Mega-RIA Edelman Financial Engines Pursues Departing Advisors
Edelman Financial Engines, the largest fee-only registered investment advisory wealth management firm with over $200 billion in assets under management, has taken a page from big brokerage firms that try to prevent departing brokers from soliciting clients at their new firms.
The firm has sought restraining orders and millions of dollars worth of damages from at least three advisors and/or their new firms since September, alleging that they violated their contracts by taking proprietary information with them to new firms and soliciting their former clients.
Edelman, which merged with Financial Engines last July, won a restraining order in January against two Cleveland-area advisors who joined Stratos Wealth Advisors.
But a Financial Industry Regulatory Authority arbitration panel last month turned the tables on Edelman. It dismissed the firm’s September 2018 request for more than $3.2 million in damages and attorneys’ fees from an advisor who joined Virginia-based RIA Cary Street Partners, and ordered it to pay him and Cary Street $160,000 plus interest. It also denied Edelman’s request for a permanent injunction against the broker.
In a third case filed in January and decided by a Kansas county court judge last month, Financial Engines lost a request for a temporary restraining order against a Minnesota advisor who left in February to join Gladstone Wealth Group, an investment advisory firm affiliated with LPL Financial.
“These cases are an effort to chill the behavior of others, just like the flurry of cases that Morgan Stanley filed after it withdrew from the Protocol [for Broker Recruiting],” said Sharron Ash, a lawyer at Hamburger Law Firm, which specializes in RIA employment cases. “It’s about telling Edelman advisors that you better be careful, this is a treacherous path.”
Ash represents Darin W. Pilacinski, the Woodbury, Minnesota advisor who left Edelman in February for Gladstone.
The victorious advisor who received $160,000 in his arbitration counterclaim in March was Raymond J. Reibel II, of Glen Allen, Virginia. He had requested $200,000 for Edelman’s alleged breaching of arbitration and confidentiality clauses in a contract he signed in exchange for a $60,000 bonus, according to the arbitration award.
The lawsuits from Edelman parallel those from large discount brokerage firms that have been pursuing brokers who leave the firms for rivals and contact former clients in alleged breach of their employment contracts. Charles Schwab & Co. last week sought a restraining order from a New Jersey federal court against two of its former brokers who joined Morgan Stanley on March 29.
In denying a restraining order against Pilacinski, the advisor who joined Gladstone, the Kansas judge wrote that Edelman’s attempt to gag him “would be adverse to public interest in that the clients formerly serviced by Pilacinski who might wish to continue to do business with him will not be able to do so.”
Edelman, which is not a Finra member, continues to seek a permanent injunction and damages in the case. W. Perry Brandt, a partner at Bryan Cave Leighton Paisner who represents Edelman in the Pilacinski case, declined to comment.
Both Pilacinski and the Minnesota advisors who were ordered to refrain from soliciting Edelman clients for two weeks were formerly affiliated with The Mutual Fund Store, the mass-market RIA that Financial Engines bought in 2016, two years before Edelman and Financial Engines merged.
The advisors, Erik Harpsoe and Brian K. Fowles, resigned from Edelman in January to join Stratos and are now fighting Edelman’s request for a permanent injunction. Their Kansas-based lawyer, Anthony Rupp, did not return a call for comment.
A spokeswoman for Edelman Financial Engines did not return a request for comment on the individual cases or on its broader litigation strategy against departing brokers.