Financial Advisor IQ (March 2, 2020) - LPL Financial and Ameriprise have been accused of unfairly deducting expenses from the commissions of a Beverly Hills-based advisor, who says his worker status was misclassified and he is owed reimbursement, according to a recently filed lawsuit.
John Quinn is suing both independent broker-dealers for violation of California laws and is seeking to add similarly-affected advisors to the lawsuit, court filings show.
Quinn lodged his claim against Ameriprise in January. BrokerCheck records show he was listed with the firm from 2012 to early 2019.
He worked at LPL from May to October of last year, and filed his claim against that firm in February.
The lawsuits, lodged in California state courts, call into question the essence of the independent B-D model and could open the door for similar claims against other IBDs in the state, lawyers say. Quinn's claims could also trigger lawsuits addressing the treatment of expenses in other jurisdictions.
Central to Quinn’s claim is that although he worked in the independent channels of both LPL and Ameriprise, under California state law, he was in fact an employee.
“They have attracted these reps with notions of higher payouts, but the fact of the matter is LPL and these other firms, like Ameriprise, for instance, all they’ve done is pushed their overhead items onto these folks under the guise of being independent contractors,” says Edward Wynne, an employee rights attorney at Larkspur, Calif.-based Wynne Law Firm, who is part of the team representing Quinn in both cases. “[W]e maintain that certainly under California law that classification is illegal.”
James Clapp, of Carlsbad, Calif.-based Clapp & Lauinger, also represents Quinn in the claims.
The complaints aim to cover all financial advisors, financial consultants, securities brokers, stock brokers, investment advisers or investment representatives working for LPL or Ameriprise in the state of California who have been similarly affected by the companies’ policies.
California law requires employers to reimburse expenses deemed necessary to effectively do one’s job.
Costs often absorbed by advisors affiliated with indie BDs, such as office rental, support staff, travel expenses, licenses and professional fees, are examples of “reasonable and necessary” expenses critical to doing the job, Quinn claims.
He argues that because he did not perform work outside of the firms’ business, was required to be affiliated with the firms' brands in public and because the companies had certain control over his work, he is an employee under state law.
LPL spokeswoman Lauren Hoyt-Williams says that Quinn was a contractor, not an employee.
A written statement from Ameriprise says the case is meritless and that the company has filed a motion to dismiss.
“Mr. Quinn chose to affiliate with our firm as an independent contractor, and we appropriately classified him that way. If he wanted to be an employee, he could have joined our employee channel, which is an option we make available to all of our advisors,” the Ameriprise statement provided to FA-IQ says. “The fact that he has filed a similar lawsuit against another firm speaks for itself.”
More litigation in store for IBDs?
Varying regulations across states could mean more litigation.
“There are some states [where] what LPL and Ameriprise did arguably violates state law,” says Andrew Stoltmann, a Chicago-based plaintiff lawyer, who is not involved in the case and did not speak to the merits of Quinn's claims.
“But there are a lot of exceptions and there are a lot of caveats,” he said.
“I think a genie is kind of getting out of the bottle a little bit. And I would be shocked if you don’t see other brokers in other states against other firms filing very similar litigation,” says Stoltmann, who is also a director and past president of the Public Investors Arbitration Bar Association.
Matthew Thibaut, of Palm Beach County, Fla.-based Haselkorn & Thibaut, says that if the classification of advisors and the way their expenses are handled were in question, “either state regulators or federal regulators would have taken issue with this a long time ago.”
But if such cases get traction, it could create a “dangerous precedent” where firms could be targets of such litigation, potentially in states with more “liberal” labor laws, such as New Jersey and Massachusetts.
Wynne also represented plaintiffs in that case, though he says that the claims are different from Quinn’s.
In that case, there was no question that the FA at the heart of the Morgan Stanley case was an employee, Wynne notes.