A pair of FINRA arbitration rulings on Morgan Stanley’s and JPMorgan’s deferred compensation policies shows there’s still no predictable outcome for advisors seeking back pay from former employers.
Morgan Stanley scored a win late last week in its claim that it did not owe deferred compensation to its former broker Patrick O’Neill, who left in 2018 to join Raymond James. Meanwhile, JPMorgan did not get the outcome it wanted in its case against its former managing director James Dean, who lost his job at the firm’s brokerage subsidiary J.P. Morgan Securities after his position was eliminated. A Financial Industry Regulatory Authority arbitration panel on Thursday provided Dean with an award of nearly $676,000 for unpaid back wages.
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Both Dean, now the founder and managing partner of Guardant Wealth Advisors in Miami, and O’Neill are among scores of brokers who have filed claims seeking deferred compensation they contend their former firms still owe them. Many of these actions argue that deferred comp, which usually isn’t paid until years after it’s “earned,” is akin to retirement benefits that employers are required to pay under the Employee Retirement Income Security Act of 1974, or ERISA.
Firms, in turn, have frequently argued that deferred compensation is a bonus used to reward brokers for not leaving to join rivals. Large wealth managers like Morgan Stanley and Merrill have lately seen a mixture of victories and losses in their attempts to convince arbitration panels and courts that they’re within their rights to withhold deferred compensation from departed advisors.
The Morgan Stanley dispute
In the latest case involving Morgan Stanley, a three-member panel denied O’Neill’s contention that he was owed an unspecified amount of deferred compensation from his time at the firm, as well as $300,000 in damages. At a subsequent hearing, O’Neill adjusted his claim to seek an award of over $546,000, plus 2,324 shares of Morgan Stanley stock. He later also sought just over $191,000 for fees and expenses, as well as nearly 465 additional shares.
As is common in arbitration decisions, the FINRA panel in this case did not provide reasons for its awards. O’Neill’s claims make it clear that he was basing his arguments at least partly on the contention that Morgan Stanley’s deferred compensation falls under the protection of federal retirement laws.
Among other things, he called on the arbitration panel to declare that Morgan Stanley’s compensation policies violate ERISA. The panel rejected that request, among others.
Instead, the arbitrators ordered O’Neill to pay $11,475 in hearing fees. Morgan Stanley has to pay the remaining $2,475 of those costs.
O’Neill’s lawyer, Matthew Baum of Fox Rothschild in New York, did not respond to a request for comment. A Morgan Stanley spokesperson declined to comment.
The JPMorgan dispute
In the JPMorgan case, Dean received not only $696,000 for back wages but also just over $121,000 in interest and about $300,000 for attorney’s fees. The total of roughly $1.12 fell short of the approximately $1.4 million Dean had initially sought.
As in the Morgan Stanley case, the arbitration panel in the JPMorgan case did not provide reasons for its decision. Rather than allege violations of ERISA, Dean accused JPMorgan of breaching California’s labor code and laws barring unfair competition, breaching the implied covenant of good faith and fair dealing and of obtaining unjust enrichment.
Neither Dean nor his lawyer, Barry Lax of Lax & Neville in New York, responded to requests for comment. A JPMorgan spokesperson declined to comment.
Wins and losses in recent deferred comp cases
JPMorgan has not yet figured in the recent string of arbitration and court cases advisors have filed seeking payment of deferred compensation. Morgan Stanley, in contrast, has been at the center of many such cases, with mixed results.
In April 2024, it was ordered by an arbitration panel to pay more than $3 million claimed by seven advisors who had left to go to various firms. Two months later it was told to pay $1.1 million to a pair of ex-advisors who had joined Ameriprise.
In February this year, though, a three-member FINRA panel denied ex-Morgan Stanley broker Jeffrey Zapoleon’s claim for $1.2 million, which he said he was still owed after leaving to join Wells Fargo in 2019. In January, Morgan Stanley prevailed against two former brokers who were seeking an unspecified amount of deferred compensation. And in June 2024, Morgan Stanley beat back eight ex-advisors’ attempt to wring roughly $850,000 in deferred comp out of the firm.
Morgan Stanley has also unsuccessfully sought to have federal courts overturn a U.S. district judge’s opinion that its deferred compensation policies do indeed fall under the guarantees of federal retirement law. In a decision handed down in November 2023, Judge Paul Gardephe of the Southern District of New York found that the firm’s deferred comp does fall within ERISA.
Morgan Stanley has tried twice to have the ruling either overturned or clarified, once by going before Judge Gardephe again and once before the U.S. Court of Appeals for the Second Circuit. Both attempts have failed.
In seeking to have Gardephe reconsider his opinion, Morgan Stanley argued that he had never been asked to weigh in on the applicability of ERISA to its deferred compensation policies. Instead, the firm said it had merely asked Gardephe to affirm that its disputes with its former brokers should proceed before arbitration panels, rather than in the regular court system.
Gardephe’s opinion about ERISA and Morgan Stanley’s deferred compensation policies does not set a formal precedent that in any way binds the arbitrators overseeing the firm’s disputes with its ex-employees. Even so, lawyers for Morgan Stanley have argued that Gardephe’s ruling is likely to be cited in these cases and could nonetheless exert a strong influence.
