Nearly seven years after a Cetera Financial Group branch's succession plan fell apart, FINRA arbitrators held its regional directors liable for damages of more than a half a million dollars.
Betsy Jo Merritt won
Financial Planning obtained the arbitration filing alleging that an agreement for Merritt to sell her branch, also known as an office of supervisory jurisdiction, to a then-Cetera financial advisor named Joseph E. Singleton for $2.1 million was undercut when the Cartwrights recruited two advisors from Merritt's group to their own firm. Merritt spoke with FP in her first public comments about the case following the January arbitration award.
"If you bought a branch and you've run a branch for 20 years, it's your property," Merritt said. "You don't interfere when you have a contract."
Cetera was originally a defendant in Merritt's case before she voluntarily dismissed the claims against the independent wealth management firm as part of a November 2022 settlement.
The lawyer representing the Cartwrights, Sam Edgerton of O'Hagan Meyer, said that they're appealing the full payment of the damages ordered by the award based on the terms of Cetera's settlement with Merritt. He pointed out that the arbitrators dismissed Singleton's claims in their entirety.
"The FINRA arbitration award doesn't get into reasoning," Edgerton said. "We argued that she brought on the problem herself by underpaying these two gentlemen who were rising superstars, and that's what happens. You've got to pay them what they're worth."
Representatives for Cetera declined to comment. They cited a company policy against discussing legal matters.
When M&A turns bad
Merritt's case underscores the lengthy litigation that can arise in the wake of
An independent advisor's branch is a network of practices linked together as a group that's led by the manager of the office of supervisory jurisdiction. In exchange for a portion of the practice's revenue, the OSJ provides compliance, technology and other infrastructure. Other advisors choose to be supervised by the corporate office rather than joining an OSJ.
In Merritt's case, she was an OSJ manager and part of the Cartwrights' region, which is "a dated model more common with captive insurance broker-dealers" enabling the directors or vice presidents of receiving spread payments based on the level of assets and usually a salary as well, according to recruiter Jon Henschen of
"The Cartwrights purposely sabotaged Ms. Merritt's career by enticing away her advisors and hindering her in her ability to process business," he said in an email. "The Cartwrights also blew up the potential sale of Ms. Merritt's practice to Mr. Singleton, since her two advisors were lured away. This should also be a cautionary tale of not being at a firm with regional managers or RVPs which adds an additional layer of potential conflict of interest."
Building on a mother's legacy
Merritt acquired full ownership of the branch in 2004, upon the untimely death from leukemia of her mother, Mary Merritt Rhea, who was the first female certified financial planner in San Diego and started the advisory practice in 1972. Merritt helped out in her mother's office from her teenage days before becoming an advisor herself and buying out Rhea's business partner. Eventually, at least four other advisors joined the branch, which had been part of the Cartwrights' region since the 1980s. In 2015, she began exploring her succession options and picked Singleton as the buyer of the branch, with John Cartwright's approval, the filing stated.
"When the respondents took it upon themselves to dismantle claimants' plan for Betsy Merritt to sell her business to Joseph Singleton, they did not simply interfere with a contract, they destroyed a dream," according to the statement of claim. "They seized a practice that had been family-owned for 44 years and tore it to pieces for their own gain."
In December 2015, Merritt and Singleton signed a binding letter of intent for her to sell the branch, which received a valuation of $1.9 million in an appraisal the following month. Before they could carry out the transaction, though, John Cartwright recruited the two top-producing advisors in the branch to him and his wife's direct OSJ in the same region with promises of a higher payout, the document stated. By that fall, the advisors changed their OSJ and Singleton, who "had seen the writing on the wall and knew there was no longer any reason to purchase Ms. Merritt's business," had left Cetera, according to the statement of claim.
"They offered them more money," Merritt said. "Everything was done out of protocol."
Merritt and Singleton later sought a combined $10.8 million in damages as part of their May 2018 filing in FINRA arbitration. The breakdown of the deal "really disenchanted" Singleton and Merritt, who have each since retired from the industry, Merrit said. She sold her advisory practice to a San Diego-based registered investment advisory firm called Verus Capital Partners, and she now spends a great deal of her time sailing on her boat, "Ali'i Kai."
"The most important thing (at least for me) is that independent firms like Cetera recruit brokers by telling them that they own their own business and that, unlike with traditional broker-dealers, they can sell their business when they retire or otherwise see fit to do so," her lawyer, Steve A. Buchwalter, said in an email.
"Brokers work for those firms for decades like Merritt did, believing that they have a retirement strategy due to those promises," he added. "In our case, right when Betsy was about to retire and had a buyer set up, Cartwright, of the Cartwright region at Cetera, stole her branch. Everything that Betsy spent a lifetime building was stolen in a short time by Cartwright. At the hearing, Cartwright admitted that he had no right to do what he did, but did it anyway."
The decision earlier this year ordering the Cartwrights to pay more than $500,000 brought a degree of closure to Merritt about the situation, she said.
"The sense of relief is, it's over. It's been very damaging emotionally and financially," Merritt said. "Everyone I've ever talked to says, 'We haven't seen something like this happen, ever.'"
