Ex-Richardson investment advisers sue wealth manager over share dispute – The Globe and Mail

A group of former Richardson Wealth investment advisers have filed several lawsuits against the wealth manager, claiming that 90 per cent of their shares in the company were “unfairly” withheld after they resigned during a corporate restructuring.

According to court documents filed in Ontario Superior Court, one group of eight investment advisers is alleging that the company breached its employee shareholder’s agreement and “acted in a manner that is oppressive” when it failed to transfer their shares in Richardson Wealth to them after they voluntarily resigned between June, 2020, and September, 2020.

Two other former investment advisers, Dean Bowe and Christopher Ballanger, filed separate cases with similar allegations, accusing Richardson Wealth of failing to pay out the full amount of their company shares when they departed in July, 2020.

A spokesperson for Richardson Wealth declined to comment as the “matter is before the courts.”

Richardson Wealth is one of Canada’s largest independent wealth managers, with about 160 investment advisers. But over the past three years, it has undergone a tumultuous restructuring that began when parent company GMP Capital – which was renamed RF Capital Group Inc. – sold off its capital markets division in 2019 to become solely a wealth management company.

To do so, RF Capital had to purchase the 67-per-cent stake of its own wealth management arm – Richardson GMP – that it did not already own, giving it full ownership of the operation. In October, 2020, a majority of Richardson GMP shareholders voted in favour of the acquisition.

The deal included a requirement that 90 per cent of the RF Capital shares held by employees be placed in escrow for the next three years to prevent a mass exodus of advisers – and the assets they managed – from occurring.

But a combined group of 10 advisers, who all left prior to the closing of the acquisition, are arguing they were not aware of the escrow clause in the share purchase agreement that had been amended in 2015.

According to court filings, the advisers said the changes to the share purchase agreement were made several years after they had joined the firm when many of them had set up employment contracts that specifically did not include any non-compete agreements or restrictions on their share purchase agreement.

The dispute stems from the company’s decision in 2015 to change its employee share purchase agreement when it became apparent that, without restrictions in place, no potential buyer would offer to purchase the company’s shares at a reasonable price if its key assets – its advisers and their clients – could easily walk out the door prior to a sale closing.

To make the firm more attractive to a future buyer, the share purchase agreement was changed to include non-competition and non-solicitation restrictions, as well as an agreement that shares could be held in escrow for up to three years after a sale or restructuring of the company.

According to court documents, the new agreement permitted RF Capital to claw back 90 per cent of shares issued to any employee who left the company during the three-year escrow period and continued to work in the field of wealth management.

Margaret Waddell, a partner with Waddell Phillips, said the 90-per-cent forfeiture clause the firm has implemented is “like nothing she has seen before” and “quite extreme” for the industry.

“They are trying to handcuff advisers to their business,” Ms. Waddell said in an interview. “Even if an adviser stays beyond the period when the purchase price can be adjusted, they will be required to pay back the full amount if they leave at any point within the three-year forfeiture term.”

Richardson has denied the claim, according to court documents, stating the advisers voluntarily resigned from Richardson GMP after the restructuring had been publicly announced by a press release in February, 2020, and that the advisers knew “full well that such a decision would result in their forfeiting 90 per cent of their shares in RF Capital.”

The firm also said in court records that in addition to the press release announcing the changes, the company – during an investor relations call in February, 2020 – referenced the fact that 90 per cent of shares would be forfeited “if during the escrow period, a RGMP shareholder were to leave to compete.”

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