Goldman Sachs is taking aggressive action to enforce agreements with advisors who have left the firm since the announcement of the sale of its Personal Financial Management (PFM) unit to Creative Planning, a leading registered investment advisor.
Upholding Commitments
Goldman Sachs emphasizes that PFM advisors made specific commitments to the firm when signing their employment contracts, and the company intends to hold them accountable.
Filing Claims
In response, Goldman Sachs has filed claims against advisors in multiple states for violating noncompete obligations and fiduciary duties to the firm. The company is serious about these matters and will take appropriate action against any advisor attempting to violate contractual obligations.
Noncompete Provisions
The issues at hand revolve around two types of agreements signed by PFM advisors. The first concerns noncompete provisions, some of which include language prohibiting advisors from soliciting clients once they join a new firm. Typically, Goldman's noncompete clauses last for six months after an advisor's departure.
Notice Period
The second issue involves the 90-day notice period that Goldman employees, including advisors, are generally required to give before leaving the company.
Arbitration Process
These claims will be handled in an arbitration forum convened by the brokerage-industry self-regulator, Finra.
Background and Implications
The departures of advisors began after Goldman Sachs announced its decision to sell the PFM unit to Creative Planning in August. This move signaled a strategic shift away from the mass-affluent client segment in Goldman's advisory business. The PFM unit had been established after Goldman acquired the $25 billion United Capital RIA in 2019.
Creative Planning CEO Offers Affiliation Options to PFM Advisors
Creative Planning CEO Peter Mallouk is taking action to prevent the departure of PFM advisors by offering them various affiliation options. Although Creative Planning did not respond to requests for comment, it appears that they are determined to retain their advisors and limit defections.
Goldman's Chances in Arbitration Cases Depend on Contract Details and Local Regulations
According to Jim Eccleston, Managing Member of the Eccleston Law Group, there is a possibility that Goldman could succeed in some of its arbitration cases. However, the outcome will ultimately depend on the specific details of the advisor's contract and the regulatory environment in which they operate.
Goldman has filed cases in multiple states, and the results of these arbitration claims may vary depending on the jurisdiction's rules.
Enforcing Nonsolicitation and Garden-Leave Restrictions
Eccleston suggests that Goldman might be able to enforce its nonsolicitation and garden-leave restrictions. However, a thorough analysis of the contract language, state law, and securities regulations is required to determine the validity of these restrictions.
Representation and Defense for the Targeted Advisors
Brian Hamburger, a well-known figure in the advisor industry who leads the law firm and consultancy MarketCounsel, is representing some of the advisors targeted by Goldman. While he declined to provide a preview of his defense, Hamburger stated that he will address the matter in the arbitration forum.
Client Relationship Ownership and Advisors' Origin
Mark Elzweig, head of an advisor recruiting firm in New York, believes that Goldman faces challenges in convincing an arbitration panel that it owns the client relationship. This is because many of the advisors joined PFM through the United Capital acquisition and generated their own business, unlike bank advisors who manage in-house accounts.
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