Goldman fires legal barrage to enforce nonsolicitation deals ahead of sale to Creative Planning

Goldman Sachs is filing a flurry of arbitration claims seeking to enforce nonsolicitation agreements signed by advisors at its soon-to-be-sold Personal Financial Management unit pending its sale to Creative Planning.

A Goldman spokesperson said Goldman intends to hold advisors to any commitments they've made to the firm.

"To that end, we have filed claims against advisors across multiple states for violating their non-compete obligations and their fiduciary duties to the firm," the spokesperson said in an email. "We take these matters seriously and will take appropriate action against any adviser who attempts to violate their contractual obligations."

Goldman's Personal Financial Management unit has been beset by a number of departures following the announcement in August that it would be sold to the Overland Park, Kansas-based registered investment advisor Creative Planning for an undisclosed amount. The exits, many of them first reported by the industry publication Citywire, threaten to whittle away at the value of the PFM division, which had $29 billion under management when the sale was announced.

Advisors who join large firms like Goldman often must sign nonsolicitation clauses that bar them from reaching out to former clients for a certain period of time. Lawsuits testing the limits of these agreements have become common in the wealth management industry even as the U.S. Department of Labor pushes a proposal to ban related noncompete clauses, which typically prevent someone from working for competitors immediately after leaving a firm.

On Sept. 28, a pair of advisors formerly with the PFM unit sued Goldman Sachs in Los Angeles Superior Court over allegations that various noncompete and nonsolicitation agreements they had signed were in violation of California business law. California state law is among the least tolerant of these sorts of restrictive covenants in the U.S.

The advisors, Gary Corderman and Janet Kohrmann, resigned from Goldman on Sept. 22 to join Farther Finance Advisors, an independent firm in San Francisco. Their suit alleges Goldman's noncompete and nonsolicitation clauses illegally seek to prevent them from working for rival firms or reaching out to former clients for six months after leaving.

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Arbitration claims seeking to enforce nonsolicitation and similar clauses are usually filed with the Financial Industry Regulatory Authority, the self-regulator for the broker-dealer industry. Max Schatzow, a founder and partner at RIA Lawyers, said arbitration often results in both parties to a dispute getting some of what they wanted but not all.

"In my experience, the parties end up splitting the baby unless there is a really compelling case for one party or the other," Schatzow said. "I'm not saying the baby always gets split down the middle, but there is often some splitting."

Schatzow said there is also likely to be some jockeying over questions concerning what's the proper venue for hearing these cases. The contracts signed by many of the PFM employees contain clauses not only requiring FINRA arbitration but also calling for the cases to be brought under New York state law. Advisors living in states that, like California, are less tolerant of noncompete and nonsolicitation clauses might push to have their cases heard closer to home.

Brian Hamburger, the chief counsel of the Hamburger Law Firm who's representing some of the advisors in these arbitration claims, declined to discuss any of the cases' specifics.

"It wouldn't be appropriate to comment on any pending arbitration," he said in a text message. 'We'll address it in that forum."

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Goldman announced the sale of its PFM unit to Creative Planning In August as part of a decision to reconcentrate on the high net worth clients who have long been a source of strength for the storied Wall Street firm. The deal, scheduled to close later this year, was then seen as a coup for Creative Planning, a firm with more than $240 billion already under management.

But questions immediately arose over how many advisors in the PFM unit would be willing to go along with the planned transition. Many of them had come to Goldman through its purchase in 2019 of the California-based registered investment advisor United Capital Financial Advisors.

Creative Planning President Peter Mallouk, who couldn't be reached for this article, has tried in various ways to make the pending move to his firm attractive by giving the transitioning advisors options for running their practices. They, for instance, can choose to operate under a new RIA that Mallouk has set up under Creative Planning and named "United Capital 2.0," in a nod to the PFM unit's predecessor.