Ex-Cetera branch manager wins $500K over breakdown of M&A deal

22:48 02 May in In the News by rafferty

April 28, 2023

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 an award of $512,500 in compensatory damages from Janice G. and John D. Cartwright of Long Beach, California-based CLG Wealth Management after accusing the Cetera Advisor Networks regional directors of tortious interference with contract, breach of fiduciary duty, fraud, negligence and state business laws.

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.”

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 Henschen & Associates.

“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