A simmering legal feud between two of the largest tax-focused wealth management firms underscores the shifting challenges for independent financial advisors who switch brokerages — and the industry's scrutiny of LinkedIn posts.
A previously-unreported
The complaint, filed in December 2021, alleges that Stern, three other Farpointe executives and Cetera wrongfully used "confidential/trade secret" information as part of the effort. Court papers in the case cite a photo on Stern's LinkedIn page depicting about 20 former Avantax advisors at Farpointe's
Stern, Farpointe CEO Scott Rawlins, Chief Operating Officer Casey Griffin and Executive Vice President of Advisor Experience and Strategy Stephanie Schuller, as well as the Cetera Financial Group-owned brokerage and registered investment advisory firm used by Farpointe, have rejected the claims that they misappropriated trade secrets. Farpointe argued in its answer to the lawsuit that the 11 teams that moved to their branch at Cetera in Farpointe's first year and a half after launching in November 2020 are independent advisors with the right to do so. And they said Avantax has shared the supposedly "confidential" information online.
"Far from confidential trade secret information, Avantax publicly promotes the status of its top producers to anyone who has LinkedIn or Google," Farpointe said in its answer to the lawsuit.
Dallas-based Blucora
Representatives for Dallas-based Avantax and Los Angeles-based Cetera declined to discuss the case, citing policies against commenting on legal matters. Reached separately via email, Stern also declined to comment on behalf of himself, Rawlins, Griffin, Schuller and their
The case underscores an emerging trend in which independent wealth managers engage in tactics like
Even without "an express set of restrictions" such as a non-solicitation agreement, independent teams that switch brokerages may find themselves hit with a legal challenge by their prior firm, said Sharron Ash, the chief litigation counsel at the
"What they can accomplish and what they hope to accomplish can be different things," she added, referring to Avantax's goals with the lawsuit. "Litigation can sometimes be used as a warning that 'This is not a path that others should try to go down.'"
The legal fisticuffs signal a "newer phenomena in the independent channel" that extends to other firms besides Avantax, according to recruiter Jon Henschen of
In another recent case that went to arbitration, a branch with Advisor Group's Royal Alliance Associates prevailed over a Cambridge Investment Research broker
Henschen called all of the lawsuits "just a heavy-handed measure to keep people from leaving."
"The firms, if they're having a lot of outflow, they pull these games on the advisors," he added. "The bigger you are, the more likely you are to get pushback from the broker-dealers nowadays. We're seeing more of it unfortunately."
Farpointe spans 13 offices with $1.3 billion in client assets. The firm
"Blucora is fully supportive of, and encourages, fair competition within the financial services industry," the firm's lawsuit stated. "However, it believes that companies must compete on a level-playing field — not by improperly leveraging competitors' confidential/trade secret information to recruit their high-performing [financial professionals]. Unfortunately, it appears that defendants Farpointe, Stern, Rawlins, Griffin and Schuller have made the use of Blucora's confidential/trade secret information the foundation of their business model and have further used violations of Griffin's and Schuller's non-solicit obligations (with funding from the Cetera defendants) in building their business."
In a March 2022 filing in the case, Farpointe said that Avantax lost a net 1,056 advisors, or nearly a quarter of its ranks of brokers, between 2016 and 2021, despite acquiring
Farpointe alleged that Avantax took "inappropriate — and possibly illegal — steps to interfere with representatives who want to transfer their business away from Avantax" that included making false allegations about them before FINRA and other retaliatory actions. Avantax also sought to hold onto teams by offering them payments of hundreds of thousands of dollars, and in some cases millions of dollars, to stay, according to the filing.
"The representatives' independent contractor relationship with Avantax is 'at will' — it can be terminated by the representative or Avantax for any reason or no reason at all," Farpointe's filing stated. "Representatives are not subject to any contractual agreement or restriction that prevents them from moving their business to another firm at any time. This mobility is a core feature of the relationship between independent representatives and entities such as Avantax; representatives have the absolute right to vote with their feet regarding the performance of Avantax, particularly if Avantax makes decisions that negatively impact their business."
Cetera's lawyers filed an answer to Avantax's lawsuit last June.
"Blucora brought its claim for misappropriation of trade secrets (and conspiracy) in bad faith because there is no evidence that Blucora has trade secrets, that Cetera acquired any trade secret of Blucora 'by improper means,' or that Cetera disclosed or used, or threatened to disclose or use, any purported trade secret of Blucora," that document stated.
The plaintiffs argue that Farpointe's knowledge of Blucora's business, in the form of the practices that generate the most revenue each year, gave it an edge over its prior brokerage.
"There is no public list or compilation of [Avantax's] top-performing [financial professionals]," Blucora's lawsuit stated. "Blucora keeps this information confidential because knowledge of this information would provide competitors, such as Farpointe/Cetera with an unfair competitive advantage, because it would enable them to selectively target such recruits."
Farpointe countered that Avantax routinely posts congratulatory messages on social media recognizing the top producers, who often refer to their own status as well on their own sites and go on "a highly publicized annual trip" that includes many people outside the firm.
"Avantax regularly provides a list of top producers to unaffiliated product sponsor companies so that those companies can call on the top producers," according to Farpointe's filing. "Avantax recently began publicly marketing and branding the 'Avantax Elite' — representatives who qualify as top producers — in some cases with direct endorsement by Avantax President Todd Mackay."
The case could end in settlement directly by the parties or through mediation, get tossed by a judge or go all the way to trial, according to Ash of the Hamburger Law Firm. Because arbitrations are governed by the language of contracts, the case is unlikely to go into a FINRA-supervised proceeding if neither side has filed a motion to force the matter into the different forum by now, she said.
Henschen gave wealth management firms seeking to retain their brokers a piece of advice.
Tactics like lawsuits or veiled threats against advisors "drive reps to want to go fee-only and go away from broker-dealers who are hindering their freedoms," he said. "Keep your advisors happy. If you want to compete, do your job well."
