Edelman Financial to Exit Independent Rep Business

Edelman will stop serving independent reps through its independent brokerage firm SMH Partners, which only contributes about 2% to Edelman’s EBITDA

Edelman Financial Group, one of the biggest wealth management firms in the country, announced Tuesday that it planned to stop serving independent reps by year-end so that it could focus on its core business of serving high-net-worth clients.

George Ball, chairman and co-CEO of Edelman Financial, told AdvisorOne on Tuesday that Edelman Financial would stop serving independent reps through its independent brokerage firm SMH Partners, which only contributed about 2% to Edelman Financial’s EBITDA. Ball said that of the $18 billion in assets that Edelman Financial managed, only about $800 million was derived from the firm's independent brokerge arm.

Edelman Financial instead wants to focus on more profitable businesses like its core services to high-net-worth individuals as well as the 401(k) and 529 markets. “The independent representative sector does not generate a return on sales equivalent to that which we enjoy in our core operations,” Ball said.

Edelman Financial said in the release announcing the decision that it “may purchase a majority interest in some of the independent practices for which it now serves as broker-dealer, and will permit the remainder to stay until the end of the first quarter of 2012 to provide each with ample time to relocate.”

The decision to exit the independent rep business was a strategic decision made at Edelman Financial’s management committee meeting in July, “following a review of the revenue, costs, profit margins, risks and growth prospects in the independent representative segment,” Edelman says. The company says it anticipates “little or no impact on its earnings” from the move.

Ric EdelmanRic Edelman (left), co-CEO and president, added in the same release, “Our stated goal is to increase the already strong brand awareness which we enjoy in both the affluent investor and household markets. We have enormous opportunities in those sectors and do not want to divert our attention from them. Our decision to concentrate our efforts will help us maximize the potential for those gains.”

Edelman Financial manages approximately $18.8 billion in client assets, which include the gross value of assets under management directly or via outside managers and assets held in brokerage accounts for clients by outside clearing firms. The company has approximately 530 employees in 21 states.

In August, Edelman Financial named Joe Bottazzi as executive vice president, business development. Bottazzi is responsible for directing the company’s planned new business lines, all designed to enhance the firm’s ability to serve its current clients and expand nationwide.

Edelman Financial noted that it was highly unusual for a financial services firm to recruit a senior executive from outside the industry, and said in a statement, “Financial firms tend to recruit managers from each other, almost incestuously. As a result, everyone gets the same old, myopic results, with too little new thinking.” Bottazzi’s views are expected to offer fresh insights.

For the past 31 years, Bottazzi was an executive with Hewlett-Packard. Before joining Edelman Financial, Bottazzi was the senior vice president of HP’s Americas Technology Services business, responsible for approximately a third of its $127 billion annual revenue, with more than 8,000 employees in his business unit.

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