Good people and good companies sick lawyers on each other when so much happens so fast

May 13, 2010 — 6:23 AM UTC by Brooke Southall


Two dramatic legal events came to light in the RIA business yesterday: David Brochu got pushed out of his own firm by the roll-up, Focus Financial, that acquired him — and Charles Goldman is suing Charles Schwab & Co. over the company’s alleged failure to pay him after he lost his job as head of the company’s RIA custody unit, according to an article in InvestmentNews yesterday.

I have written several articles related to Brochu and Goldman and I talk with executives from Focus Financial and Schwab on a regular basis. See: Postscript to the story of Charles Goldman parting ways with Fidelity

My immediate reaction is that there is a tragic element to seeing these formerly successful relationships end as legal battles. Goldman was and is beloved by many clients and employees of Schwab, and I know he still has warm feelings for many people there.

Brochu was one of the earliest partners with Focus Financial in 2006 and – up until last year – he was a big cheerleader of the company, he says. Brochu and Focus got along fine – so it seems – for quite a while.

Serious industry growth

My more philosophical reaction to seeing these kinds of legal punches being thrown in the RIA business is that it’s another sign of how serious the industry’s growth has become.

I would certainly add the cropping up of these lawsuits to:

Focus Financial is a highly ambitious company that is taking $50 million of venture capital funding to turn a bunch of sophisticated mom-and-pops into one streamlined entity able to vacuum assets away from wirehouses. Focus got sued by one of the firms it acquired, and apparently it’s willing to go to the mat on behalf of the larger venture.

Fidelity, the world’s largest brokerage firm, hired Charles Goldman as the head of its RIA business in the midst of him leaving the same position at Schwab. It’s a sign of the urgency at Fidelity to build its RIA business.

Bristles with legal conflict

At the center of the growth of the RIA business is the breakaway movement. It fairly bristles with the potential for legal conflict. We’ve written numerous tales of advisors going to the most extraordinary lengths to avoid getting sued or fired as they broke away. The story of David Hou and Mark Sear, multiple legal advisors and their synchronized watches still tops the list of most dramatic leaps to independence

The exponential growth of the Broker Protocol is just another example that executives in the industry are well aware that aggressive actions hazard unintended legal consequences. See: Broker protocol may be endangered by complexities as membership starts to explode

All this worry and expense over legal matters seems like a dark cloud hanging near the RIA business. That may be true. But any industry growing as fast as the RIA business is occasionally going to be flagged for speeding. It’s a sign of a maturing industry and even one whose profits and power are worth fighting for in court.

Share your thoughts and opinions with the author or other readers.


Stephen Winks said:

May 13, 2010 — 6:01 PM UTC


In a period of rapid change, where old business models are superceded by the new faster, better cheaper value propositions, the futility of our largest firms of using litigation to protect the the old order is symptomatic of the industry’s tenuous state.

We all feel the uncertainty, the feeling the other shoe is about to drop. The Charles Goldman situation is not really as much about Charles Goldman as it is an out growth of this insecurity of very large firms who are discovering they have lost their edge. There is no question the industry is moving from advice being incidental to trade execution to trade execution being incidental to advice. Essentially, the industry has become insular to anyone’s best interests but its own. Thus the hair trigger to sue. Rather than being open, aligned with the best interests of the consumer and advisor, embracing industry redefining innovation in the best interests of the consumer, instead the industry has deemed this innovation as highly disruptive to its increasingly outdated busines model. It is as if our largest firms don’t know what to do, so they sue. This is a cutural problem that is not just limited to pushing back on innovation.

In the evolving new order of firms in the best interests of the consumer, the Charles Goldman suit would have never been needed to assure fair play and equity.



Sam Franco said:

May 15, 2010 — 12:10 PM UTC

It is ignorant to think there is more to this suit than pure entitlement to a payout based on the feeling it was earned money.

Submit your comments: