Towry, the UK wealth advisory firm, has lost its claim of damages for alleged client poaching from seven former Edward Jones advisors and their current employer, Raymond James Investment Services.

“Having regard to the whole evidence in this case, the allegations against Raymond James do not withstand scrutiny,” Mrs Justice Cox, who gave her judgement on the case today, said.

The firm had sued the advisors and Raymond James in a case that highlighted the extent to which employment contracts of staff affected by a company takeover or other event could be enforced. The issue is a constant source of interest in the wealth management sector both in the UK and abroad. There have been several cases of litigation in such matters in recent years: in the summer of 2008, for example, a group of former UBS employees who set up the UK firm Vestra Wealth had to settle terms with the Swiss banking giant.

The Towry case, which began early last summer, saw Towry take on Raymond James and ex-Edward Jones advisors, Barry Bennett, Pieter Burger, James Chandler, Wayne Hayhurst, Stuart Hutton, Tracey Simpson and Thomas Spain. The advisors left Edward Jones for Raymond James when the UK arm of the former was taken over by Towry in 2009. The defection of the advisors to Raymond James triggered the lawsuit by Towry. 

"The judgment provides useful guidance to prospective employers of individuals subject to problematic post-termination restrictive covenants. Credit was given by Mrs Justice Cox to Raymond James because they sought early legal advice as to their position and took a series of steps designed to ensure that the individual wealth managers complied with their contractual obligations to their former employer," Ronnie Fox, principal, Fox Solicitors, said in an emailed comment to this publication after the judgement.

"The wealth managers were told in unambiguous terms that they must obtain their own legal advice and that a breach of their obligations to their former employer not to solicit clients would result in the termination of their working relationship. Further legal advice was sought by Raymond James at the time of making preliminary offers to each wealth manager. Clients who decided to follow any wealth manager were required to complete a "How Did You Hear about Raymond James" form so that any concerns as to non-compliance with the covenants could be raised immediately. Mrs Justice Cox rejected any suggestion that this was "no more than a cynical ploy, designed to give the misleading impression that any possible solicitation was being checked and monitored," Fox added.

Mrs Justice Cox noted “that the identity of their financial advisor and the trust and loyalty towards someone with whom they had a close, personal and professional relationship was of paramount importance to many Edward Jones clients. In my judgement Towry seriously underestimated the importance of these factors in the case”.

“The important fact, as it seems to me, is that while both companies were providers of financial advice and services, the proposition was very different from that offered by Edward Jones,” the judge said.

The past 12 months have been mixed for Towry. In September last year, Towry Investment Management, part of Towry, was fined £494,000 (around $770,000) for giving misleading information to the Financial Services Authority, the UK regulator.

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Raymond James Investment Services, part of the US-headquartered Raymond James' wealth management group, was unsurprisingly pleased at the results.

“The judgement confirms that the advisors did not breach their restrictive covenants, that there was no misuse of confidential and there was no conspiracy to injure Towry EJ,” Peter Moores, chief executive at Raymond James Investment Services, said in a statement. He continued: “We are grateful to the 18 clients from all over the country who took the time to come to the High Court to tell their side of the story.”

“In addition to the claims being dismissed, the defendants were awarded all of our costs. Mrs Justice Cox further ordered that those costs be awarded on an indemnity basis. Such an order in a case of this nature is exceptional and demonstrates the criticism of Towry by the judge and her dissatisfaction that certain elements of the claim were pursued at all.”

Towry said it was understandably disappointed at the judgement. “We consider that the judgment provides useful guidance for professional services firms wishing to protect their legitimate business interests,” the firm said in a statement.

“The judge found that client names, addresses, contact details and investment requirements are confidential information. She also found that non-solicitation and non-dealing clauses are ‘reasonable’ contractual clauses and that in general, they are appropriate and enforceable for the ongoing protection of the commercial interests of businesses like ours and other professional services firms. In our case, the judge concluded that we did not have sufficient evidence to prove that the contractual non-solicitation clause had been breached,” Towry said.

Andrew Fisher, Towry chief executive, added: The contracts of the former Edward Jones employees were materially different to our standard Towry contracts in that they did not contain a ‘non-dealing’ clause and we are confident that our current Towry contracts afford us appropriate commercial protection.”

Towry oversees a total of £4.5 billion ($7.1 billion) of discretionary client assets (as at 30 June 2011). Raymond James Investment Services has £2.63 billion of client assets.