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Advisor sues Raymond James after he joins one RIA and forms another

Robert Rowe alleges he was misled into leaving Morgan Stanley with his 8-person team

Thursday, April 21, 2011 – 1:53 PM by Lisa Shidler
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Robert Rowe: "When we came on board within three months, we lost a $100 million portfolio because we couldn’t provide accurate performance capabilities. Right off the bat you’re absolutely dead."

A former Raymond James advisor is suing the firm, alleging the company misrepresented its offerings and gave him inaccurate information in
their efforts to recruit him back in 2005.

Robert B. Rowe Jr., left St. Petersburg, Fla.-based Raymond James Financial Inc. in January to join RIA AZA Capital Management of Troy, Mich. He is also in the process of setting up his own Chicago-based RIA, Enhanced Investment Partners LLC.

He filed the lawsuit in Cook County, Ill., in March, alleging he was misled into leaving Morgan Stanley and going to Raymond James. He is
seeking to rescind the two agreements for loans and retention bonuses he signed July 20, 2005 and Dec. 13, 2007. The lawsuit alleges that the documents were entered into deceitfully and fraudulently.

He wants damages “in excess of $10 million” on all counts, as well as punitive damages, attorney’s fees and other costs.

Raymond James declined to discuss the matter since it is pending litigation, but the company filed a motion to dismiss and a motion to compel arbitration.

Officials at Cook County Circuit Court said the next scheduled meeting between both parties is May 27, where both parties will set up the next hearing date to discuss the motion.

As part of Rowe’s lawsuit, he included dozens of e-mails sent to and from Raymond James officials over the course of a number of years. He
also included sample contracts and sample documents given to him by Raymond James officials that he alleged were fraudulently changed

Rowe received a signing bonus of $488,799.60 – which court documents alleged were “significantly less” than what he was promised. He alleges in documents filed with the court that he didn’t get paid for more than a year even though he earned in excess of $550,000. Eventually, he signed a new deal in 2007 in “duress” since he hadn’t been compensated for more than a year.

Competitive landscape

Lawsuits filed by brokers against their firms based on recruiting practices are common, said Mark Belongia, attorney with Shapiro & Franklin in Chicago. He represents Rowe.

“Industry wide there does seem to be a pattern than is somewhat disturbing,” he says. “The firms promise advisors everything to get them in and then worry about backing it up later.”

In its court motion and in a publicly filed memo, Raymond James alleges that Rowe agreed to handle contract disputes through arbitration.

In the court documents, Raymond James’ attorneys argued that Rowe’s earlier agreement to arbitrate should be treated like any other contract and should be honored by the court. Raymond James’ attorneys say that Rowe’s complaints should be handled through FINRA arbitration.

However, in court documents and in interviews Rowe alleged that he was fraudulently induced into signing the documents.

“It was the old bait and switch,” Belongia says. “There should be no basis for arbitration.”

Reporting capabilities at issue

Rowe alleges in the lawsuit that Raymond James showed him false reporting capabilities to persuade him to take his team of eight with annual profits of $2 million to Raymond James. Rowe said in an interview that he’s working to move accounts now and doesn’t know what his total assets or production level is just yet.

He says he lost significant revenue because Raymond James couldn’t provide the tools, such as performance tracking, to prospective clients and current clients. “When we came on board within three months, we lost a $100 million portfolio because we couldn’t provide accurate performance capabilities,” he said in an interview. “Right off the bat you’re absolutely dead.”

In interviews and in the lawsuit, Rowe alleged that John Michael Kuklenski, Raymond James senior vice president and regional director of Raymond James & Associates Inc., was deceitful and fraudulent in his actions.

Making the move

Rowe, who has more than 35 years under his belt as an advisor, says he decided to leave Morgan Stanley on May 20, 2005 after spending several months meeting with a number of firms including Raymond James and UBS. See: Why an elite Morgan Stanley Smith Barney advisor jumped ship and plans 10 offices around the globe.

Rowe said he’d been making a name for himself as a national consultant in the defined contribution space where provided independent investment consulting services to employers in the mid-market as well as to small institutional and high-end retail customers.

He said it was difficult for him to grow his business at Morgan Stanley. As a result, he said, he was looking for a firm that offered a number of capabilities that would allow him to grow his business.

“Raymond James was actually the lowest bidder,” he says. “But if you’re trying to build out a business, it looked like the best opportunity was at Raymond James.”

Rowe said in the interview and in legal documents that he’d built two platforms for his consulting services: Equity Investment Rotation methodology and Rowe Decision Analytics LLC. Both methodology use current and historic data to generate over-performing/under-performing signals for domestic equity style.

Equity Investment Rotation is the marketing and prospecting tool that helps bolster his consulting business.

Rowe Decision Analytics was developed by him an as on-line investment policy statement tool. Under this tool, court documents show he developed more than 42 different investment policy statements for investment portfolio structures for defined contribution plans and defined benefit plans.

According to the court documents, Rowe had developed three outside business endeavors, which included Enhanced Investment Partners LLC, Rowpyn Investment Partners and Enhanced Hedger Partners LLC, that he also wanted to continue in his role at Raymond James.

He claims in the lawsuit and in an interview that he was reassured by Kuklenski that he could continue his outside ventures and would have access to portfolio performance reports necessary for existing clients and to drum up prospects. He was also told he could set up his own RIA and use his own existing tools within Raymond James system.

Dispute arises

Once he joined Raymond James, he alleged in the lawsuit and in an interview that he was not able to properly maintain his outside business interests. He alleged Raymond James also wouldn’t let him set up his own RIA and properly use his own methodology tools. As a result, it was difficult for him to work effectively with current clients and to gain new clients.

He alleged that because Raymond James’ system was antiquated – 30 years old according to the lawsuit — he could not properly manage his accounts and gain new clients.

Rowe alleged that he could not be competitive as a pension consultant because Raymond James did not have performance reporting and independent investment manager flexibility. It made it nearly impossible for him to gain any of the more than 400 prospects he had when he left Morgan Stanley.

“Without these performance reports you’re dead in the water,” he says. “How in the hell can you prospect for new business without a performance report. You can’t.”

It was also difficult for him to manage portfolios, he claims. For instance, he said that many of the investment managers he wanted to use were not available.

He alleged that he learned that the legacy software doesn’t expand the trading platform to accommodate the broad range of investment managers.

The legal battle

Rowe accuses Raymond James and specifically Kuklenski of having him sign a contract there months after he’d been hired that was completely
different from the sample loan agreement and retention bonus he had received. The sample contract was similar and consistent with other offers he’d received from other firms.

“Frankly we weren’t even given an opportunity to review it,” he says. “We were paraded into Kuklenski’s office and the whole thing was finished in 15 minutes. By then, the client information had already been sent over.”

He also says that he was told he didn’t have to meet production targets in order to receive compensation but in the final contract, the production targets were included.

In the sample contract, Rowe agreed he would received 55% of his gross production, less income taxes. This was similar to the contract he had with Morgan Stanley. However, he said Kuklenski presented him with a contract and told him it was identical to the sample contract.

Unbeknownst to Rowe and members of his group, Kuklenski had changed the contract, the lawsuit alleges.

The deal required that Rowe must meet monthly production requirements and produce $50,916.63 to earn a second quarter bonus and to produce $101,833.25 during each three-month period to earn bonuses for each quarter, according to documents filed with the court.

Court documents alleged that Kuklenski also failed to detail all of the managed account expenses and fees that were deducted from revenues before calculating “gross production.”

For stories of other RIAs that have broken away from wirehouses, see the RIABiz Breakaway Stories section.

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