A former Edelman Financial Engines advisor who left the firm is suing to void his non-solicitation agreements in Delaware federal court, claiming they violate state law.
In the suit, Conn.-based advisor Edmund Callahan claimed that many instances at the firm “put him in conflict with his fiduciary obligations to clients,” and argued that numerous changes in firm leadership and policy “appear to be focused on cost-cutting at the expense of providing high-quality customer service and education.”
However, in a statement, an Edelman spokesperson denied the allegations, claiming they were “nothing more than a deliberate attempt to evade his contractual obligations.”
According to SEC records, Callahan first registered with Morgan Stanley in 2010, with stints at Fidelity, E*Trade and Charles Schwab before joining Edelman in 2018.
After joining Edelman, he allegedly signed a non-solicitation agreement barring him from contacting clients for 15 months after leaving Edelman (claiming “clients” included customers Callahan had no direct contact with).
Callahan alleged he negotiated an advance when joining; while he thought he’d have indefinite time to work off the advance, Edelman allegedly gave him two years. The change allegedly forced Callahan to onboard as many clients as possible, “which, in turn, meant he had to take on clients regardless of whether they were a good fit for Mr. Callahan and (Edelman).”
According to Callahan, he became “increasingly uncomfortable” with the firm’s leadership decisions over time and noted that since 2018, the firm had had three different CEOs and numerous C-suite swaps. The number of leads he received each month had dropped from 45 when he started to as low as five.
“Instead, (Edelman)’s leadership has now shifted to emphasizing that financial advisors should continuously ask the clients they are already servicing to refer people in their personal network,” the complaint read. “Upon information and belief, Mr. Callahan alleges that (Edelman) is systematically decreasing the amount of money that it is investing in marketing and lead generation efforts for financial advisors.”
Additionally, Callahan claimed the firm saddled him with an incompetent customer service associate, and that nothing was done when he complained, but Callahan soon opted to leave Edelman and resigned last Friday (he has since registered with Prime Capital Financial).
According to Callahan, the firm is litigious with departing advisors, and claimed that when an advisor leaves, the firm assigns their clients to a new advisor, instructing them to refrain from telling clients where the former advisor now works, “and, in some instances, even goes so far as to mislead clients as to where the departing advisor went.”
According to Callahan, the suit will determine whether he can notify clients about his departure from Edelman, whether he can accept business from clients who want to make the jump with him, and “the construction and/or validity” of the non-solicitation agreement.
But an Edelman spokesperson said the obligations were in place to protect the firm’s business, clients and services, and that it would “vigorously enforce its legal and contractual rights to safeguard our trade secrets and the confidential information of our clients.”
Earlier this year, Edelman added Prime Capital Financial as a defendant in three ongoing lawsuits, accusing the firm of helping former Edelman advisors steal client information.
Edelman is the defendant in the three cases brought by former Edelman advisors who moved to Prime Capital, but it added Prime Capital into the suits as a “third-party defendant” (which is when a defendant accuses an unnamed party of liability).
“These actions have been taken in response to the coordinated actions of Prime and its employees to unlawfully take (Edelman’s) confidential and proprietary business information and misappropriate our clients and the assets we manage for them,” an Edelman spokesperson said.
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