Client list: You can take it with you

The B.C. Court of Appeal has issued a decision affirming an advisor’s right to contact clients if the advisor leaves his or her firm for another. The ruling allows advisors to take with them a list of their own clients but prohibits them from taking contact information for their colleagues’ clients.

The appeal stems from a decision that awarded RBC-DS punitive damages in excess of $2 million. RBC had sued Merrill Lynch over the “poaching” of advisors — including a branch manager and all but two employees at RBC-DS’s Cranbrook, B.C., branch, and their clients, back in 2000.

The appeals court ruled, however, that the initial decision did not take into account the rights of the clients.

Because the advisor is legally bound to “know” the client, and because most clients deal exclusively with a single advisor — and not, per se, his or her firm — an advisor who leaves a firm should be allowed to contact his or her clients, the court said. The ruling essentially affirms that it is the advisor who maintains the client relationship, and not the firm.

“The clients . . . may well go with the advisor, just as a lawyer’s clients, if he leaves one firm, will go with him because a relationship of confidence has developed between them,” the Honourable Madam Justice Southin said in her decision.

“It can, on occasion, be of grave importance to a client that there should be no break in the service available to the client from his or her advisor. The client may well require immediately — the market crash of 1987 comes to mind — advice from the person with whom he or she has a relationship of confidence as to what to do about his or her investments.”

The court explicitly ruled that the clients did not “belong” to RBC-DS. Furthermore, the court ruled that departing advisors did not have the legal obligation to give it a “reasonable opportunity to persuade any affected clients to remain with DS.”

The judge pointed out that DS’s own recruitment guide suggested that advisors defecting to its firm should bring along a list of clients.

“There was here a breach of confidence, but a breach limited in scope. The communication with the clients, in and of itself, was not a breach, but the removing of the various documents was,” the decision says. “It is as probable as not that the client wished to remain with the advisor, no matter what brokerage firm the advisor chose as his master.”

Filed by Steven Lamb, Advisor.ca, steven.lamb@advisor.rogers.com