” the firm said.

Schwab said in a statement sent to ThinkAdvisor, “At Schwab, we hold ourselves to the highest standards of integrity, and our business practices are rooted in respect for individual choice and fair competition. Any allegations to the contrary are unfounded and we will defend ourselves against them. Our unwavering commitment to our clients remains our guiding priority.”

Jeff Crowell, one of the former Merrill employees named as a defendant in the lawsuit, is now an OpenArc managing partner.

“Our institutional clients have consistently told us that traditional brokerage models no longer meet the needs of their people,” he said in the statement announcing the new firm.

Another former Merrill employee named in the suit, Erik Bjerke, is OpenArc’s senior managing partner.

Shirl Penney, Dynasty president and CEO, lauded the new firm on LinkedIn:

“This is a big moment for the #RIA space! As Barron’s #1 ranked corp services and #3 ranked wealth team in country has chosen the RIA model to be the best way to serve their clients, teammates, and families. Quite possibly the largest move to independence yet!” he wrote in a post.

“Dynasty Financial Partners is proud to champion independence, freedom of choice for advisors and clients, and the American Dream of business ownership. … There is a one way street of elite advisors going independent and even more clients moving to RIAs daily," Penney said. "The RIA space is the fastest growing in client assets and advisor headcount.”

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