By Andrew Welsch

A legal battle between Ameriprise Financial and LPL Financial over advisor recruiting tactics is heating up, with each side lobbing barbs at the other as a federal judge nears a ruling on the case.

Ameriprise filed suit against LPL in July over tactics that it says improperly encouraged financial advisors to take confidential information as they leave Ameriprise, and points to a tool that LPL had provided to new hires to upload data in bulk. The Minneapolis-based company is asking a federal judge to grant an injunction to stop LPL's "ongoing misappropriation" while it pursues a simultaneous arbitration case.

LPL's reply, submitted to the court, says it hasn't used that tool with Ameriprise recruits in years and Ameriprise's legal complaint is "a public relations stunt masquerading as a lawsuit." If a judge grants Ameriprise's request for an injunction, it will stifle the free market by imposing a chilling effect on recruiting and preventing "customers from working with their chosen and trusted financial advisors," LPL said in an Oct. 17 filing.

A hearing before Judge Jinsook Ohta is set for Nov. 14, and she may issue a ruling in the contentious dispute soon after.

An Ameriprise spokeswoman said LPL and its recruits have consistently violated industry standards and regulations. "LPL's conduct is unacceptable and abandons all reasonable notions of client privacy rights," the spokeswoman said. "It also subjects the advisors it recruits to regulatory, and in some cases, even criminal exposure by encouraging this type of behavior."

Scott Posner, executive vice president of business development at LPL, said in a statement the company "recognizes and respects that advisors own their businesses and their client relationships." He added: "We remain steadfast in our dedication to compliance with policies and procedures that support an advisor's right to move between firms... We're confident that LPL will continue to have recruiting success by remaining relentlessly focused on supporting advisors and driving innovation in the advisor-mediated marketplace."

While wealth management companies sometimes sue departing advisors for improperly taking client information to their new employer, it's rare for companies to file lawsuits against their competitors. In the Ameriprise-LPL case, the heated legal battle features two of the nation's largest wealth managers, each of which has more than $1.5 trillion in assets.

LPL's advisor ranks have ballooned in recent years thanks to a spate of acquisitions and aggressive recruiting. The company had just over 16,000 at the end of the second quarter of 2019; it now has more than 23,000 financial advisors. Ameriprise has more than 10,000 advisors. Both companies operate large independent broker-dealers.

Ameriprise has filed lawsuits against several advisors who joined LPL that it accused of improperly taking client information. And it has notched some legal wins.

On Monday, a federal judge granted the company's request for a temporary restraining order against LPL and advisor Douglas Kenoyer, who joined LPL in September. Ameriprise accused LPL and Kenoyer of improperly soliciting clients to move accounts to LPL ahead of Kenoyer's own transition to LPL in September.

The judge's order prohibits LPL and Kenoyer from soliciting any of his former clients and instructs them to return any Ameriprise trade secret information to Ameriprise. Kenoyer had 583 clients and $144 million in assets under management, most of which he inherited from a retired Ameriprise advisor, according to the company's Oct. 14 complaint filed in a federal court in Seattle.

Ameriprise is separately pursuing an arbitration case against LPL and Kenoyer. A spokeswoman for Ameriprise said it was pleased with the judge's ruling. "This case is yet another example of LPL putting advisors and clients at risk by blatantly disregarding the industry's recruiting protocol," she said, referring to an industry agreement that permits advisors switching firms to take basic client contact information, such as phone numbers and names. Both LPL and Ameriprise are protocol members.

LPL and Kenoyer denied Ameriprise's allegations in court filings. Kenoyer referred a request for comment to his attorney, who didn't didn't immediately respond.

Recruiting tactics. Similar to its strategy in the Kenoyer matter, in the suit against LPL Ameriprise is pursuing an arbitration case while also seeking an injunction that would require LPL to return Ameriprise proprietary or confidential trade secrets it may have.

Ameriprise filed its original legal complaint in July, accusing LPL of instructing recruits to take client social security numbers, account numbers, and other confidential data to better solicit customers of Ameriprise. Ameriprise says that is well beyond what is permissible under the Broker Protocol, as the industry's recruiting agreement is known.

"LPL's conduct abandons all reasonable notions of client privacy rights and subjects the advisors it recruits to regulatory, and in some cases even criminal, exposure," Ameriprise says in the lawsuit, which was filed in a federal court in San Diego, where LPL Financial is based.

Ameriprise believes it meets the requirements for an injunction: that its arbitration case will likely succeed, it would suffer irreparable harm without an injunction, and it would be in the public interest.

In its Oct., 17 filing, LPL asked a judge to reject Ameriprise's injunction request, saying that Ameriprise's argument was meritless. LPL said that it doesn't tell new hires what client information they can bring from their prior firm; instead it advises them to consult with an outside lawyer, and, if necessary, will introduce them to one.

Bulk uploads. LPL's filing and a Sept. 19 declaration from one of its employees -- Candi Sinquinami, vice president of business transitions at LPL -- says that LPL provided a "Bulk Upload Tool" to some Ameriprise recruits that enabled them to upload information beyond what is permissible under the protocol. LPL provided the tool to recruits from Jan. 1, 2018 to Dec. 31, 2021, and ceased doing so thereafter.

LPL says advisors were able to use the bulk tool in a manner that was consistent with the advice of outside legal counsel and with what they were permitted to take. The company "did not request or encourage" advisors to enter information into the tool until after their license transferred to LPL.

The company says that after Ameriprise filed an arbitration case against an advisor who left to join LPL, it reversed course and ceased providing the bulk upload tool to hires coming from Ameriprise.

If an injunction was granted, it could prevent advisors and clients from working with their preferred brokerage firm, LPL warned the judge. "Ameriprise, losing hundreds of advisors to a competitor in the marketplace, seeks to chill further departures through unwarranted and unfounded legal action," LPL says in its court filing.

Advisors have left Ameriprise to join LPL because it offers a better platform to serve customers, according to LPL. "Advisors' preference for LPL is not surprising: while LPL champions the independence of its advisors, Ameriprise gives it only lip service," the company's filing states. "Frustrated by its failure to compete in the market, Ameriprise has fired back, filing this suit and this motion as a means to issue press releases tarring LPL with false accusations of impropriety and simultaneously scare its advisors into staying put."

Another shot. In an Oct. 24 filing, Ameriprise reiterated its request that the judge enter a preliminary injunction. The company says that it would suffer irreparable harm without an injunction and that it has sufficient evidence that LPL is unfairly poaching customers.

Ameriprise said in the October filing that the bulk upload tool eased the transition of at least 30 advisors who moved from Ameriprise to LPL over a three year period. Those advisors and LPL are allegedly in the possession of information for more than 4,500 Ameriprise customers whose accounts had $1 billion in assets and produced over $16 million in annual revenue, according to Ameriprise's October filing. "This trade secret information that LPL was never allowed to have likely still resides on LPL's systems as well as those individual advisors' unsecure personal devices."

Ameriprise's filing says that LPL can't shift responsibility for adherence to the Broker Protocol from itself to the advisors it recruits. Ameriprise adds that even if LPL stopped using the bulk upload tool, the advisors it recruits "are still regularly misappropriating Ameriprise's trade secrets to LPL via other methods."

LPL responded in a Nov. 4 filing that Ameriprise has known about its past use of the bulk upload tool for more than a year-and-a-half because of a separate arbitration case involving a former Ameriprise advisor who joined LPL. "The date of Ameriprise's awareness is irrelevant: the purported harm the injunctive relief seeks to prevent ended years ago, whether Ameriprise knew it or not," LPL's filing states.

Write to Andrew Welsch at andrew.welsch@barrons.com

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November 04, 2024 16:42 ET (21:42 GMT)

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