Episode Transcript
[00:00:01] Speaker A: Hello and welcome, everyone. I'm Taylor Pankratz and this is behind the Breakaway. Together with my co host, Jason Barber. This show takes you behind the scenes of leaving your captive broker dealer firm and explores the world of RIA independence.
All opinions expressed on the podcast by.
[00:00:22] Speaker B: The hosts and guests are solely their.
[00:00:24] Speaker A: Own opinions and do not reflect the opinion of Uptick Partners. This podcast is for educational purposes only and is not legal advice and should not be relied upon as a basis for any decisions.
All right, episode 21 of behind the Breakaway podcast. I'm Taylor Pankratz. We got Jason Barber here and today we wanted to talk about just industry news. What's going on? There's been some kind of crazy things that have happened lately. The. The latest one being that Commonwealth is being sued or was sued by Edward Jones and they just settled and. Which is crazy news. You don't see that very often of these people that are leaving Edward Jones going to a different broker dealer and broker dealer custodian. And then Edward Jones tries to sue them and actually wins. Yeah, they try to sue him a lot, but they actually.
[00:01:24] Speaker B: They threaten a lot. They threaten a lot, as we like to say. There oftentimes can be a letter writing campaign where letters are sent back and forth, but usually it doesn't actually result in actual legal action short of you doing something that is completely egregious and something that is, hey, we cannot let this stand. We have to take action.
[00:01:48] Speaker A: This. This cannot stand.
[00:01:49] Speaker B: This cannot stand. So should I read the article? Is that.
[00:01:52] Speaker A: Yeah, maybe just the headline and kind of the byline.
[00:01:54] Speaker B: Yeah. So this IS Advisor Hub, March 6th. Yesterday, Edward Jones wins three and a half million dollars. Three and a half million dollars from Commonwealth and defectors in recruiting spat. I'll just read the first couple of paragraphs. Anybody that is listening this can go Google this.
Independent broker dealer, Commonwealth Financial in a group of brokers it hired. I think that's an interesting term. It hired from. Edward D. Jones and company were ordered to pay three and a half million in a legal battle tied to their departure. According to an arbitration award finalized on Wednesday. Edward Jones accused Commonwealth and eight brokers, eight who joined in late 2022 in Texas and New York, of violating state laws, including those governing trade secrets and engaging in a, quote, civil conspiracy. According to the award, Edward Jones also claimed the brokers breached their contracts and fiduciary duty to the company.
I'll just leave it at that.
[00:03:02] Speaker A: Yeah, brutal. Brutal. So was a. So December of 22. So that was a two and a half year roughly lawsuit. Imagine Lee trying to break away your clients. You leave Edward Jones, you're trying to break away your clients, trying to move your clients, and you've got this lawsuit hanging over your head for two and a half years. That is taking up a whole bunch of money, obviously, with attorney fees.
[00:03:27] Speaker B: I think I saw it was like $1.7 million in attorney fees.
[00:03:31] Speaker A: Oh, my gosh. And then just the mental. The mental side of that, of having this kind of. You don't know what the final verdict is going to be for two and a half years. And so you're trying to move these clients, and every day you're just wondering, all right, what is. What's going to be the final result of this? And if it's three and a half million dollars is like, who. Who actually pays it? I mean, is this. The Commonwealth pays this? The. The actual advisors pay this?
What a crazy thing where.
[00:04:09] Speaker B: Probably a little bit of both.
[00:04:11] Speaker A: Yeah.
[00:04:11] Speaker B: Yeah.
[00:04:11] Speaker A: Let me ask you a question. If I left Edward Jones and went to a firm and Edward Jones sues that firm and they have to pay two or three million dollars in penalties, who pays? Am I on the hook for that? Is this like Commonwealth's E and O insurance or something? Steps in? I mean, do I have some type of obligation to pay Commonwealth back? Do I. Am I tied there for a longer period of time or something? And it's weird that it sounded like they were employees of Commonwealth, that Commonwealth hired them.
[00:04:45] Speaker B: Yeah. It may just be the article. I mean, that's what it says, they hired him. Which I think is just interesting language. I. Maybe it's. I'm sure they're not employees, but I'm sure that's just. Maybe the person that wrote the article wrote that. But either way, even if it's the person that wrote the article just doesn't understand. But what does that tell you of just the perception that this financial. This is a financial writer who writes financial articles, so not like the first time they've ever written an article. Not like your local newspaper, who doesn't know anything about this. Right. This is a financial author who, at least from that person's perception, feels like it's appropriate to use the word. Commonwealth hired these people.
[00:05:29] Speaker A: Right.
[00:05:31] Speaker B: I just think that's also what. Like, of course, like, no, I. I'm not their employee. I'm independent. This guy over here thinks that they hired you, which is just.
I don't know. It's.
It's.
[00:05:43] Speaker A: It certainly seems like if I'm. If they have to pay some penalty because somebody Joined the firm.
[00:05:50] Speaker B: Can you just leave? Could we just basically be like, actually, we want to leave now?
[00:05:54] Speaker A: Like, we'll be like, no, we just footed a $2 million bill.
[00:05:58] Speaker B: Yeah.
[00:05:59] Speaker A: Three or three million dollar bill to have you guys join the firm. I mean. No, you're not going anywhere for a very long time.
[00:06:06] Speaker B: I wonder if. I don't know. I can't independently verify this, but I heard that there was maybe even an equity swap that happened in this whole transaction, which it's just. If that's true, can you even fathom. Again, I can't verify that. I don't even know if Commonwealth is even in the business of doing that. But let's just pretend for a second that hypothetically Commonwealth owns some of this firm that joined them at this point. And now you're sitting here. What do we do now? Like, we are truly. We're stuck on multiple levels.
[00:06:38] Speaker A: Yeah. It. It really. It really emphasizes this point of.
You do not. The worst case scenario is this.
[00:06:48] Speaker B: Yeah.
[00:06:48] Speaker A: Where you. You leave, you go through all this pain of breaking away and all this planning and everything like that, and then you ultimately end up having to buy the clients, which is the whole point of. Not the whole point of what. Why you're trying to be very careful and methodical and not solicit clients and abide by your contract because you do not want to end up having to do what just happened, which is by the clients at the end of the day. Because that's what. That's what these captive broker dealers, when you leave, that's what they want you to have to do. That's their only grass. The straws that they're grasping at is at least let's get some money out of it. And so it's an interesting.
[00:07:33] Speaker B: And create fear within the ranks always.
[00:07:36] Speaker A: I mean, this will certainly set back people that are trying to leave and go to Commonwealth that this is because you would think that somebody at Commonwealth would go, hey, this is what you don't do.
[00:07:48] Speaker B: Exactly. Yeah. I mean, exactly. Like, I just. I'm. Like, I. I'm. I'm. There's like. I mean, obviously when you have. Every contract's gonna be different. Every employment contract's gonna be different. But it's very standard language. I think it's fair to say that most of these agreements are going to have non solicit provisions. Cannot solicit your clients.
Cannot take data of your clients. Of course. Okay. Non protocol transitions.
And I think it's probably pretty common practice that you're not allowed to solicit. Other employees and you have this duty of loyalty to the firm. Right? So I'm just. What really when I first read this article, the first thought that kind of came to my mind is who, who gave, who's the attorney involved in this that gave these people legal advice that, yeah, you know what, this is a good idea, right? What in, what in tarnation is even going on there? It just seems so blatantly obvious that you cannot do this. Not to mention that it, it appears again, I don't know this, but it appears as though that this whole thing was a. I'm not sure that these folks were able to leave on their. At the time that they wanted to leave per se, or at least that may be the case. I'm speculating a little bit, but I mean, if you get eight people involved in a deal, how in the world do you, how in the world do you keep that a secret, right? I mean, it's like pretty much impossible. You've got all these people, it's eight.
[00:09:31] Speaker A: People plus their loved ones and the, the staff potentially. I mean, it becomes quite a bit of people that, that know and it's, that's impossible to keep that much, that many people keep quiet and keep it a secret for, for an extended period of time.
Which is why you've got to be, if you're at a captive broker dealer right now, you're an advisor thinking about leaving, looking at your different options and, and things like that. You need to be extremely careful about who you're telling your grand plans to, which recruiters you're talking to, which people in the industry. Because you're going to go out there and just by nature of trying to figure out which spot is the best for you, you're going to have to talk to quite a bit of people that are going to know your name and know where you're from and all these things. It just has, it's, unfortunately, it's how it is. And so what you need to be careful of is not doing that for so long. Don't stay in this middle ground where you're in this ether where you want to leave, but you haven't yet because you're trying to figure out where's a good home for you. You can't stay there very long because the longer you're there, the more uncertainty builds about who knows who they're telling over cocktails, et cetera. And it's a small industry, it's a small world. And so we would encourage you to don't stay there very long, right? Find a good, find something that you think is a good fit and just take that leap, if you will, and don't go and explore the 70 different options that are out there.
And so that's why we've, that's why we've tried to build uptick partners to be a good home for capture broker dealers especially that are looking to find independence. Because we know we're going to be a good fit for most people because we are. We built the economics to make sense. We built the freedom from the compliance perspective and the, all the little things that you are looking for when you're looking to leave and why you're leaving, where you're at, where you want to go. I don't want that. I'm looking for someplace that's the antithesis of that, that's going to be us. And so I would encourage you, don't take this lightly where you're, hey, let's go explore commonwealth and this and that. Because what ends up happening is that commonwealth, obviously in a lot of these roll up rias and independent firms, they don't actually care if you get sued, Right? They don't. They have this humongous insurance policy that I'm sure will pay the $2 million that they owe Edward Jones. Who pays your. The money that you have to pay Edward Jones do. Yeah, who pays that? Right. You're coming out of pocket with this money because it's certainly not your, it's certainly not your E. O insurance that's going to pay for you to have to pay your prior firm because you broke the contract that you signed with it like that. So my point being, you need to go to a place that knows what they're doing and how to do it successfully instead of going to a place that really doesn't ultimately care whether you get sued or not. They're like, yeah, we'll pay for it. You guys are stuck here.
[00:12:47] Speaker B: They just, they just hit your recruiting goal. You're talking to a recruiter.
[00:12:50] Speaker A: Yeah.
[00:12:51] Speaker B: You're talking to a recruiter that's getting paid 8% of your revenue.
[00:12:57] Speaker A: Yeah. So, hey, I'm going to move me and my buddy are going to move me and my three buddies or four buddies and their assistants. And they're like, yeah, man, that sounds great.
[00:13:05] Speaker B: Yeah. They're sitting here thinking, wow, man, this is a billion dollars of assets. This is probably what is. What do you think?
[00:13:10] Speaker A: I'm going to get paid almost 800 grand to recruit this million dollars that.
[00:13:14] Speaker B: This recruiter is getting paid a million.
[00:13:16] Speaker A: Dollars to the Recruiter to have you sign on the dotted line and then they're off to the next deal.
[00:13:23] Speaker B: Yeah, they don't care. They don't care. And so they're going to put you with whatever they think is going to make you say yes. Oh, this is the biggest upfront check. This is the biggest whatever. And now you're signing a seven year deal, a 10 year deal, a 15 year deal, or you're giving away equity of your firm to this other firm or whatever the thing may be. But you're now in this position where you have handcuffs on and golden handcuffs as they say. Yeah, I couldn't emphasize that enough that you've got to be very careful. Like all the recruiters that we talk to, generally speaking, I think that they're good people. But I do sometimes feel like it's. Sometimes I see recruiters say you need to talk to somebody that's not biased. Right. You need to talk to somebody that's not biased. You need somebody that's conflict free, recruiter, whatever. Right? Yeah, I guess. But at the same time, is that really fair for a person to say they're conflict free when they get paid $1 million for you to sign on the line? Right. It seems to me that would be like telling a client, oh yeah, we're conflict free and just come over here and pay me a five and a half percent load on this, a share. Right. And or if maybe it's not that because the clients pay it, in this case the advisors, not rather the broker dealer is paying this big commission to the recruiters. But at the end of the day, the recruiters don't care really much about anything besides getting paid.
[00:14:50] Speaker A: And so I think what the recruiters care about the most is that, see what ends up happening is somebody is looking to break away and leave their firm.
They go to one recruiter because again, the whole point is to not have a ton of people know your name. So they go to one recruiter and what the recruiter's main focus is going to be is, okay, I've got this fish on the line, so to speak, and I need them to not get like paralysis by analysis or fatigue of doing this. And then they just stay right. So they're not going to put that advisor in front of 10 different options because the guy is going to be or gal is going to be completely overwhelmed by all of the intricacies and nuances. And this has this, and this has this and trying to weigh out all the pros and cons that come with talking to the salespeople at all these different firms because they, they don't tell you all the minutia details. So you're, it's like you don't really have the full picture ever. And you're comparing multiple firms against each other and it becomes this, look, I'm just going to punt. And then the advisor, I mean then the recruiter doesn't get, get paid.
[00:16:09] Speaker B: So that's the one thing they don't want.
[00:16:10] Speaker A: They can't have that happen. Like they're agnostic to really where you go. They want you to go somewhere that you're going to sign on the dotted line. It might not be the best place for you long term or even medium term or hell, even short term. But as long as you sign on the dotted line, they get paid. So that's the problem is they don't, they're like, okay, what's this person's kind of general makeup? What are they, what have I, what are the buzzwords that they said? I want a big up front check. Okay, let's not talk to them about the implications of you getting this big upfront check and what that actually means three to five years from now and all of that. I heard you say that. So guess what? I'm going to put you here, which will write you the biggest check. Right? And then it's like, how quickly can I get this person closed instead of really talking through with them on the pros and cons and really educating them on the decision. So, you know, I have, we have, we have friends that are recruiters. This isn't, we're not on a jihad against recruiters. It's just, you just have to be, you have to know ahead of time that you're talking to somebody that wants to get the deal closed and not really all that adamant to try to educate you on the space. It is interesting I to reflect on that lawsuit.
So Jones actually tried, they actually tried to Sue Commonwealth for $20 million. $20 million. And they ended up settling for three.
[00:17:42] Speaker B: Three and a half?
[00:17:43] Speaker A: Yeah, three and a half. That's crazy. Can you imagine if that law, if it was like, oh, $10 million or they got the full 20. I mean.
[00:17:52] Speaker B: Yeah, it's what happens.
[00:17:54] Speaker A: The stakes are.
Yeah, the stakes are incredibly high. So it's not to say you shouldn't break away, it's that you should go.
[00:18:04] Speaker B: To what you should to abide by the rules.
[00:18:06] Speaker A: You should abide by the rules and go to a place that's going to help you do that and, and help you abide by your contract but still have a very effective, effective transition. You cannot. It's like we say to our clients on the on in our RA business, we want you to pay your taxes. We just don't want you to pay more than you need to pay. We want you to transition your clients. We just don't want to do it in a way that's going to get this $20 million settlement.
[00:18:35] Speaker B: Exactly.
[00:18:36] Speaker A: I mean, that's crazy because people do.
[00:18:38] Speaker B: This all the time without $20 million settlements or three and a half million dollar settlements or any million dollar settlements. They just have to play by the rules and use social media to their advantage. Right. Our most recent transition that we did, I mean, we probably need to do a whole nother podcast and talk about this, to be honest. But I mean, the social media impact is unbelievable. I think you, you say it best when you say these contracts that were drawn up were drawn up pre social media. Right. It's like when you have social media now in such a way that you can put a video out and say, hey, the entire city of Little Rock is going to see this video of me making my announcement.
[00:19:20] Speaker A: Yeah.
[00:19:20] Speaker B: How do you not soliciting that to my clients?
[00:19:23] Speaker A: Yeah. How do you write that into a contract?
[00:19:25] Speaker B: Yeah. You're not allowed to post any social. I mean, pretty soon it wouldn't surprise me if before too long they start adding that kind of stuff. And because, I mean, when they realize how effective it is. What was there, like 40,000 views or something the other day when we looked.
[00:19:39] Speaker A: At the last transition we did, the guy, I think by a weekend had the 40,000 impressions on his announcement video on Facebook, which is tremendous. And it had, I don't know, it was like 5,000 people went to the website.
Which is the whole point of why when you transition is to get people to see your face and then go, oh, I know that person. I'm coming to you, I'm going to the website.
[00:20:09] Speaker B: And then they're calling you.
[00:20:11] Speaker A: And then they're calling them. Exactly. Then they're going to your website and they're learning more about what you're doing. You've got more opportunity for them to understand what you're trying to do by them reading the content on the website versus what you're going to be able to tell them over the phone when you do your announcement call. Right. You can't. So the whole point is to try to drive traffic to the website and you just spread it out very broadly to the entire us if you wanted to. Or you can Focus it on your city. But either way, that's.
[00:20:46] Speaker B: But what's interesting is like, you talk about how Facebook in particular is so smart with their algorithms that I like to think of it as, hey, if I'm scrolling Facebook on my phone and I'm scrolling, what do they call it? Doom. Scrolling. I'm scrolling, I'm scrolling. And then I see my financial advisor's face, okay. And then I'm like, what in the world? I'm looking at this and then I click on the thing and I watch it for 10 seconds or 15 seconds. Facebook knows that I did that. And they're now like, oh, this is really interesting. Taylor, Jason watched this video. I wonder if there's somebody out there that looks like Jason or looks like Taylor or maybe they're friends or maybe they're like somehow connected in social circles, like the seven degrees of Kevin Bacon or whatever they call that, you know, where it's like, these are people that somehow are connected to each other. And let's show the video to that person, you know, and what's the probability that person might be your client?
[00:21:50] Speaker A: It's very high, right?
[00:21:52] Speaker B: It's. It's very, really high. And so that's a great. I mean, it's an unbelievably effective way to get your message out without soliciting your clients.
[00:22:01] Speaker A: I mean, every single person has experienced this on Facebook where you're like, why am I seeing this thing, this video, this ad, this whatever. It's because they think Facebook thinks that somebody that looks a lot like you or has some commonality in some degree as you found this interesting or stopped for a millisecond on it before continuing to scroll. So maybe you will stop for a millisecond on it before you continue to scroll. Because they get paid more money the longer you're on the app. So they want you to stop for a millisecond. If you stop for two minutes and watch a video, or 15 seconds watch video, that's a ton of money in ad dollars that Facebook's gonna get. And they're gonna put that video in front of more people because, hey, this video is starting to look like people are watching it and staying on the app more. So anyways, that kind of tails into this. The video needs to, you know, be you. It needs to get your message across in a non soliciting way and all these things. But the whole point of what we're trying to talk about today is there's more and more firms are. You're seeing people that are leaving and they're not doing it the right way and they end up having to buy their clients. And the whole point of leaving is to take as much revenue with you as much clients that love you with you and start building your independent practice if you will. But not having to have this $20 million lawsuit hanging over your head and settle for three. And you're, oh, I'm so glad that's behind us now. Now we can focus and you're going, sweet mercy, that is a tremendous check to have to write and the implications of what that looks like for your handcuffs at the firm you're with or the client perception of what that looks like to your clients.
[00:24:01] Speaker B: Now they Google you and there's this $3.5 million settlement.
[00:24:05] Speaker A: It's a non start. You cannot have that happen. So anyways, think about if you're an advisor still listening to this, just think about reaching out to us.
Odds are that we can at least help you, point you in the right direction. It doesn't mean that you're going to be a perfect fit for Uptick Partners, but we will at least shoot you straight on the perils and like the roadblocks to avoid when you're going down this rabbit hole. I mean this is a passion of ours, is to educate the captive advisors that are out there looking to find independence. I mean, we love educating advisors on things that we've already learned the hard way. We don't have all the answers. We just learned them. I mean, we learned them the hard way. We truly did.
[00:24:52] Speaker B: We learned them in the foxhole, as we say.
[00:24:54] Speaker A: So we don't want you to have to do that as well. So anyways, reach out if you're interested or go to uptickpartners.com or you can subscribe to our monthly newsletter, which is bbmonthly.com we'd love to chat and please reach out.
[00:25:08] Speaker B: We also, we also have a book that you can, that you can ask us for and we'll send you a copy of our book which has got all of our hard fought, hard won secrets. Yeah.
[00:25:16] Speaker A: All right, thanks. Thank you for listening. We hope you enjoyed the podcast. Please subscribe to our channel. You can find more of our episodes on YouTube, Spotify and Apple Podcasts. And check us out at uptickpartners.com where you can learn more about how we help breakaway advisors just like yourself find independence.
