News that Brewin Dolphin is taking rival Charles Stanley to the High Court for staff poaching stunned the industry back in March. There is a growing belief the case’s impact is being felt across the industry even before it goes to trial.
The recruitment of teams from rivals and subsequent legal spats are nothing new for the industry, but what has proved most surprising is the decision to bring the dispute into the public domain via the courts.
Team hires have formed the foundations of growth for many wealth management empires – Brewin Dolphin included, somewhat ironically – where whole teams have been recruited to build assets and launch new offices.
But some observers believe the industry has entered a new era, where the focus should be on generating genuine organic growth and attracting new clients.
On the other hand, dissatisfaction has grown within a number of wealth management businesses that are seeking to centralise and take away autonomy from investment managers. This has led a number of teams to look for new homes, leaving them open to firms seeking to boost assets. A curious dilemma has been created for the industry.
As the high profile poaching row rumbles on in the background, have team hires lost their shine?
One senior industry insider believes the Brewin Dolphin/Charles Stanley High Court battle shows team hires are no longer the ‘big pay day’ for departing teams they used to be.
‘It is getting harder to bring clients over and they will not get as much up front. The likelihood of getting even 50% of clients over is much harder and people are being very careful about the way they are going about it,’ he said.
On the other side of the equation, he said firms should think very carefully about the business case before hiring teams to launch new regional offices.
‘If you are a listed entity you have got to do the right thing by your shareholders or the client. You have to be aware that you could be taking on lifestyle offices that are nothing more than a smart move for the people running them.’
Is it worth leaving?
In his view, the High Court row underlines the importance of studying contract terms, as well as the reality that investment managers on the move can be out of the market for 12 months with no contact with clients. This means the decision to leave must be justified.
‘You are on six months’ notice and a six-month non-compete clause, so it means a whole year without a client touch point in an industry that is increasingly competitive. You have got to think about just how miserable you are.’
Where whole offices are poached by a rival firm, he also stressed the potential damage this can cause for the underlying client who is left for up to a year.
Mark Somers, a director at wealth management recruitment firm Somers Partnership, echoes these sentiments. In his view, the legal wrangle confirms the importance of abiding by contracts on departure, whether individually or as a team. ‘The bottom line is if you have signed an employment contract, you need to stick to it,’ he said.
If a team does breach the restricted covenants in their contracts, Somers points out this only causes problems for their new employer and is not productive.
He believes team builds – which involve hiring a group of individuals who are motivated to help build the business and buy into the culture of the firm – should be preferable to businesses than team hires.
‘You get a better result doing a team build than a team hire. If you do a team hire you just bring a load of existing clients over. It not a very sophisticated way of building a business,’ he said.
‘You are just bringing over teams with their own habits and modus operandi. If you bring people in to build a business, it is to your own specification and you get a better long-term result.’
‘It is not the panacea that people think,’ he added.
Jonathan Polin, chief executive of Ashcourt Rowan, has not noticed any material impact on recruitment patterns since Wealth Manager broke the news of the High Court spat.
‘We are continuing to look at team hires where appropriate,’ he said.
Another recruitment consultant, who preferred to remain anonymous, believes a number of teams are poised to leave but are waiting to see how the court case pans out.
‘They will have to see what happens in the court case. It is a test case and if Charles Stanley get sued successfully, I guess it will have an effect on team moves, at least for a while.’
Brewin Dolphin vs Charles Stanley
- Brewin is suing six former senior employees from its Leicester office who left to join Charles Stanley. Brewin alleges they breached their contracts and conspired with Charles Stanley to cause losses to their business. Charles Stanley has denied the claims and said it will ‘vigorously resist’ them..
- The Leicester office manages over £800 million and Brewin said if half of this amount moved to Charles Stanley, it would lose more than £2 million a year in revenue. The writ calls for ‘exemplary damages’ that would ensure Charles Stanley does not profit from hiring the team.
- Charles Stanley has denied the claims and as part of its defence document said the former employees decided to leave after becoming ‘seriously disillusioned’ with their former employer.