LPL Financial had a very rough week, despite BoA analyst intervention, as investors dumped shares with abandon and lawsuits piled up

LPL Financial had one of its worst weeks in years, but don't blame Bank of America.

The Fort Mill, S.C., independent broker-dealer gave up two years of gains in its stock, mostly in the last two weeks, capped by a 7.77% dump today to finish at $198.05. It traded as high as $279 as recently as July 17.

On Tuesday [July 30], Merrill Lynch BoA analyst Craig Siegenthaler, said the selling was overdone and raised his rating on LPL to a "buy" from a “hold”… to no avail. Shares traded at about $215 at the time.

 The raised rating follows a "significant decline in valuation and deterioration in sentiment," he said in a research note.

The chief concern for Wall Street is how LPL will rake in profits using cash sweep. Investors keep “sorting” but lawyers also keep suing on behalf of investors. LPL got its own ‘cash’ suit this week.

Illinois resident Douglas Nevitt sued in US District Court for the Southern District of California, claiming a breach of fiduciary duty for putting clients in less than ideal cash accounts. 

Nevitt's attorney, Deborah Ruth Rosenthal, is also suing Wells Fargo in a similar claim.

Disregarding protocols

Less predictably, Ameriprise served LPL with a nasty lawsuit, claiming LPL is systematically aiding breakaway Ameriprise brokers who are stealing confidential client information. 

Ameriprise made a loud splash with the news and even published a news release to excoriate its competitor.

“The pattern of behavior conducted by LPL is both shocking and concerning,” said Michael Taaffe, Partner at Shumaker, Loop & Kendrick, LLP, outside counsel for Ameriprise. 

“For years, LPL has flagrantly disregarded industry protocols in how it recruits financial advisors – and they have obtained and mishandled trade secrets and sensitive client data to which they are not entitled,” Taaffe said. 

“It is time for LPL to be held accountable for their reckless disregard for clients and advisors – and the fact that they have demonstrated zero semblance of care when handling the personal information of thousands of unsuspecting investors who are unaware that LPL allowed and encouraged its recruits to engage in this misconduct.”

Novel attack

LPL said Ameriprise is simply trying to intimidate advisors and called the suit “frivolous.”

"Ameriprise's actions are part of an ongoing effort to hinder competition in the financial services space and intimidate its advisors who might consider leaving to join another firm," LPL, an independent broker dealer and financial services firm, added in an emailed statement to Reuters.

Frivolous or reckless, it's a novel attack to take it to the [brokerage] house, says Louis Diamond, principal of Diamond Consultants.

“This lawsuit definitely interested me,” he says. "In my experience, every transition is approached with a different set of rules, and firms are very careful not to try, overtly or systematically, to skirt the rules. 

"Every advisor has different affiliation agreements and restrictions, so the decision of how an advisor should resign or take client information is truly a case-by-case basis. 

"Sure, some firms have more experience transitioning advisors from a particular firm so they may have some ‘hacks’ or ‘best practices.’ But I have never been privy to scalable maneuvers by firms to bend confidentiality clauses in employment and affiliation agreements.

Amid the other bad news, LPL acknowledged that Merit Financial was moving its assets off the LPL platform – albeit because the company no longer respects the independence of its advisors, its CEO said. See: LPL CEO calls out big RIAs that flunk 'core principles' and cuts ties with Merit Financial, which revealed fresh disclosures in it's June ADV regarding Fidelity as custodian