J.P. Morgan Seeks to Handcuff Broker who Joined Merrill Lynch
In another sign that firms’ attempts to inhibit broker moves has shifted from experienced wirehouse advisors with large business books to less tenured advisors, J.P. Morgan Securities on Wednesday sued a former Chase Bank branch advisor in Park Ridge, NJ, who joined Merrill Lynch last month.
Michael Bale breached one-year non-solicitation provisions in his employment contracts by calling former customers since joining Merrill, according to the J.P. Morgan suit filed in U.S. District Court in New Jersey.
Bale, who had worked at Chase branches since 2011, had transferred around $4.3 million of his customers’ assets to Merrill in the two weeks since he joined, according to the complaint. He had been managing about $143 million for 352 clients when he left the bank.
“Numerous clients have informed JPMorgan that defendant called them almost immediately upon joining Merrill Lynch and asked the clients for a meeting to discuss doing business with him at Merrill Lynch or outright asked the clients to transfer their business,” the complaint said.
It also alleges that he appears to have “misappropriated” the confidential cell phone numbers in order to contact clients, violating confidentiality clauses in his employment agreements.
As is typical in efforts to stall a broker’s attempt to reestablish business at a new firm, J.P. Morgan also filed an arbitration claim with the Financial Industry Regulatory Authority seeking damages and a permanent injunction.
A Merrill spokeswoman declined to comment, and Bale did not return a call for comment.
Merrill, which is owned by Bank of America, has withdrawn from recruiting veteran brokers from rival brokerage firms, relying on internal training programs and the hiring of less experienced advisors to offset attrition of its salesforce. In January, it recruited two other J.P. Morgan brokers in Texas.
UBS Wealth Management USA also has been recruiting bank brokers, many of whom service wealthy private banking clients as opposed to less affluent investors often referred to branch-based brokers.
“We’re seeing a lot of activity where bank brokers or bankers are being targeted by the broker-dealers,” said Thomas B Lewis, an employment lawyer at Stevens & Lee in Princeton, NJ, who is not involved in the case. “JPMorgan is being quite defensive.”
The downside of recruiting bank brokers is that their clients tend to be less portable than those of traditional advisors because of their ties to bank products and services, according to headhunters, brokerage officials and lawyers.
The legal hurdles to winning TROs, and lawyers’ fees, also can be high. A federal judge in Michigan last summer dissolved a TRO she had issued against a former Chase Bank broker who had joined Ameriprise Financial, ruling that J.P. Morgan failed to prove it would suffer “irreparable harm” from the broker’s solicitation attempts.
J.P. Morgan Securities, the bank’s broker-dealer, and Merrill are members of the Protocol for Broker Recruiting, which allows brokers to take limited client contact information when joining signatory firms. But J.P. Morgan, which inherited Bear Stearns’ brokerage practice when it purchased the investment bank during the 2008-2009 financial crisis, has excluded bank branch brokers from the pact’s protection.
“JPMorgan Chase referred its bank clients to Defendant in order for him to build JPMorgan’s relationship with such clients,” Wednesday’s court filing said. “Defendant sat at his desk at the JPMorgan Chase bank branch and was introduced to hundreds of existing bank clients (with or without investment accounts) to offer and provide access to investment opportunities through Chase Wealth Management. As a Private Client Advisor, Defendant was not expected to engage in cold calling or attempt to build a client base independent of referrals from JPMorgan.”
Bale first registered as a securities sales representative in 2011 with Merrill Lynch, according to his BrokerCheck history, but joined J.P. Morgan and its Chase Investment Services broker-dealer after nine months at his former firm.
In a further indication that it is playing hardball, the lawsuit says the broker did not bring any clients from Merrill to the bank. “[H]ad Bale been able to build his own book of business at Merrill Lynch, he would not have moved to JPMorgan,” it says, noting that such pre-existing clients would have been carved out of his non-solicitation agreements.
In addition to breaching his employment agreements’ non-solicitation and confidentiality provisions, the lawsuit accuses Bale of breaching J.P. Morgan’s Code of Conduct and of violating his common-law obligations to the bank.