Two former Morgan Stanley advisors, whose short-lived tenures at the wirehouse ended in litigation and
Christopher Armstrong and Randall Kiefner claim they got bad transition advice from law firm Shumaker, Loop & Kendrick — guidance that left them in a court battle without legal representation and ultimately cost them their careers.
Not so fast, says Shumaker, which claims the duo ignored the firm’s advice and “repeatedly lied” to conceal alleged misconduct during their transition to Morgan Stanley from Charles Schwab, their prior employer.
The legal battle puts a spotlight on the sometimes fraught nature of advisor transitions, particularly between firms that are not members of the Broker Protocol, as well as the legal advice advisors receive to help them navigate thorny compliance issues.
Troubled transition
As with other advisor moves, when Armstrong and Kiefner jumped to Morgan Stanley from Charles Schwab in 2019, there was a lot at stake: client relationships; hundreds of millions of dollars in assets; their careers; and the reputations of everyone involved.
In their case, there was an added wrinkle: Neither Morgan nor Schwab are members of the
It’s complicated, but possible, to limit risk and liability when moving a practice.
Armstrong and Kiefner elected to receive transition guidance from Morgan Stanley itself as well as Shumaker and attorney Michael Taaffe, a partner and chair of the broker-dealer and arbitration business sector of the law firm. Shumaker and Taaffe represent Morgan Stanley in other legal matters; they’ve also counseled thousands of advisors during career transitions, according to the law firm.
Armstrong and Kiefner claim the guidance they got was at times negligent, conflicted and not in their best interest, according to their lawsuit filed this week in New Jersey Superior Court. For instance, a Morgan Stanley manager allegedly told Armstrong that he could contact his clients about his intent to leave Schwab and transition to Morgan Stanley. The manager also allegedly said Armstrong could retain Schwab client profile pages.
Shumaker and Taaffe allegedly did not counsel Armstrong and Kiefner as to what comprised confidential information, according to their lawsuit.
The advisors printed approximately six client profile sheets to assist them in contacting clients after they arrived at Morgan Stanley, according to their lawsuit. “Morgan Stanley managers were aware that Messrs. Armstrong, Kiefner, as well as Morgan Stanley operational staff were using the aforementioned Schwab client profile sheets to contact Messrs. Armstrong and Kiefner’s clients,” their lawsuit states.
Days after their resignation from Schwab on March 29, 2019, the company accused them of violating their employment agreements. Schwab sought and won an injunction in federal court against Armstrong and Kiefner in April 2019. That same month, Morgan Stanley terminated the advisors and Shumaker withdrew as their legal representation in the court case with Schwab due to “patent and irreconcilable conflicts of interest.”
Is there a lesson for other advisors considering a career change?
Schwab is currently pursuing additional claims in FINRA arbitration against Morgan Stanley as well as Armstrong and Kiefner, who are simultaneously pursuing counterclaims against Morgan Stanley, according to court documents.
A Charles Schwab spokesman says the company can’t comment on the specific case, but more broadly the firm “expects that its representatives will comply with their contractual and legal obligations concerning customer information. However, if it becomes necessary, Schwab will not hesitate to enforce those obligations in a court or arbitration proceeding.”
A Morgan stanley spokeswoman could not be reached for immediate comment.
For its part, Shumaker said in a statement that “it intends to defend itself vigorously and will seek recovery of its attorneys’ fees and costs to the extent permitted under New Jersey law.” In court filings, the firm denies the advisors’ allegations against it and counters that its counsel was ignored. The law firm says that the advisors knew what their obligations were to Schwab and they were told not to take confidential information.
The duo “disregarded and directly contravened Shumaker’s documented legal advice and, of their own volition, improperly retained substantial confidential client information, breached their restrictive covenants with Schwab, violated numerous statutes and regulations, and repeatedly lied to Shumaker to conceal their misconduct,” the law firm’s legal response states.
Armstrong and Kiefner were provided with a list of transition do’s and don’ts, which included advice that an advisor could tell a client about their whereabouts and read from a prescribed script, but should not bring any confidential information from their former employer.
Shumaker adds that the advisors also signed a Morgan Stanley document when they joined the firm that stated advisors should not bring with them client files and other certain documents.
“If you have any questions about your transition or any of the foregoing, please consult with management and/or your legal advisor,” the Morgan Stanley advisor transition document states. “We are excited about you joining the firm and want your transition here to be as seamless as possible, which means minimizing the probability of any disputes regarding your transition.”
