Avantax hits big Cetera branch Farpointe with lawsuit

A simmering legal feud involving two of the greatest tax-centered prosperity management companies underscores the shifting worries for impartial economical advisors who change brokerages  — and the industry’s scrutiny of LinkedIn posts.

A previously-unreported lawsuit submitted by the dad or mum business of Avantax Wealth Management cited a LinkedIn put up by Brian Stern, the co-founder of Farpointe Wealth Associates, a department that moved from Avantax to Cetera, as evidence of a “conspiracy” to recruit Avantax advisors to observe Stern to rival brokerage Cetera Fiscal Specialists. 

The criticism, submitted in December 2021, alleges that Stern, three other Farpointe executives and Cetera wrongfully applied “private/trade mystery” information and facts as element of the exertion. Court papers in the situation cite a picture on Stern’s LinkedIn web site depicting about 20 former Avantax advisors at Farpointe’s conference in San Antonio a month before. Avantax alleges that the Farpointe founders’ know-how of its major producers is a trade top secret.

Stern, Farpointe CEO Scott Rawlins, Main Operating Officer Casey Griffin and Govt Vice President of Advisor Experience and Strategy Stephanie Schuller, as very well as the Cetera Economic Group-owned brokerage and registered expense advisory business utilized by Farpointe, have rejected the promises that they misappropriated trade strategies. Farpointe argued in its answer to the lawsuit that the 11 groups that moved to their department at Cetera in Farpointe’s initially calendar year and a fifty percent soon after launching in November 2020 are independent advisors with the proper to do so. And they stated Avantax has shared the supposedly “confidential” facts on the web.   

“Much from private trade solution data, Avantax publicly encourages the position of its leading producers to any individual who has LinkedIn or Google,” Farpointe mentioned in its solution to the lawsuit.

Dallas-primarily based Blucora adjusted its identify to that of its wealth management subsidiary Avantax immediately after advertising TaxAct, the other business that had been under its umbrella, late last calendar year. The firm quietly submitted the civil lawsuit in a Texas state court docket in Dallas, but the submitting went unnoticed by the industry. On the web legal portal Unicourt built court paperwork from the circumstance available on its web page. The situation faces a possible trial day afterwards this year, with the most up-to-date filing, in January, a stipulated confidentiality agreement and proposed protecting buy governing discovery. 

Reps for Dallas-dependent Avantax and Los Angeles-based Cetera declined to examine the case, citing guidelines from commenting on legal issues. Reached individually through e-mail, Stern also declined to comment on behalf of himself, Rawlins, Griffin, Schuller and their Southlake, Texas-dependent firm.

The situation underscores an rising trend in which impartial prosperity supervisors have interaction in ways like lawsuits or outright intimidation versus advisors who are 1099 contractors and go away one particular brokerage firm for a further. In substantial-stakes recruiting fights for advisory groups that can in some cases spill around into authorized conditions or arbitration, trade mystery situations are usually connected with employee brokerage companies like Edward Jones or with wirehouses whose advisors are direct W-2 team workforce.

Even devoid of “an specific established of constraints” this kind of as a non-solicitation agreement, unbiased groups that switch brokerages may perhaps locate on their own hit with a lawful problem by their prior business, stated Sharron Ash, the chief litigation counsel at the Hamburger Regulation Agency, which is not included in the scenario. Wealth administration companies may perhaps file a lawsuit from a departed team like Farpointe in order to “scare off that business from continuing to provide advisors over,” she claimed.

“What they can carry out and what they hope to execute can be distinctive things,” she additional, referring to Avantax’s objectives with the lawsuit. “Litigation can at times be utilised as a warning that ‘This is not a route that other people must check out to go down.'”

The legal fisticuffs sign a “newer phenomena in the impartial channel” that extends to other companies moreover Avantax, in accordance to recruiter Jon Henschen of Henschen & Associates. 

In a different the latest scenario that went to arbitration, a branch with Advisor Group’s Royal Alliance Associates prevailed about a Cambridge Expenditure Study broker who accused the rival network of advisory groups of violating recruiting principles.

Henschen referred to as all of the lawsuits “just a large-handed measure to maintain people from leaving.”

“The firms, if they are having a whole lot of outflow, they pull these online games on the advisors,” he additional. “The larger you are, the a lot more probable you are to get pushback from the broker-sellers these days. We’re seeing a lot more of it unfortunately.”

Farpointe spans 13 workplaces with $1.3 billion in consumer property. The agency received an financial investment of an undisclosed size from Cetera very last 12 months as component of a joint venture between the companies and an additional advisory exercise for succession organizing and outsourced wealth providers for accounting corporations. Stern experienced expended his whole 23-year vocation with Avantax and its predecessor agency, Hd Vest, before leaving to get started Farpointe in 2020. Rawlins’ tenure with High definition Vest provided a stint as organization president and head of many departments, and fellow executives Schuller and Griffin had each and every worked there for much more than 20 yrs as perfectly. Blucora obtained Hd Vest in 2015, afterwards rebranding it as Avantax. 

“Blucora is entirely supportive of, and encourages, fair levels of competition in the economical expert services industry,” the firm’s lawsuit said. “On the other hand, it believes that companies should compete on a degree-playing area — not by improperly leveraging competitors’ private/trade top secret data to recruit their higher-doing [financial professionals]. Regrettably, it appears that defendants Farpointe, Stern, Rawlins, Griffin and Schuller have produced the use of Blucora’s private/trade secret facts the foundation of their organization product and have more used violations of Griffin’s and Schuller’s non-solicit obligations (with funding from the Cetera defendants) in creating their small business.”

In a March 2022 submitting in the scenario, Farpointe claimed that Avantax lost a internet 1,056 advisors, or practically a quarter of its ranks of brokers, amongst 2016 and 2021, inspite of getting a onetime rival with 850 registered reps in 2019. Repeated alterations in management, a pair of shareholder proxy campaigns towards the publicly traded company and guidelines these kinds of as a payment billed to brokers whose shoppers held property straight with mutual fund businesses outside of Avantax took their toll, the filing stated.

Farpointe alleged that Avantax took “inappropriate — and possibly unlawful — ways to interfere with associates who want to transfer their business away from Avantax” that included making wrong allegations about them before FINRA and other retaliatory steps. Avantax also sought to keep onto groups by presenting them payments of hundreds of countless numbers of pounds, and in some scenarios millions of pounds, to remain, in accordance to the submitting.

“The representatives’ impartial contractor marriage with Avantax is ‘at will’ — it can be terminated by the consultant or Avantax for any rationale or no motive at all,” Farpointe’s submitting stated. “Representatives are not subject to any contractual settlement or restriction that stops them from relocating their organization to another firm at any time. This mobility is a core feature of the romantic relationship concerning independent representatives and entities these types of as Avantax reps have the complete ideal to vote with their toes with regards to the efficiency of Avantax, particularly if Avantax would make selections that negatively influence their company.”

Cetera’s lawyers filed an response to Avantax’s lawsuit past June.

“Blucora brought its declare for misappropriation of trade insider secrets (and conspiracy) in terrible religion since there is no evidence that Blucora has trade tricks, that Cetera obtained any trade key of Blucora ‘by inappropriate means,’ or that Cetera disclosed or applied, or threatened to disclose or use, any purported trade top secret of Blucora,” that doc mentioned.

The plaintiffs argue that Farpointe’s awareness of Blucora’s enterprise, in the sort of the practices that create the most earnings every single year, gave it an edge around its prior brokerage.

“There is no public listing or compilation of [Avantax’s] major-performing [financial professionals],” Blucora’s lawsuit mentioned. “Blucora retains this facts confidential mainly because know-how of this information would give competitors, these as Farpointe/Cetera with an unfair competitive benefit, simply because it would help them to selectively goal this kind of recruits.”

Farpointe countered that Avantax routinely posts congratulatory messages on social media recognizing the top producers, who normally refer to their own position as effectively on their possess websites and go on “a extremely publicized annual excursion” that features a lot of men and women exterior the company.

“Avantax regularly supplies a record of major producers to unaffiliated product or service sponsor organizations so that people corporations can get in touch with on the top rated producers,” according to Farpointe’s submitting. “Avantax not long ago began publicly internet marketing and branding the ‘Avantax Elite’ — reps who qualify as leading producers — in some cases with direct endorsement by Avantax President Todd Mackay.”

The circumstance could conclusion in settlement immediately by the events or through mediation, get tossed by a decide or go all the way to demo, in accordance to Ash of the Hamburger Legislation Company. Simply because arbitrations are ruled by the language of contracts, the circumstance is not likely to go into a FINRA-supervised proceeding if neither aspect has filed a movement to force the make any difference into the distinctive discussion board by now, she claimed.

Henschen gave wealth management firms in search of to keep their brokers a piece of tips.

Methods like lawsuits or veiled threats from advisors “travel reps to want to go cost-only and go absent from broker-sellers who are hindering their freedoms,” he mentioned. “Preserve your advisors delighted. If you want to compete, do your position well.”