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How Morgan Stanley Is Winning Big Against Runaway Advisors

By Miriam Rozen June 26, 2019

Federal courts have granted more often than they have denied requests by Morgan Stanley for temporary injunctions targeting defecting financial advisors since October 2017.

That was the month Morgan Stanley surprised the industry by announcing it was withdrawing from the Protocol for Broker Recruiting Agreement — the first major wirehouse to do so. Morgan Stanley and other broker-dealers inked that Protocol deal and remained in it for 13 years to allow departing FAs to take some client data with them without the threat of a lawsuit.

In the nearly 21 months since it announced it was leaving the Protocol, Morgan Stanley has filed 13 cases in federal court seeking temporary restraining orders barring defectors from soliciting Morgan Stanley clients and using proprietary material, according to federal court records. In seven of those federal cases, the courts have granted Morgan Stanley’s request for the TROs; in two instances the wirehouse’s request was denied, and in four cases the two sides reached a settlement prior to the court ruling on a request.

“Morgan Stanley will take appropriate legal action to enforce its rights and protect our clients’ information,” a spokesperson for the firm writes in an email sent in response to a request for comments.

On June 20, a court issued a TRO only after Morgan Stanley and Benjamin Joel, an Atlanta-based 31-year veteran FA who recently left for RBC Wealth Management, hashed out an agreement. The TRO only bars Joel from soliciting any business from clients as defined by a 2015 joint production arrangement. At Morgan Stanley, Joel had been assigned to service $177 million in client assets, according to the wirehouse’s lawsuit. Joel, an RBC spokesperson, and his lawyer, Adam Katz of Atlanta-based Katz Litigation Group, did not return requests for comment.

Morgan Stanley has probably been as successful in securing TROs against defectors in the uncounted state court cases it has filed as it has been in federal forums, according to two lawyers who have defended defecting financial advisors against the wirehouse but who also represent other broker-dealer employers pursuing their exiting advisors.

The vast majority of FAs who leave Morgan Stanley never draw the legal ire of the wirehouse, according to one of those lawyers, Anthony Paduano of New York’s Paduano & Weintraub.

“For most of the people who leave, they don’t take any action,” Paduano says. For Morgan Stanley to seek a TRO, “there has got to be the right set of facts,” he adds.

If defecting FAs misuse Morgan Stanley’s proprietary information and/or solicit clients prior to their exit, they stir up good odds the wirehouse will seek a TRO against them, Paduano says. But the bigger their client roster and the more assets under their management, the more likely defecting FAs will trigger a TRO attempt, Paduano notes.

“You burn brighter on the radar screen,” Paduano says about the FAs who generated more revenue for their employers.

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Why would a defecting FA settle before Morgan Stanley persuaded a court to issue a TRO, as happened in at least three recent federal cases?

“There are just practical reasons,” says David Ward of Tinton Falls, N.J.’s Kluger Healey, who has represented FAs targeted by Morgan Stanley for TROs.

Ward declines to talk about specific cases but says generally that negotiating strategies start to look attractive to FAs when a threat exists — usually more likely in state court — that a judge may issue an order without the advisor even getting opportunities to share their side of the evidence, Ward says.