Financial advisers fired for ‘pre-planned hijacking’ of previous employer

Ten former employees of financial services provider Adviceworx (Pty) Ltd, who resigned en masse to perpetrate “a pre-planned hijacking of a part of the business” by together joining a rival company and taking their clients in breach of their restraint-of-trade agreement, have all lost their new jobs. 

The labour court found that they had acted in concert, been dishonest in resigning together, stealing private information from Adviceworx (ADX) and unlawfully pulled clients away to their new company, Wealth Associates (WA), leading to huge losses for ADX. 

The consequences for this, acting labour court judge Sean Snyman found, are that they may not be employed by WA for a year, they may not interact with any clients they had while employed at ADX and they may not contact or try to recruit any other ADX staffers. 

This comes after ADX applied to the court for the enforcement of restraint-of-trade covenants and confidentiality undertakings against the 10 former employees who all resigned on August 31 last year and on October 1 began working for two other financial services providers that are direct competitors. 

“The respondents perpetrated an act of unlawful competition. There was a huge loss of clients ... and the respondents sought to rely on several false or unsustainable defences in trying to escape the consequences of the restraints of trade. There was even the brazen act of inserting an external hard drive into the ADX server and copying the client database for later use,” Snyman said in his scathing judgment. 

ADX sought the interdict against former employees Kirsten Andrew Roux, Rui Alexandre Santos Da Costa, Willem Petrus Maass, Hannes van Huyssteen, Jacobus Frederick van den Berg, Sean Mark Field, Sven Ulf Wilson, Lynda Jane Woodhead, Jason Hill and Christopher John Osmond. It also cited competitors Wealth Associates South Africa, Wealth Associates Central, Carmel Wealth and trustees of the Kanga Trust, which are all linked and involved.

ADX asked that the 10 former employees be prevented from continuing their employment with Wealth Association and Carmel Wealth, that they be barred from soliciting business from any ADX clients, that they be barred from approaching any ADX staff with employment offers and that they be barred from sharing any of ADX’s confidential information with any third parties.

No action was sought against their new employers who were cited in the action only because of their interests in the matter. 

However Marc du Plooy, group MD and CEO of WA, joined the 10 in opposing the application. 

Snyman found that despite the volume of evidence presented, the case was not complicated. ADX, he said, provided investment advisory services and products on behalf of clients. This was done through individual advisers, specialists and planners it employed to market, administer and maintain investment portfolios for its clients. 

“According to ADX, what makes its business unique is that its model places a premium on quality advice outcomes for clients rather than product or sales-driven models,” he said. 

ADX employs 110 dedicated financial advisers and portfolio managers in 55 offices in Gauteng, the Free State, the Eastern Cape, the Western Cape, KwaZulu-Natal and Mpumalanga and is an entity of the Old Mutual Group. The business was built over 10 years. It adopted a financial adviser acquisition model to recruit financial advisers and acquire their individual practices as part of the larger ADX business, allowing individual advisers to grow their own practices.

ADX said within days of the mass resignation, it sent out letters reminding the individuals of their restraint and confidentiality undertakings and reminding them they had an option to buy out their respective practices. The letters were ignored and meeting requests sent out to them were rejected

Recruited financial advisers are required to sign an employment contract and conclude an ownership participation agreement recognising the value of their practice and allowing them to acquire a stake in ADX. An added mechanism made provision for them to buy themselves out of ADX should they wish to leave, with a prescribed formula determining the purchase price. 

ADX operates in the “fiercely competitive” financial services industry and had developed its own successful but private business model. 

While the former employees did not deny ADX’s description of the business, they said there was “nothing proprietary in it” and the company’s internal dashboard was “of little use to other FSPs” and its tools and systems were “widely used off-the-shelf solutions”. 

Their new employer, WA, is a privately owned client-facing financial advisory and wealth management business offering the same kind of products and services, also through financial advisers. 

WA is a wholly owned subsidiary of Carmel, established in April 2023 by Ryno de Kock, the group CEO and co-founder. He is a former ADX executive who left the business in May 2020 and is still in litigation with ADX.

He told the court that the 10 employees who joined WA from ADX were estimated to manage approximately R2.5bn in portfolio values for clients. He had had prior relationships with most of them. Eight of these employees had been ADX financial advisers. Hill had been ADX’s partnership director and Osmond was a para-planner. All 10 had signed similar restraint-of-trade covenants and confidentiality undertakings with ADX. 

“There can be little doubt that all the individual respondents had unfettered access to ADX’s confidential information during their employment ... None of this information is in the public domain, is proprietary, and would only be known by the individual respondents by virtue of their employment with ADX. The individual respondents would also have knowledge of confidential product provider agreements,” Snyman said. 

All had been able to grow their practices while at ADX:

• Roux’s asset growth had gone from R231m to R681m and clients from 169 to 324;
• Da Costa's practice had an asset growth from R56m to R387m, with an increase in clients from 135 to 304;
• Maass's practice saw asset growth from R93m to R222m, with an increase from 111 to 233 clients;
• Huyssteen's practice saw an asset growth from R22m to R90m, with an increase in clients to 116;
• Van den Berg's practice had an asset growth from R157m to R280m, with an increase in clients from 195 to 356;
• Field's practice saw asset growth from R179m to R404m, with an increase in clients from 88 to 249;
• Wilson's practice saw an asset growth from R104m to R163m, with an increase in clients from 71 to 124; and
• Woodhead's practice had an asset growth from R54m to R88m, with an increase in clients from 14 to 25. 

Hill and Osmond did not have individual practices but had improved their incomes through advice fees. 

“Turning now to where the rubber meets the road, on August 31 2023, 23 employees of ADX resigned, which included all the individual respondents,” Snyman said, adding that this occurred without warning. After intervention by ADX, five of the employees retracted their resignations.

He noted that all those who moved to WA had submitted similarly worded resignation letters within hours of each other on the same day. “On face value, there is little doubt that this was a concerted and co-ordinated act. Their notice period would expire on September 30 2023, which is when their employment with ADX would terminate.”

But the employees all claimed this had been a series of individual choices by each of them, all for different reasons — among them disagreements over company shares and allegations of hostile working conditions. 

ADX said within days of the mass resignation, it sent out letters reminding the individuals of their restraint and confidentiality undertakings and reminding them they had an option to buy out their respective practices. The letters were ignored and meeting requests sent out to them were rejected. 

ADX lawyers recorded their last day of work as September 29 2023 and no buyout options had been taken up. A written undertaking was sought from each asking for assurance that they would adhere to their contractual obligations. 

It was then established that during their notice month, the new WA employees had sent notifications to each of their clients directly, in their own names, indicating that they were leaving ADX for a new opportunity. In October other ADX advisers were allocated to take over the resigned employees’ clients and told to inform them that the advisers had left. 

“Out of the approximately 1,500 e-mails sent to such clients, approximately 250 directly indicated that they elected to follow the respondents to WA,” the court heard.

The former employees then sent a legal letter to ADX informing that they had all moved over to WA, but that none of them would directly ask any of their clients from the ADX client base to move over to them, they would not “advise clients to divest any investments with ADX” and they would not recruit any more ADX staff. 

They had received good money from ADX for bringing their clients into ADX. They, however, collectively decided to exit ADX and take their client books with them. They took a concerted effort to copy all ADX’s confidential information prior to their departure, in order to utilise the same at their new employer

—  Labour court judge Sean Snyman

The former employees said they had returned all client information belonging to ADX in their possession and would delete any “inadvertently possessed information in any cloud-based storage or private e-mail accounts”. 

ADX rejected these undertakings as insufficient and later provided evidence of the former employees’ efforts to access its client base.

ADX said of the 1,918 clients serviced by former employees during their employment with ADX, 820 clients terminated their relationship with ADX and moved to WA and another 433 clients retained only a partial mandate with ADX.

The value of the lost client portfolios was almost R800m. 

Snyman said he had never encountered a company CEO “entering the fray to oppose the application”, depose the answering affidavit himself with the individuals involved simply signing confirmatory affidavits 

“It certainly lends support to the contention that the individual respondents, as well as WA and Carmel, have at all times acted in concert. 

“They had received good money from ADX for bringing their clients into ADX. They, however, collectively decided to exit ADX and take their client books with them. They took a concerted effort to copy all ADX’s confidential information before their departure, to use the same at their new employer.”

If allowed to remain in the employ of WA, he said, they “will still reap benefits from what is nothing else but unlawful conduct” that would be impossible for ADX to police. 

Snyman said ADX was within its rights not to accept any undertakings by the former employers that they would behave ethically. For this reason, the individuals were:

• to be interdicted and restrained from working for WA in any capacity for 12 months;
• not to incite any ADX employee to resign from the company;
• not to share any information of any ADX employees with any prospective employer;
• barred from interfering with any ADX clients they have previously worked with and from canvassing business from any these clients; and
• interdicted from divulging any ADX trade secrets or confidential information. 

WA was interdicted and restrained from offering jobs to any ADX employees for 12 months and from rendering any services to clients that had previously done business with the former ADX employees they had hired. 

The employees and WA were ordered to pay ADX’s legal costs.