Edelman Financial Group, one of the best known names in the financial planning industry with $18.8 billion in assets under management, is leaving the independent contractor brokerage business to concentrate on its own high net worth and mid-level clients. The move represents a major vote of no confidence in the independent broker-dealer model by an advisor who had once been as successful as any rep of an independent brokerage firm.
Ric Edelman, co-CEO and president, said some independent representatives may stay with the firm as investment advisors but most will have until the end of March 2012 to relocate their businesses.
The change, which is not expected to affect earnings for Fairfax, Va.-based Edelman Financial Group for this year, represents the last move of the firm shedding all aspects of the business other than financial planning and wealth management that was started about three years ago, he says. Previously the firm had eliminated its banking, investment and other businesses.
Edelman says the broker-dealer part of the firm was only about 1% of the business and had become "a distraction" that brought in little money. About 15 practices with 75 employees are being let go or could remain with the firm if they convert their practices to an advisory format.
Some of the legacy clients who will remain with the firm will still be under a commission system, but most now will receive fee-based services. In the future Edelman Financial will become totally a fee-based operation, he says.
Edelman says it was not worth it to him to put in the time and effort to try and sell the independent contractor business because it represents only a small part of the Edelman firm. Edelman has a total of 530 employees operating in 21 states.
The contractor representatives had become more of a distraction from what Edelman and George Ball, co-CEO and chairman, wanted and were not worth the amount of resources being required, he says.
Before becoming president of Edelman Financial Group, Edelman had built up the largest independent rep practice with Royal Alliance Associates Inc. He left there six year ago to join Sanders Morris Harris Group Inc. in Houston. Over time, he became the largest shareholder and earlier this year the firm was renamed the Edelman Financial Group.