February 23, 2024

Nearly seven years after the failure of a succession plan for an affiliate of Cetera Financial Group, an FINRA arbitrator has ruled that its regional director is liable for more than $500,000.

Betsy Jo Merritt wins $512,500 in incentives Janice G. and John D. Cartwright of CLG Wealth Management in Long Beach, Calif., seek damages after accusing Cetera Advisor Networks regional directors of tortious interference with contract, breach of fiduciary duty, fraud, negligence and state business law.

financial plan Arbitration documents obtained say that when Cartwrights recruited two advisors from the Merritt Group, Merritt’s agreement to sell her affiliate, also known as the Office of Supervisory Jurisdiction, for $2.1 million to then-Cetera financial advisor Joseph E. Singleton was rejected. Undercut to their own company. Merritt spoke to FP in his first public comment on the case since the January arbitration award.

“If you buy a branch and you run it for 20 years, it’s your property,” Merritt said. “If there is a contract, don’t interfere.”

The Cartwrights have called their office multiple times in recent months without a response.

A representative for Cetera, who was originally a defendant in the Merritt case before Merritt voluntarily dismissed the claim against the independent wealth manager as part of the November 2022 settlement, declined to comment. They cited company policy against discussing legal issues.

when mergers go bad
Merritt’s case highlights the M&A deals that never materialized. It also shows the complexity of the brokerage business, which is structured to include regional directors as a separate layer between the advisory business and the corporate office In addition to the branch network.

The Independent Adviser’s Affiliate is a network of practices linked together as a team led by the Manager of the Regulatory Jurisdiction Office. In exchange for a portion of business revenue, OSJ provides compliance, technology and other infrastructure. Other advisors choose to receive oversight from the corporate office rather than join OSJ.

In Merritt’s case, where she is an OSJ manager and part of the Cartwrights region, it is “an outdated model, more common among captive broker-dealers” that enables directors or vice presidents to receive spread payments based on asset levels, Often, according to recruiter Jon Henschen, there’s also a salary Henderson Law Firm.

“The Cartwright family deliberately sabotaged Ms. Merritt’s career by seducing her advisors and hindering her ability to conduct business,” he said in an email. “Cartwrights also overstated the likelihood that Ms. Merritt’s business could be sold to Mr. Singleton, as two of her consultants were lured away. This should also be a cautionary tale, don’t work for a firm with a regional manager or RVP, which will Adds an extra layer of potential conflict of interest.”

Building on Mother’s Legacy
Merritt, whose mother, Mary Merritt Rhea, died untimely from leukemia, took full ownership of the branch in 2004 and was the first in San Diego to be certified of women financial planners and has been in the consulting business since 1972. Merritt helped out in her mother’s office from her early teens until she became a consultant herself and bought Rhea’s business partner. Eventually, at least four other consultants joined the branch, which has been part of the Cartwright region since the 1980s. In 2015, with the approval of John Cartwright, she began exploring her successor options and selected Singleton as the buyer for the branch, the documents said.

“When defendants voluntarily canceled plaintiffs’ plans to demand that Betsy Merritt sell her business to Joseph Singleton, they were not merely interfering with the contract, they were destroying a dream,” according to the statement of claim. “They seized a family-owned clinic for 44 years and tore it to shreds for their own benefit.”

In December 2015, Merritt and Singleton signed a binding letter of intent requiring her to sell the branch, which received a $1.9 million valuation at an appraisal the following month. Before they made the deal, though, John Cartwright recruited two of the affiliate’s top consultants for direct OSJ in the same area as he and his wife, with the promise of higher compensation, the filing said. . By that fall, the advisors had changed their OSJ and Singleton, who, according to the statement of claim, “had seen the writing on the wall and knew there was no longer any reason to buy Ms. Merritt’s business,” had left. Cetera.

“They gave them more money,” Merritt said. “Everything is done according to the agreement.”

Merritt and Singleton later sought $10.8 million in damages in a May 2018 filing in FINRA arbitration. Merritt said the deal’s fallout “really disappointed” Singleton and Merritt, who have both retired from the industry. She sold her advisory business to Verus Capital Partners, a San Diego-based registered investment advisory firm, and now spends much of her time sailing on her ship, the “Ali’i Kai.”

“The most important thing (at least to me) is that independent firms like Cetera recruit brokers by telling them to own their business, and unlike traditional broker-dealers, they can sell their business to do so,” her attorney, Steve A. Buchwalter, said in an email.

“Brokers have worked for these companies for decades, as Merritt has, and believe they have a retirement strategy because of those commitments,” he added. “In our case, just as Betsy was about to retire and arrange for a buyer to set up, Cartwright from the Cartwright area of ​​Cetera stole her branch. Everything that Betsy had built all her life was stolen by Cartwright in a short time.” Hearing On the show, Cartwright admitted he didn’t have the right to do what he did, but he did it anyway.”

The decision earlier this year to order Cartwrights to pay more than $500,000 gave Merritt some level of understanding of the situation, she said.

“The feeling of relief is that it’s over. It’s been extremely devastating emotionally and financially,” Merritt said. “Everyone I talked to said, ‘We’ve never seen anything like this happen.'”