Giant RIAs in old-fashioned donnybrook for advisors and clients

Edelman Financial Engines is suing Mariner Wealth Advisors, alleging that Mariner is poaching its clients and running Edelman out of business.

DEC 04, 2023

By Bruce Kelly

It’s a story that sounds right out of the booming 1990s retail brokerage industry, when wolves roamed Wall Street right next to the bulls and bears, looking to snatch up brokers from rivals.

One industry giant poaches financial advisors from a top competitor, leaving the rival spitting mad. The aggrieved firm is ready to go to war over proprietary information, namely clients and client leads, it claims to have lost. So this firm goes to court and files a complaint seeking damages.

This was a common occurrence up until 2004, when a truce of sorts was declared among large brokerage firms. Before the agreement, called the Protocol for Broker Recruiting, was established, large national firms would routinely sue advisors and each other when brokers were recruited and left one broker-dealer to work at another.

Firms filed temporary restraining orders and froze client assets during the litigation, hoping to persuade some of the advisors’ clients to stay. It created an unwelcome mess for clients and the broader industry.

But this isn’t a story of a broker-dealer conflict. It’s one giant financial planning and registered investment advisor firm, Edelman Financial Engines, with $291 billion in client assets, alleging that another industry giant, Mariner Wealth Advisors, with $110 billion in assets, is poaching clients and running Edelman out of business.

Edelman Financial Engines’ complaint alleges that Mariner is stealing its trade secrets, interfering with contracts, defaming the firm’s reputation, and stealing the fruits of its marketing work and goodwill. Edelman is seeking damages, alleging that Mariner has hired 10 Edelman planners and taken 851 clients with $621 million in assets under management.

Perhaps most shocking is Edelman’s claim that Mariner has it in for the firm.

“Mariner has openly stated that its purpose is to ‘run Edelman out of business’ though these unlawful and predatory actions,” alleges the lawsuit, which was filed Nov. 17 in U.S. District Court in Kansas, where Mariner is based in Overland Park.

Broker-dealers are still suing each other over similar trade disputes. But for decades, the RIA industry has characterized itself as being above such frays, with financial advisors at such firms focusing solely on the needs of their clients.

It appears that contract disputes involving financial advisors at RIAs are increasingly coming to the fore as the industry continues its rapid growth, making it look much more like the brokerage industry of decades past, when a broker could leave one firm for another on a Friday only to be sued by the old firm the next Monday.

“We plan to litigate this matter vigorously in order to protect the significant investments [Edelman Financial Engines] makes to grow business and provide our clients with the security, privacy, and superior investment advisory and financial planning services that they have come to expect from us,” an Edelman spokesperson wrote in an email.

Mariner Wealth Advisors did not return calls to comment.

Edelman Financial Engines’ charges against Mariner Wealth sound like an old-fashioned brokerage industry battle for clients. Aren’t RIAs supposed to be high-minded fiduciaries and not get in the muck that this complaint alleges?

“Financial advisors need to be careful when they are signing employment and work agreements,” said Jodie Papike, CEO of Cross-Search, a third-party recruiting firm. “The large RIA firms spend a lot of time and money on marketing and prospecting clients. We’re increasingly seeing this type of conflict, especially out of these aggregator RIAs.

“The structure is, the RIA owns the client, much more so than at an independent broker-dealer,” Papike said. “The RIA aggregators are paying money to financial advisors to join and work there, but the contracts have restrictive work agreements. And at the end of the day, it’s all about the agreement and contract the firm has with the advisor.”

The RIA side of the financial advice industry has not been shy recently when discussing the enforcement of noncompete clauses with financial advisors who are recruited to other firms.

For example, Creative Planning, another RIA giant with $245 billion in assets, said in August it was acquiring Personal Financial Management, an RIA, from Goldman Sachs Group Inc.

InvestmentNews later asked Creative Planning’s CEO, Peter Mallouk, whether any of those financial advisors who had left the firm could wind up in legal disputes over noncompete or nonsolicit clauses in contracts. His response was muted but left little doubt of the stakes involved.

“I think you would struggle to find any RIA that doesn’t have a nonsolicitation clause in its agreements,” Mallouk told InvestmentNews in October. “Our reputation for enforcing that is accurate.”

Meanwhile, the Edelman Financial Engines’ complaint paints a picture of a rival RIA not afraid to throw a few elbows and dish dirt in order to recruit Edelman’s advisors.

“In another statement designed to pressure Edelman employees to depart for Mariner, at least one Mariner agent has openly stated, ‘We’re running [Edelman Financial Engines] out of business,’” according to the complaint.

“While this statement may be an accurate disclosure of Mariner’s unlawful goals, the unmistakable connotation that Edelman is in imminent danger of going ‘out of business’ was false when made,” the complaint continues. “While Mariner has caused Edelman grievous financial and reputational harm and misappropriated its trade secrets and proprietary information, Edelman is in no danger of imminent collapse.”