Edward Jones wins $3.5M award against Commonwealth team

Edward Jones has won a roughly $3.5 million arbitration award against a team of its former advisors and Commonwealth Financial Network.

A Financial Industry Regulatory Authority panel on Tuesday ordered eight former Edward Jones advisors and Commonwealth to pay $2,047,503 in compensatory damages over allegations of breach of contract, unfair competition, interference with contract and business relationships and other violations. In addition to the compensatory damages, Commonwealth was ordered to pay $1.5 million in costs and attorney's fees. Edward Jones had accused the advisors of severely disrupting its business in parts of Texas and New York when they left in late 2022 to join Commonwealth and start a firm, Cedarwood Financial Partners, in Temple, Texas. 

Edward Jones had sought $16M

When the founders of Cedarwood Financial left Edward Jones, they reported having nearly $1 billion under management. Matthew Henneman, a lawyer who represented Commonwealth, Cedarwood and the advisors, said Edward Jones' final demand in arbitration was for $16 million.

Henneman said, "While my clients do not agree that any damages were appropriate under the facts of this case, the panel's determination to disallow more than $12M of EJ's claim certainly reflects a recognition that EJ's evaluation of this matter was flawed from the outset."

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Cedarwood, which ranked No. 2 in Financial Planning's list last year of the 18 best places to work in money management, said in a statement that it views the denial of most of Edward Jones' claims "as validation that we operated within legal and ethical bounds."

"The Panel denied the other side's claims for punitive damages, injunctive relief, and the vast majority of the claims asserted — instead awarding damages primarily on a simple contract dispute which we would have been willing to voluntarily resolve years prior to the arbitration hearing."

Commonwealth said it also disagreed with the arbitration panel's decision but said it's "pleased to put this matter behind us."

Edward Jones, which has around 20,000 advisors, meanwhile welcomed the "arbitration panel's decision to hold the former financial advisors accountable for violating their obligations to Edward Jones, and Commonwealth for facilitating their wrongful activity."

"Our top priority will always be serving our clients and helping them achieve financially what is most important to them," a spokesperson for the firm said.

'Raiding' by any other name

The allegations against Commonwealth and the advisors make no mention of the term "raiding" — a charge sometimes leveled at firms accused of using unfair or overly aggressive recruiting methods to intentionally harm a rival's business. But Phil Waxelbaum, an industry recruiter and the founder of Masada Consulting, said allegations against Commonwealth and the advisors bear all the marks of a raiding dispute. He said he takes Edward Jones' arbitration claims and eventual victory as signs that the firm has become willing to be more aggressive when it perceives its basic business interests have been damaged by a rival.

Edward Jones, Waxelbaum noted, recently backed away from a former policy that had most of its advisors working on their own and instead allowed them to begin joining teams housed in a single office. That change, he said, will make it harder for competitors to recruit Edward Jones advisors without running into allegations that they were out to inflict harm on its business.

"Now that Edward Jones has adopted the philosophy of allowing multiple advisors in a single location, you're going to have more of this," Waxelbaum said. "We can be confident now that they won once with this one, they're going to play this hand again."

Edward Jones not a protocol firm

Waxelbaum also noted that Edward Jones has never been part of the Broker Protocol. This voluntary industry-wide pact restricts brokers who leave one firm for another to taking only five types of client information with them: names, addresses, phone numbers, e-mail addresses and account titles. 

Edward Jones' nonparticipation in the Broker Protocol means advisors who leave it have to be extra careful to make sure they don't overstep prohibitions on using former customers' data, Waxelbaum said. His advice for anyone leaving a non-protocol firm is to wait until after the official departure and then try to remember as many client names as possible. 

Advisors can then use publicly available resources to search for phone numbers, email addresses and other information useful for getting in touch again. Many of these services, such as whitepages.com, require payments and generate receipts that can prove handy should advisors need to show an arbitration panel that they didn't misappropriate confidential data.

"If you can't do that, you are going to have a problem," Waxelbaum said. "The best proof you can have for a panel or a judge is a log-in to these public services. You have to subscribe to the services."

In an interview with Financial Planning shortly after the departure of the Cedarwood Financial team from Edward Jones, managing partners Todd Vincent and Dylan Ripley expressed ambitions to bring their advisor headcount to 1,000 through recruiting and merger and acquisition deals over the next 20 years. They said they chose to go with Commonwealth after conducting interviews with roughly a dozen firms.

"I felt like when we were interviewing them, they were really interviewing us," Vincent, who didn't return requests for comment Thursday, then told Financial Planning. "Their attitude is always, 'What are you trying to accomplish and how can we do it?,' which is just refreshing — to say, 'I hear you and we'll do whatever it takes to make it happen.'"

The team, which had 17 employees working in five offices in two states when Cedarwood was founded, used the recruiting firm Diamond Consultants to aid in its transition. Diamond Consultants declined to comment for this article.

The compensatory damage awards imposed by the FINRA arbitration panel on individual members of the Cedarwood Financial team ranged from $601,967 for Vincent to $30,958 for a financial planner named Jeremy Self. Commonwealth has to pay $327,600 in compensatory damages.

In counterclaims, the advisors had requested that they be awarded at least $1 million in compensatory damages, along with other punitive and exemplary damages, compensation for costs and other amounts. Commonwealth also filed a counterclaim requesting punitive and exemplary damages and similar compensation. Those counterclaims were all denied. 

Edward Jones' claims against Cedarwood Financial and another one of its advisors, Angel Santiago, were meanwhile denied. As is typical in these cases, the arbitration panel did not provide reasons for its decisions.