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Dynasty Financial Partners ends legal squabble with Bank of America, clearing deck for growth

The high-profile startup may have passed up chance to win its case, an attorney says

Tuesday, January 25, 2011 – 3:18 PM by Brooke Southall
no description available
Shirl Penney: We are very satisfied with the terms of the agreement.

Bank of America Corp. and a New York-based startup have reached a settlement over a huge book of business managed by a former U.S. Trust advisor, ending what lawyers said could have been a winnable case against one of the big wirehouse firms.

Bank of America, which owns both Merrill Lynch and U.S. Trust, came to terms on issues surrounding the departure of Michael C. Brown and members of his team from U.S. Trust. The team went to startup Dynasty Financial Partners, a wealth manager and wealth management platform.

The team, which includes Charles Britton, joined Dynasty at the start of December and manages about $5.9 billion of assets. Bank of America had alleged that members of the team and Dynasty itself took proprietary documents and trade secrets. See: Bank of America throws a legal wrench at big wealth management start-up

Amicable resolution

“We are very satisfied with the terms of the agreement with Bank of America, and we are pleased that we have been able to resolve these issues amicably,” said Shirl Penney, president and CEO of Dynasty. “With this matter behind us, Mike, Charles and their team can focus on building their business at Dynasty, and we can return our full attention to building the premier wealth management platform for independent financial advisors with high net worth clients.”

Bank of America/Merrill Lynch spokesman Bill Halldin declined to comment.

Such cases are commonly filed by wirehouse firms as a tactic to distract new breakaways and gain back some of the money lost by the departure of the book of business, said Brian Hamburger CEO of Englewood-N.J.-based MarketCounsel, in an interview last month. In cases where the breakaway manages $1 billion of assets or more, his firm anticipates a lawsuit, even when there is no legal basis.

Dynasty is a high-profile company because of the pedigree of its executives and their aspirations. It’s said publicly that it plans to bring aboard 150 advisors managing as much as $50 billion in assets over the next five years. Its chairman is Todd Thomson, formerly head of Smith Barney and CitiGroup’s private bank for two years. See: What exactly is Dynasty Financial Partners and why is the Smith Barney execs’ startup gaining so much attention?

Michael Brown will not only continue to manage his client business but will also hold an executive position in the new firm overseeing the wealth management suite of products and services, with a title of partner and director of wealth management. He has also made a big investment in the new company with his personal capital.

Big legal profile

The case between Bank of America and Dynasty also had a big legal profile because it could have brought up the question of whether the Protocol can apply to one corporate subsidiary but not another.

Bank of America and U.S. Trust are not members of the Protocol. But BoA’s Merrill Lynch, is a signatory. See the full list of signatories . The Protocol is a no-fault truce established by the wirehouses that allows them to poach each other’s talent without hazarding lawsuits — as long as they follow an established set of rules.

Late last year, Bank of America explicitly carved out advisers working for U.S. Trust, Bank of America Private Wealth Management by sending a letter to all Protocol signatories, saying that those employees were not covered by the Protocol. Merrill Lynch advisors are still covered by the Protocol, the company said, but not wealth management bankers working for Merrill.

Though Dynasty settled the case with BoA, Patrick Burns, who has an eponymous law firm in Beverly Hills, Calif., that handles breakaway brokers, says that it may have succeeded if it had chosen not to. His firm was not involved in this case.

Could have succeeded

“As an observer, I think that Dynasty could have been successful in this matter if it had proceeded. The advisors had their FINRA licenses with Merrill Lynch and I question whether the Protocol ‘carve-out’ letter [making them an exception] was permissible under the Protocol. I also don’t know how Dynasty would have received proper notice of the carve-out since it was only circulated once to Protocol member firms and was done so prior to Dynasty joining the Protocol. This case might have settled simply due to escalating costs and time commitments on both sides.”

In December, Bank of America won a temporary restraining order against the advisory team, preventing them from reaching out to their former U.S. Trust clients.

The advisors were never prevented from doing business with clients who came to them of their own accord.

It’s not clear whether the restraining order was still in force when the settlement was reached. The two parties were scheduled for a meeting on the matter before a New York judge on January 14.

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Mentioned in this article:

The Law Offices of Patrick J. Burns, Jr., P.C.
Specialized Breakaway Service
Top Executive: Patrick J. Burns, Jr., Esq.

Advanced Regulatory Compliance, LLC
Compliance Expert
Top Executive: Patrick J. Burns, Jr., J.D.

Jeff Spears

Jeff Spears

January 25, 2011 — 4:37 PM

Happy for Mike Brown.

His professionalism and ethics are beyond reproach! BofA was smart to settle.



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