Advisory recruitment group loses another member as Edelman pulls out

Edelman Financial Services LLC is pulling out of the industry's recruitment pact as of June 1. The fast-growing firm, based in Fairfax, Va., joins several other mega RIA and hybrid firms that have pulled out of the pact in recent years, including Savant Capital Management Inc., Convergent Wealth Advisors and Buckingham Asset Management LLC. “None of our business units are engaged in the recruiting of brokers who have books [of business], so there's no value to us in being a member” of the recruiting pact, said chief executive Ric Edelman. The firm joined the protocol in December 2011. “We had an independent broker-dealer [and] subsidiaries that were all recruiting then, so it was a knee jerk reaction,” Mr. Edelman said of the decision to sign on. The firm has since sold the independent broker-dealer operation and is actively building branches staffed with employees who follow Mr. Edelman's financial planning process, which he promotes with public events and radio and TV shows. “We've added 15 [advisers] this year, and we're adding another 15 this year,” he said. Withdrawing from the protocol also ensures the firm's non-solicitation agreements can be enforced, Mr. Edelman added. Edelman Financial, a hybrid firm, has 33 offices around the country, and manages more than $10 billion for clients. Last July, Buckingham Asset Management LLC and Focus Financial Partners LLC also pulled out of the recruitment protocol. Buckingham signed on in late 2009 anticipating some wirehouse refugees, but found that those potential recruits ended up not moving, said chief executive Adam Birenbaum last July. The $16 billion in assets firm is focused on acquisitions in the RIA space. Focus Financial said last summer that it no longer needed to remain in the pact since its partner RIA firms could make their own determinations about joining the protocol. Another firm growing through acquisitions, Savant Capital Management, pulled out about a year ago. The firm had about $2 billion under management at the time. And Convergent Wealth Advisors, an RIA firm with $10 billion under advisement, withdrew in September 2010. Savant signed on to help land some potential wirehouse recruits, said Dick Bennett, chief operations officer. The firm got close to landing some wirehouse producers, but was not able to compete with recruitment packages offered by competing Wall Street firms, he said. Savant’s passive, fee-only model appealed to a small pool of potential broker recruits, Mr. Bennett added, and when the firm merged with the Monitor Group in April 2012, “that took away the immediate need to recruit.” Additionally, the firm wanted to ensure it could enforce its own non-compete agreements, he said. A call to Convergent was not returned. “They may have reached the same conclusion we did, that the only value from the protocol is for firms that actively recruit brokers with books,” Mr. Edelman said. “If you're not doing that, there's no value.” Still, many firms still find value in the group, which was created by several wirehouse firms in 2004. In total, 969 financial firms have joined, while only 31 have withdrawn. A large number of firms joined in the post-crisis year of 2009, when many brokers bailed from wirehouse firms. The voluntary pact, which is administered by the Securities Industry and Financial Markets Association, permits advisers to take basic customer contact information when they change firms, and is credited with averting many disputes over solicitation of customers.