In a significant legal move, Kelly D. Milligan, a former broker, has launched a class action lawsuit against Merrill Lynch over what he claims is the illegal withholding of deferred compensation following his departure from the company in 2021. This case adds to a growing list of similar disputes within the financial industry, with notable precedents including a $79 million settlement against Wells Fargo and an ongoing claim against Morgan Stanley.
The Wells Fargo case revolved around similar issues, where former employees claimed that the company’s deferred compensation plans violated ERISA. The plaintiffs argued that Wells Fargo’s practice of requiring forfeiture of deferred compensation if an employee left for a competitor was unlawful under ERISA’s rules.
The lawsuit ultimately led to a substantial settlement in 2019, where Wells Fargo agreed to pay $79 million to settle the class action. This settlement was significant not only for the monetary relief provided to the class members but also as it set a precedent regarding how deferred compensation plans might be viewed under ERISA moving forward.
Morgan Stanley faced legal scrutiny for its deferred compensation practices, which were challenged as being in violation of the Employee Retirement Income Security Act of 1974 (ERISA). The key issue was whether Morgan Stanley’s deferred compensation plan should be treated as an ERISA-governed plan, which would impose stricter regulations and protections for employees, including anti-forfeiture provisions.
In November 2023, a New York federal judge ruled that Morgan Stanley’s deferred compensation plan likely fell under ERISA guidelines. This was a significant decision because it supported the claim that such compensation should not be forfeited under the terms Morgan Stanley had set, which often resulted in employees losing a portion of their deferred compensation if they left the company before certain conditions were met.
Following this ruling, a panel ordered Morgan Stanley to pay $3 million to seven former brokers, marking a significant victory for employees challenging the forfeiture provisions of their deferred compensation arrangements.
Who is Kelly Milligan?
Kelly Milligan’s professional journey is marked by a commitment to client-first service. After over two decades at Merrill Lynch, where he developed a significant client base and contributed robustly to the firm’s operations, Milligan took a bold step. He left to co-found Quorum Private Wealth, aiming to offer a fully independent platform that puts clients’ interests first. His extensive advisory experience spans various critical areas of wealth management, from portfolio construction and tax minimization to wealth transfer and philanthropic giving. Milligan’s lawsuit against Merrill Lynch not only highlights his own grievances but also casts a spotlight on wider industry practices that affect many other financial advisors.
Legal Framework and Allegations
At the heart of the lawsuit is the claim that Merrill Lynch’s deferred compensation scheme falls under the Employee Retirement Income Security Act of 1974 (ERISA), which includes specific anti-forfeiture provisions. The plan, according to the complaint, unfairly withholds compensation that should legally be protected under ERISA because it is structured similarly to retirement benefits, which are vested and accessible upon retirement, layoffs, or disability. Merrill Lynch counters that their WealthChoice Plan is not governed by ERISA, asserting their compliance with all relevant laws.
Implications for Brokers Nationwide
If the court sides with Milligan, the implications could be profound not only for him but for potentially thousands of Merrill Lynch advisors. The lawsuit seeks to recover forfeited deferred compensation for all former Merrill Lynch financial advisors who left the firm since April 30, 2018, under similar circumstances—a class that could include many individuals. For Merrill Advisors, you can keep a close eye on all things Merrill via the Pulse we’ve created.
While the case was filed in the Western District of North Carolina, its outcomes are expected to have nationwide implications, impacting Merrill Lynch advisors across the United States, not just in Michigan. This lawsuit could set a precedent for how deferred compensation plans are treated under ERISA, influencing not only current practices but also how financial advisors think about their career moves and compensation structures in the future.
Merrill Lynch is no stranger to legal challenges. Over the years, the company has been involved in various lawsuits that question its financial practices and treatment of both clients and employees. These lawsuits range from issues regarding the unreasonably low interest rates paid on retirement account holders’ cash balances to misrepresentations in the sales of financial products like variable annuities. Each case underscores ongoing scrutiny over how Merrill Lynch manages its financial products and compensates its brokers and clients. This backdrop of frequent litigation adds context to the current class action lawsuit led by Kelly Milligan, painting a broader picture of a firm repeatedly challenged over its ethical and legal standards in business operations.
This history might be particularly relevant to current and former Merrill Lynch advisors across the country, as it highlights the firm’s ongoing legal battles that could influence their careers and financial decisions. The outcomes of these cases, including the one initiated by Milligan, could lead to significant changes in how Merrill Lynch and similar firms manage broker compensation and client investments. These developments are crucial for anyone affiliated with Merrill Lynch or the brokerage industry at large, providing key insights into the firm’s legal landscape and its potential implications for employment and investment practices.
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