J.P. Morgan settles case without stanching recruiting losses to $20B RIA

J.P. Morgan Securities and J.P. Morgan Chase Bank settled a case with Cresset Asset Management after the firms filed dueling motions in multiple courts over the past three years.

The firms had accused Cresset founding partner Doug Regan of breaching a one-year ban on soliciting or hiring any employees by adding 10 of them after he left J.P. Morgan for the RIA in 2017. After a judge in Chicago federal court denied Cresset’s motion to dismiss the lawsuit in December, the two sides reached a confidential settlement that leaves the details of the outcome of the case an open question.

What this and the many other legal disputes involving wealth managers slapping former brokers with lawsuits after they go independent have made clear, though, is that the cases haven’t slowed the momentum of financial advisors joining the RIA movement. Independent RIAs and brokerages added a net 4,309 advisors between 2015 and 2020, while wirehouses lost a net 1,564 during the same span, according to consulting firm Aite-Novarica Group. Indeed, Cresset added another billion-dollar former private bank team from J.P. Morgan in September.

J.P. Morgan and Cresset “voluntarily dismiss this legal action, including all claims asserted in the petition, with prejudice,” according to the Jan. 18 filing. “The parties shall each bear their own respective costs and attorneys’ fees.”

Neither of the parties would provide information about the settlement of the lawsuit that sought enforcement of a subpoena in J.P. Morgan’s underlying arbitration claim against Regan.

“We’ve reached a settlement and, as a result, have dismissed the case,” J.P. Morgan spokeswoman Kristen Mutarelli said in an emailed statement.

“Cresset does not have any comment other than this matter has been settled and there are no outstanding issues or actions,” spokesman Michael Walsh said in an email.

The news outlet AdvisorHub first reported the news of the settlement.

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Growing RIAs
As one of the largest fee-only RIAs in the country, Chicago-based Cresset has reached 255 employees in a dozen offices with $20.55 billion in assets under management from primarily high net worth individual clients since its launch in 2017 under Regan and founders Eric Becker and Avy Stein, according to the firm’s SEC Form ADV. Besides recruiting the $2 billion ex-private bank practice in September, a merger that same month with Atlanta and Austin, Texas-based Berman Capital Advisors tacked on the $4.7 billion multifamily office.

While litigation filed by a giant firm like J.P. Morgan would likely give any wealth manager pause, RIAs that work with their own legal counsel on following the necessary steps in the transition to independence shouldn’t have any reasons for concern about lawsuits, according to Robert Sechan, CEO of Pittsburgh-based NewEdge Wealth. Sechan and three other co-founders launched the firm in 2020 after leaving UBS.

His firm has a ultrahigh net worth family office focus that’s similar to that of Cresset. The umbrella of NewEdge’s private equity-backed parent spans $130 billion in client assets across the direct RIA, its RIA services platform, a brokerage and a 401(k) recordkeeping, custody and plan administration business. NewEdge picked up another ex-UBS team managing $3 billion in client assets in its latest recruiting addition last month. The resources of wirehouses often act as “a security blanket” for advisors who may not be aware that independent firms have them too, Sechan said in an interview.

“We have independence with size and scale,” Sechan said. “Advisors are a little misinformed about what's available in the marketplace from a resource standpoint. There are platforms like ours that I think can offer resources that are more substantive than what they get at the wirehouses.”

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Sustained court fight and denied motions
Those resources include legal advice on the transition and in the event of a lawsuit like the one faced by Cresset in federal court. J.P. Morgan had filed an arbitration claim in the American Arbitration Association forum against Regan and Cresset in January 2019 alleging the breach of the non-solicitation agreements, the court filings show.

Cresset had no agreements in place with J.P. Morgan that required the RIA to appear in arbitration, though, so it removed itself from the case. Alleging that Cresset possessed “vital and essential documents,” J.P. Morgan successfully filed for a subpoena to get them from the RIA. When Cresset didn’t turn over the documents J.P. Morgan demanded in the 40-part request, J.P. Morgan filed a case in county court to enforce it, the records show. However, the county court ruled the case had federal jurisdiction, and it had no power to enforce the subpoena.

In its own filings claiming that the federal case should be thrown out, Cresset had accused J.P. Morgan of a “shoot first, ask questions later approach” and a “campaign of harassment” against the RIA that has “utterly failed to comply with the most basic pleading standards.” Last month, Judge Edmond Chang denied Cresset’s motion to dismiss while seeking more information from the firm about the location of its own shareholders to resolve questions about jurisdiction.

“Cresset has now made a belated and incomplete disclosure of the citizenship of its members,” Chang wrote on Dec. 15. “This court has authority to compel full disclosure of the information needed to determine if diversity exists. Cresset is directed to file a jurisdictional statement disclosing the identity and citizenship of all of its members, and, to the extent those members are themselves limited liability companies or partnerships, all of their members, all the way down to each ultimate member.”

Roughly a month later, the parties agreed to the settlement and the court terminated the case.