Ameriprise seeks preliminary injunction in 'unprecedented' LPL suit

Ameriprise has filed a motion for a preliminary injunction against LPL Financial in a dispute that industry experts deem an unprecedented wholesale indictment of a rival's recruiting tactics.

Minneapolis-based Ameriprise submitted its motion on Wednesday in federal court in San Diego as part of a suit accusing its rival LPL of a "widespread pattern and practice of harvesting and misappropriating Ameriprise's private, confidential client information and trade secrets." The filing seeks in part to prevent LPL from destroying any possible evidentiary documents while Ameriprise separately pursues a permanent injunction from an arbitration panel overseen by the Financial Industry Regulatory Authority, the broker-dealer industry's self-regulator. It also asks for LPL to be barred from acquiring any more confidential client information and to be required to return any it may have in its possession.

Like the original complaint, the new motion accuses LPL of encouraging advisors recruited from other firms to bring along their former clients' confidential personal information. LPL, according to the suit, systematically prompted recruited advisors to transfer over data including Social Security numbers, account numbers, account information, client ID numbers and account values, according to the suit.

That information was often uploaded into a spreadsheet that LPL had custom-built for the purpose of harvesting such data, Ameriprise alleges. Those practices, according to the suit, systematically violate the "broker protocol," an industry-spanning pact that limits advisors to taking former clients' names, addresses, phone numbers, e-mail addresses and account titles when they change firms.

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Unprecedented action?

Rob Herskovits, the founder of New York-based law firm Herskovits, said he has seen plenty of cases when a firm accuses a rival of behaving underhandedly in its recruitment of a single advisor or advisory team. But he's not aware of any other wealth manager using a lawsuit to take a competitors' recruiting practices to task in their entirety.

Herskovits said it seems unlikely that a firm as large as LPL, the largest independent broker-dealer in the U.S., would have a policy that's in flagrant violation of the law.

"I would be very, very surprised if LPL as an institution made a knowing effort to subvert the broker protocol and instruct its incoming advisor to abscond with confidential information or property or trade secret type of information from their former firm," he said.

Asked about the latest motion in the dispute, Ameriprise repeated comments it made when it filed its original complaint. "LPL's conduct is unacceptable and abandons all reasonable notions of client privacy rights. It also subjects the advisors it recruits to regulatory, and in some cases, even criminal exposure by encouraging this type of behavior," a spokesperson for the firm said.

LPL likewise reissued a previous statement, saying, "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."

'Blinking in front of a worthy competitor'

Phil Waxelbaum, an industry recruiter and the founder of Masada Consulting, said it's no secret that LPL has been one of the most successful firms at drawing advisors not only from Ameriprise but also from other rivals throughout the industry. Yet, Ameriprise is the only firm questioning the basic premises of LPL's recruiting practices in a legal action.

"Nobody else is crying," Waxelbaum said. "They're competing."

Waxelbaum, who recruits for LPL and has recruited for Ameriprise in the past, predicted the suit will accomplish little more than make Ameriprise seem to have a chip on its shoulder.

"It is clearly Ameriprise hurting from that and exposing their emotional damage," he said. "This is blinking in front of a worthy competitor."

Specific cases

Ameriprise's latest motion does note that, of the nearly 800 registered representatives LPL has added this year, only a "small percentage have come from Ameriprise." But many of those who have left for LPL, Ameriprise alleges, "have engaged in misconduct."

In a brief in support of Ameriprise's contentions, Michael Taafe of Shumaker, Loop and Kendrick in Sarasota, Florida, cited four specific occasions in which LPL allegedly encouraged former Ameriprise advisors to "abscond" with confidential client information. In a well-publicized dispute in eastern Michigan, Ameriprise accused a pair of its former brokers of making off with confidential documents "in the dark of night, after business hours, and on weekends" when they moved to LPL. The federal judge overseeing that case agreed in early July to place a restraining order on LPL until a resolution could be obtained in FINRA arbitration. 

In the other examples of alleged recruiting malfeasance cited by Taafe in his brief, the  advisors are referred to by their initials. (Taafe explains that decision in a footnote: "This matter concerns the overarching pattern and practice of misappropriation by LPL, not any specific individual.") In one instance in February, according to the brief, an advisor identified as A.J. allegedly helped move confidential client information to LPL after inheriting a book of business from one of his Ameriprise colleagues.

Also in February, the brief states, a wealth manager referred to as C.B. took confidential data to LPL, even while her colleagues on her advisory team remained at Ameriprise. 

Ameriprise also cites two regulatory cases that it says set a precedent for its request for a preliminary injunction on LPL. In April 2020, FINRA reached a $125,000 settlement with Kestra Investment Services over allegations that its employees had helped advisors it had recruited to upload confidential client information onto custom-built spreadsheets. And in 2023, Morgan Stanley sued a former advisor, Lonnie Friedman, who had allegedly "bragged about taking screenshots of client information to be used in connection with his move to LPL."

In asking for a preliminary injunction, according to the suit, Ameriprise is in part seeking to prevent LPL from mining allegedly ill-gotten personal information to solicit clients.

"LPL utilizes the Ameriprise confidential information it harvests through its recruits to unfairly compete in the financial industry," Taaffe wrote in his brief. "The confidential information assists LPL in streamlining its solicitation and transfer of Ameriprise clients."