Spurious battle over clients can never be won
Clients are expensive assets and arguing about them can be a very costly business as wealth adviser Towry found out in the high court last week.
The case reminded me that at the heart of what good financial advisers do is to look after clients well - but that they never truly “own” them. In all the hullabaloo over the RDR, the state of the economy and the future of the IFA sector, it is often forgotten that clients are central to everything and losing them is not something advisory firms like to do, hence a very expensive court case.
The Towry v Raymond James case was complex but to recap, in essence it revolved around whether seven Raymond James advisers, who once worked for Edward Jones – a firm taken over by Towry – could “take” clients with them to Raymond James.
The verdict on the case was delivered by Justice Laura Cox DBE at the Royal Courts of Justice. She said: “Having regard to the whole evidence in this case, the allegations against Raymond James do not withstand scrutiny.
The identity of their financial adviser and the trust and loyalty towards someone with whom they had a close, personal and professional relationship was of paramount importance to many Edward Jones clients. In my judgment, Towry seriously underestimated the importance of these factors in this case.”
Towry acquired Edward Jones in 2009 but several Edward Jones advisers then left to join Raymond James.
A significant number of clients followed them. Towry took Raymond James and seven Raymond James advisers to court for breach of restrictive covenants, misuse of confidential information and conspiracy to “injure” Towry, demanding £6m in damages.
The court threw out the claim and awarded Raymond James £930,000 in legal costs in a trial that took two months.
Having reviewed some of the evidence, I have sympathy with both sides. Towry was fighting its corner to keep hold of clients it believed it had acquired with the purchase of Edward Jones while Raymond James and its advisers believed the clients should be free to choose who looked after their affairs as long as any non-solicitation terms in previous contracts were abided by. For the judge it must have been a challenging set of conflicting arguments.
While the case is an important one it does not mean that advisers planning to move from one advisory firm to another can simply up sticks and walk out with all their best clients. The case will, however, send many advisory firms who employ advisers back to the drawing board to ensure that their non-solicitation and non-dealing terms for ex-employees are much tighter.
Alex Denny, partner in the employment team at Faegre Baker Daniels, which acted for Raymond James, made some good points following the case when addressing the key findings and the issue of costs.