Merrill Lynch Initiates Legal Action Against Former Advisors, Charles Schwab, and Dynasty Financial Partners

Merrill Lynch Initiates Legal Action Against Former Advisors, Charles Schwab, and Dynasty Financial Partners

Merrill Lynch, a division of Bank of America (BAC), has commenced legal proceedings against Charles Schwab (SCHW), Dynasty Financial Partners, and a group of former financial advisors who departed to establish an independent registered investment advisory (RIA) firm, OpenArc Corporate Advisory. The lawsuit, filed in federal court in Georgia, alleges a "corporate raid" orchestrated to illicitly transfer approximately $129 billion in client assets and a significant number of personnel.

Details of the Allegations

The complaint by Merrill Lynch outlines ten causes of action, including claims of misappropriation of confidential information and trade secrets, tortious interference with business relationships, breach of the duty of loyalty, breach of contract, and unfair competition. Merrill Lynch contends that senior members of its former Global Corporate & Institutional Advisory Services (GCIAS) team, specifically naming James Kaufman, Elizabeth White, and Brittney Hartnett, engaged in "secret" meetings while still employed by the firm to solicit colleagues and clients. The lawsuit further asserts that Charles Schwab and Dynasty Financial Partners actively supported the formation of OpenArc, reportedly marshaling $90 million to cover startup expenses and taking an equity stake in the new entity.

Context within the Wealth Management Industry

This legal dispute represents the largest team transition in the history of the wealth management industry, involving a team that Barron's ranked as the No. 1 institutional consulting team and No. 3 private wealth team for 2025. The departure of the GCIAS group, which previously advised corporations and ultra-high-net-worth clients on retirement benefits, stock-plan compensation, and employee financial advice, highlights the increasing pressure on traditional wirehouses to adapt to evolving advisor and client demands. OpenArc’s stated vision of providing an "open architecture" platform contrasts with Merrill Lynch’s more proprietary model, suggesting a strategic move driven by perceived client dissatisfaction with conventional offerings. This event intensifies the ongoing debate regarding advisor mobility versus firm protection, as firms strive to safeguard investments in client acquisition and proprietary systems.

Legal Precedents and Potential Ramifications

Merrill Lynch is seeking immediate injunctive relief to prevent further solicitation of clients and disclosure of proprietary information, along with compensatory and exemplary damages. While the firm has historically been less prone to aggressive litigation in breakaway cases, its engagement of Alabama-based Burr & Furman LLP, a regional corporate litigation firm, underscores the gravity of this situation. The outcome of this lawsuit could set significant precedents for talent retention strategies and competitive practices across the financial services sector. Previous "raiding" cases have resulted in substantial financial penalties; for instance, Raymond James was ordered to pay $5.2 million and $20 million in separate arbitration cases. For Bank of America (BAC) and Charles Schwab (SCHW), the litigation introduces potential financial liabilities in the form of legal costs and damages, alongside reputational risks depending on the court’s findings.

Outlook

The progression of this lawsuit will be closely monitored by participants in the wealth management industry. Key factors to watch include the court's decision on injunctive relief, the duration and cost of the litigation, and its ultimate impact on the competitive landscape. The case is poised to influence how financial institutions structure advisor agreements, manage client relationships, and address the mobility of high-value teams in an increasingly dynamic market. The broader implications for advisor choice and firm attempts to retain assets and intellectual property will likely resonate throughout the financial services sector for years to come.