Two large financial services firms, MetLife Inc. and LPL Financial, are locked in a heated dispute as MetLife looks to stem a tide of recent broker defections.
In a still-unresolved arbitration claim filed in May with the Financial Industry Regulatory Authority Inc., MetLife, an insurance firm with about 5,000 brokers, accused LPL, which has about 14,000, of poaching more than 60 brokers since last October. LPL has undertaken an “illicit, premeditated conspiracy” that has done irreparable harm to MetLife, according to MetLife's arbitration claim.
“LPL has been engaged in an ongoing, nationwide campaign to raid MetLife's workforce,” MetLife said in the claim, also stating it "shows no signs of stopping.”
The claim did not specify damages, but asked that LPL be enjoined from soliciting any MetLife brokers or customers.
A spokesman for LPL Financial, Brett Weinberg, declined to comment.
The claim is the culmination of a number of defections. The Finra suit names LPL in addition to six top-producing ex-MetLife brokers who collectively managed about $490 million in assets and left MetLife's Downers Grove, Ill., office in April and May. At least one other case involving a MetLife subsidiary office in Las Vegas resulted in legal action with a federal court in Nevada.
Typically, the threshold to bringing a raiding claim is when a firm takes at least a third of the revenue from an office, and the firm must prove that the recruiting firm had a harmful intent, according to attorney Thomas B. Lewis of Stevens & Lee.
Mr. Lewis, who is not involved in the case, said he expected that LPL would argue the “lifeboat defense,” and say that they were not targeting MetLife.
“The lifeboat defense is that these people were going to jump ship anyway, and we were going to give them a place to land,” he said. “These people were unhappy with their employment and they were going to make a change, but we didn't target anyone with the intent of harming that company.”
The departures come as MetLife has undergone several significant changes in the past year, according to sources familiar with the moves and attorneys on the cases.
COMPENSATION TWEAKED
First, MetLife tweaked its compensation policy several times in recent years, and last year altered its fee-based advisory business so that brokers were paid as independent contractors rather than employees, according to two sources who requested anonymity because of ongoing legal matters. That resulted in a lower payout and reduced benefits, the sources said.
In addition, MetLife is changing clearing firms and moving to Fidelity's National Financial Services from Pershing. Such changes can be a good time for brokers to switch firms because they already would be transitioning clients to a new platform and updating account statements, according to one source.
Finally, MetLife's move to absorb a subsidiary, the New England Life Insurance Company, last year, resulted in a loss of independence for some advisers, who had been operating under a more independent structure at NELICO, according to Guy O. Kornblum, an attorney for Charles Hall, one of the brokers who left to join LPL in Las Vegas.
“MetLife wanted to provide a much greater level of supervision, almost like you were an employee, and it was a complete change,” he said. “MetLife lost a lot of agents and a lot of opportunities, and a lot of people left in this process and went to other places.”
Meghan Lantier, a spokeswoman for MetLife, declined to comment on these issues, instead stating in an email that the firm's own claims are detailed in court and Finra filings.
BOTH FIRMS IN PROTOCOL
MetLife and LPL are both signees to the Protocol for Broker Recruiting, a pact between firms designed to make it easier for brokers to leave. But MetLife claims the protections of the Protocol would not apply to these advisers.
In the Las Vegas case, NELICO sued a former manager, Jimmy Lee, and several advisers who left around the same time. Similar to the case against the six in Illinois, the suit argues that Mr. Lee violated non-solicit and non-compete agreements by recruiting advisers and reaching out to clients before and after his move to LPL.
Mr. Lee and others, however, fired back against MetLife. In a countersuit, Mr. Lee accused MetLife of unfair competition, tortious interference and unjust enrichment. Among the list of improper practices, Mr. Lee alleges MetLife “plundered” his offices after locking him out.
“Defendant began a systematic and retaliatory sweep of [the advisers'] offices,” Mr. Lee said in his counterclaim. “Defendant and its agents packed up and took client files, including files unrelated to NELICO that it had no right to take.”
NELICO or MetLife agents also took Mr. Lee's personal financial documents, banking information, documents containing his Social Security number and some client information and dumped it in unsecured public dumpsters adjacent to the office building, according to the counterclaim.
MetLife also terminated Mr. Lee's appointment on MetLife insurance policies so he would no longer receive income on those products he had sold, the counterclaim said.
An attorney representing Mr. Lee declined to comment.
MetLife has
shed thousands of brokers in recent years as it slims down and as variable annuity sales have fallen.
Both cases – the court case in Nevada and the Finra claim – are still ongoing or in the process of mediation. The outcome, however, may not be as important as the message, Mr. Lewis said.
“Often times, companies will file a raiding claim not only to recover damages but also to send a message to the defendant that we're coming after you for everyone you take,” Mr. Lewis explained. “It does have a collateral effect.”
