Avantax hits large Cetera department Farpointe with lawsuit

A simmering authorized feud between two of the biggest tax-focused wealth administration corporations underscores the shifting challenges for impartial monetary advisors who swap brokerages  — and the trade’s scrutiny of LinkedIn posts.

A previously-unreported lawsuit filed by the parent firm of Avantax Wealth Administration cited a LinkedIn publish by Brian Stern, the co-founder of Farpointe Wealth Companions, a department that moved from Avantax to Cetera, as proof of a “conspiracy” to recruit Avantax advisors to comply with Stern to rival brokerage Cetera Monetary Specialists. 

The grievance, filed in December 2021, alleges that Stern, three different Farpointe executives and Cetera wrongfully used “confidential/commerce secret” data as a part of the hassle. Court docket papers within the case cite a photograph on Stern’s LinkedIn web page depicting about 20 former Avantax advisors at Farpointe’s conference in San Antonio a month earlier. Avantax alleges that the Farpointe founders’ information of its high producers is a commerce secret.

Stern, Farpointe CEO Scott Rawlins, Chief Working Officer Casey Griffin and Government Vice President of Advisor Expertise and Technique Stephanie Schuller, in addition to the Cetera Monetary Group-owned brokerage and registered funding advisory agency utilized by Farpointe, have rejected the claims that they misappropriated commerce secrets and techniques. Farpointe argued in its reply to the lawsuit that the 11 groups that moved to their department at Cetera in Farpointe’s first 12 months and a half after launching in November 2020 are impartial advisors with the correct to take action. And so they stated Avantax has shared the supposedly “confidential” data on-line.   

“Removed from confidential commerce secret data, Avantax publicly promotes the standing of its high producers to anybody who has LinkedIn or Google,” Farpointe stated in its reply to the lawsuit.

Dallas-based Blucora modified its title to that of its wealth administration subsidiary Avantax after promoting TaxAct, the opposite enterprise that had been below its umbrella, late last year. The agency quietly filed the civil lawsuit in a Texas state court docket in Dallas, however the submitting went unnoticed by the trade. On-line authorized portal UniCourt made court docket paperwork from the case available on its website. The case faces a possible trial date later this 12 months, with the most recent submitting, in January, a stipulated confidentiality settlement and proposed protecting order governing discovery. 

Representatives for Dallas-based Avantax and Los Angeles-based Cetera declined to debate the case, citing insurance policies towards commenting on authorized issues. Reached individually through electronic mail, Stern additionally declined to touch upon behalf of himself, Rawlins, Griffin, Schuller and their Southlake, Texas-based firm.

The case underscores an rising pattern through which impartial wealth managers interact in techniques like lawsuits or outright intimidation towards advisors who’re 1099 contractors and go away one brokerage agency for an additional. In high-stakes recruiting fights for advisory groups that may generally spill over into authorized circumstances or arbitration, commerce secret circumstances are sometimes related to worker brokerage corporations like Edward Jones or with wirehouses whose advisors are direct W-2 employees staff.

Even with out “an categorical set of restrictions” corresponding to a non-solicitation settlement, impartial groups that swap brokerages might discover themselves hit with a authorized problem by their prior agency, stated Sharron Ash, the chief litigation counsel on the Hamburger Law Firm, which is not concerned within the case. Wealth administration corporations might file a lawsuit towards a departed crew like Farpointe with a purpose to “scare off that agency from persevering with to carry advisors over,” she stated.

“What they’ll accomplish and what they hope to perform might be various things,” she added, referring to Avantax’s targets with the lawsuit. “Litigation can generally be used as a warning that ‘This isn’t a path that others ought to attempt to go down.'”

The authorized fisticuffs sign a “newer phenomena within the impartial channel” that extends to different corporations in addition to Avantax, in keeping with recruiter Jon Henschen of Henschen & Associates. 

In one other latest case that went to arbitration, a department with Advisor Group’s Royal Alliance Associates prevailed over a Cambridge Funding Analysis dealer who accused the rival community of advisory groups of violating recruiting guidelines.

Henschen known as the entire lawsuits “only a heavy-handed measure to maintain individuals from leaving.”

“The corporations, in the event that they’re having a variety of outflow, they pull these video games on the advisors,” he added. “The larger you might be, the extra doubtless you might be to get pushback from the broker-dealers these days. We’re seeing extra of it sadly.”

Farpointe spans 13 places of work with $1.3 billion in shopper property. The agency acquired an funding of an undisclosed dimension from Cetera final 12 months as a part of a three way partnership between the corporations and one other advisory observe for succession planning and outsourced wealth companies for accounting corporations. Stern had spent his whole 23-year profession with Avantax and its predecessor agency, HD Vest, earlier than leaving to start out Farpointe in 2020. Rawlins’ tenure with HD Vest included a stint as firm president and head of a number of departments, and fellow executives Schuller and Griffin had every labored there for greater than 20 years as properly. Blucora acquired HD Vest in 2015, later rebranding it as Avantax. 

“Blucora is totally supportive of, and encourages, honest competitors throughout the monetary companies trade,” the agency’s lawsuit acknowledged. “Nevertheless, it believes that corporations should compete on a level-playing area — not by improperly leveraging rivals’ confidential/commerce secret data to recruit their high-performing [financial professionals]. Sadly, it seems that defendants Farpointe, Stern, Rawlins, Griffin and Schuller have made the usage of Blucora’s confidential/commerce secret data the inspiration of their enterprise mannequin and have additional used violations of Griffin’s and Schuller’s non-solicit obligations (with funding from the Cetera defendants) in constructing their enterprise.”

In a March 2022 submitting within the case, Farpointe stated that Avantax misplaced a web 1,056 advisors, or practically 1 / 4 of its ranks of brokers, between 2016 and 2021, regardless of buying a onetime rival with 850 registered representatives in 2019. Frequent adjustments in administration, a few shareholder proxy campaigns towards the publicly traded agency and insurance policies corresponding to a price charged to brokers whose shoppers held property instantly with mutual fund corporations outdoors of Avantax took their toll, the submitting stated.

Farpointe alleged that Avantax took “inappropriate — and presumably unlawful — steps to intrude with representatives who need to switch their enterprise away from Avantax” that included making false allegations about them earlier than FINRA and different retaliatory actions. Avantax additionally sought to carry onto groups by providing them funds of lots of of hundreds of {dollars}, and in some circumstances hundreds of thousands of {dollars}, to remain, in keeping with the submitting.

“The representatives’ impartial contractor relationship with Avantax is ‘at will’ — it may be terminated by the consultant or Avantax for any cause or no cause in any respect,” Farpointe’s submitting acknowledged. “Representatives are usually not topic to any contractual settlement or restriction that forestalls them from transferring their enterprise to a different agency at any time. This mobility is a core function of the connection between impartial representatives and entities corresponding to Avantax; representatives have absolutely the proper to vote with their ft relating to the efficiency of Avantax, notably if Avantax makes choices that negatively affect their enterprise.”

Cetera’s legal professionals filed a solution to Avantax’s lawsuit final June.

“Blucora introduced its declare for misappropriation of commerce secrets and techniques (and conspiracy) in unhealthy religion as a result of there isn’t any proof that Blucora has commerce secrets and techniques, that Cetera acquired any commerce secret of Blucora ‘by improper means,’ or that Cetera disclosed or used, or threatened to reveal or use, any purported commerce secret of Blucora,” that doc acknowledged.

The plaintiffs argue that Farpointe’s information of Blucora’s enterprise, within the type of the practices that generate probably the most income every year, gave it an edge over its prior brokerage.

“There is no such thing as a public checklist or compilation of [Avantax’s] top-performing [financial professionals],” Blucora’s lawsuit acknowledged. “Blucora retains this data confidential as a result of information of this data would supply rivals, corresponding to Farpointe/Cetera with an unfair aggressive benefit, as a result of it will allow them to selectively goal such recruits.”

Farpointe countered that Avantax routinely posts congratulatory messages on social media recognizing the highest producers, who typically seek advice from their very own standing as properly on their very own websites and go on “a extremely publicized annual journey” that features many individuals outdoors the agency.

“Avantax often supplies a listing of high producers to unaffiliated product sponsor corporations in order that these corporations can name on the highest producers,” in keeping with Farpointe’s submitting. “Avantax just lately started publicly advertising and branding the ‘Avantax Elite’ — representatives who qualify as high producers — in some circumstances with direct endorsement by Avantax President Todd Mackay.”

The case might finish in settlement instantly by the events or by mediation, get tossed by a decide or go all the best way to trial, in keeping with Ash of the Hamburger Regulation Agency. As a result of arbitrations are ruled by the language of contracts, the case is unlikely to enter a FINRA-supervised continuing if neither facet has filed a movement to pressure the matter into the completely different discussion board by now, she stated.

Henschen gave wealth administration corporations in search of to retain their brokers a chunk of recommendation.

Techniques like lawsuits or veiled threats towards advisors “drive reps to need to go fee-only and go away from broker-dealers who’re hindering their freedoms,” he stated. “Maintain your advisors completely satisfied. If you wish to compete, do your job properly.”