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.