National IFA Towry has lost its High Court battle against rival wealth management firm Raymond James and seven former Edward Jones advisers it alleged solicited clients.
The Honourable Mrs Justice Cox DBE ruled against Towry, finding that the seven ex-Edward Jones advisers, Barry Bennett, Pieter Burger, James Chandler, Wayne Hayhurst, Thomas Spain, Stuart Hutton, and Tracey Simpson had not solicited clients.
Click above to view Alex Steger's exclusive interviews with the victorious advisers on the steps of the High Court
The judge found 'that there was no repudiatory breach by the claimant of the contracts of employment of the individual defendants' and that 'the claimant has not proved the allegations of wrongful conduct against the defendants.'
In finding against Towry, the judge said it did not pay enough regard to clients' loyalty to their individual advisers. '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,' she said. 'In my judgment Towry seriously underestimated the importance of these factors in this case.'
The judge dismissed Towry's claim for £6 million in damages that it argued had resulted from the advisers' actions. Raymond James and the seven former Edward Jones advisers are seeking nearly £1 million plus VAT in costs. Towry has accepted it will pay a significant segment of the defendants costs, although how much is yet to be finalised. If the costs go through unchallenged they must be paid by 4pm on 6 March. Read more about Raymond James' submission to the court for costs here and here.
Towry chief executive Andrew Fisher (pictured) said he was disappointed at the judgment. He argued that while the judge had concluded Towry did not have enough evidence to prove non-solicitation clauses had been breached, the ruling did show that non-solicitation and non-dealing clauses were reasonable devices.
'We did not undertake this action lightly but to protect our legitimate business interests for our clients and shareholders,' he said.
'The judgment does support the efforts of professional services firms like ours, to protect their legitimate business interests, through contractual non-solicitation, non-dealing and confidentiality clauses.
'The contracts of the former Edward Jones employees were materially different to our standard Towry contracts in that they did not contain a "non-dealing" clause and we are confident that our current Towry contracts afford us appropriate commercial protection.'
Raymond James chief executive Peter Moores said: 'The result today supports the Raymond James view that clients are loyal to their trusted adviser and should be able to continue to work with their adviser if they wish to do so and if this is permitted by the adviser's contract, as was the case here.'
Moores also hit out at Towry's level of service, arguing that the evidence of clients at the trial showed it to be lacking. He said they were 'real people with very real concerns about the significant changes taking place at Towry EJ despite assurances that “nothing would change”, the impact of those changes on how their money would be managed and the poor service they received from Towry during and after the takeover of Edward Jones'.
The case kicked off in June last year. Towry argued that the advisers ‘joined RJ [Raymond James], as self-employed advisers, and within a short period of time, nearly 400 clients came to transfer their investments, worth over £33 million, and their investment business from [Towry] to RJ.’
During the case the counsel for the seven advisers and Raymond James claimed that there was no evidence of either loss or solicitation and that ‘the defendants were simply followed by their clients.’
Towry originally took out an injunction against Raymond James and the advisers in April 2010.
Towry brought the case on the grounds that the alleged client solicitation breached the restrictive non-solicitation clauses in the advisers' terms of employment, which prohibited them from soliciting clients for 12 months after they left the company.
The case saw Towry’s independence and investment proposition, its Independent Investment Management service (IIM), come under the spotlight. Chief executive Andrew Fisher (pictured) was also forced to defend his reputation.
The seven advisers had joined Towry when the national IFA bought the UK arm of US broker Edward Jones in October.
Whilst we are disappointed that our case has been dismissed, we consider that the judgment provides useful guidance for professional services firms wishing to protect their legitimate business interests.
The judge found that client names, addresses, contact details and investment requirements are confidential information. She also found that non-solicitation and non-dealing clauses are ‘reasonable’ contractual clauses and that in general, they are appropriate and enforceable for the ongoing protection of the commercial interests of businesses like ours and other professional services firms.
In our case, the judge concluded that we did not have sufficient evidence to prove that the contractual non-solicitation clause had been breached.
Andrew Fisher, Chief Executive, today commented:
'We are obviously disappointed that the Court did not find in our favour. We did not undertake this action lightly but to protect our legitimate business interests for our clients and shareholders.
The judgment does support the efforts of professional services firms like ours, to protect their legitimate business interests, through contractual non-solicitation, non-dealing and confidentiality clauses.
The contracts of the former Edward Jones employees were materially different to our standard Towry contracts in that they did not contain a ‘non-dealing’ clause and we are confident that our current Towry contracts afford us appropriate commercial protection.'
Peter Moores, Chief Executive Officer at Raymond James said:
'We are very pleased that the judgment handed down today dismissed the case against Raymond James and the seven advisers affiliated to us. The judgment confirms that the advisers did not breach their restrictive covenants, that there was no misuse of confidential information and there was no conspiracy to injure Towry EJ. The result today was the right one. Raymond James is scrupulous in our recruitment process and in providing guidance to wealth managers looking to leave their present employers to join Raymond James where they can build their own client book. We are very pleased that the result today supports the assertion from the start that Raymond James and the seven advisers in this case acted properly and lawfully throughout.'
Mrs Justice Cox DBE in her judgment noted, 'Having regard to the whole evidence in this case, the allegations against Raymond James do not withstand scrutiny'.
Mr Moores also noted his appreciation to the clients who gave evidence at the trial. 'We are grateful to the 18 clients from all over the country who took the time to come to the High Court to tell their side of the story. Real people with very real concerns about the significant changes taking place at Towry EJ despite assurances that 'nothing would change', the impact of those changes on how their money would be managed and the poor service they received from Towry during and after the takeover of Edward Jones.'
Regarding the clients’ evidence, Mrs Justice Cox DBE notes in her judgment, “The evidence given by these individuals, from different backgrounds and regions, and with differing levels of knowledge or differing views concerning investments, demonstrated a striking and essentially consistent pattern in relation to their reasons for deciding to transfer to Raymond James. Their evidence was, in my view, powerful evidence pointing away from the allegations of solicitation in this case.'
It was also evident that Towry had no appreciation of, and paid scant regard to, the strength of the relationship between the client and their trusted adviser. Mrs. Justice Cox DBE noted, “…that 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 and Edward Jones were very different businesses as Mrs. Justice Cox DBE pointed out, 'The important fact, as it seems to me, is that while both companies were providers of financial advice and services, the proposition was very different from that offered by Edward Jones.' Mr. Moores notes that this highlights the importance for those firms building scale through acquisitions the need to better understand the businesses they acquire coupled with more realistic assumptions. Minutes from Towry's Executive Committee meeting shortly before the acquisition showed that they had a working assumption that all Towry EJ's advisory stockbroking client assets would migrate into Towry's discretionary IIM.
Mr. Moores continues, 'In bringing an action against Raymond James and seven of our advisers it is clear that the clients’ wishes with respect to whom they wanted to have as a financial adviser, even when restrictive covenants allowed it, were not considered to be of primary concern by the claimant, and in their view client loyalty rests with the company and not the adviser. The result today supports the Raymond James view that clients are loyal to their trusted adviser and should be able to continue to work with their adviser if they wish to do so and if this is permitted by the adviser's contract, as was the case here. Both clients and financial advisers need to take a long hard look at the investment firms they choose to work with to see how they treat their advisers and their clients not just when they join or invest but also when they want to leave.'