A North Carolina advisor is asking a federal court to break his non-solicitation bond with his former employer Edelman Financial Engines, calling it “overly broad” and “not reasonably tailored to protect legitimate business interests.”
Josh Hederick filed the suit last week in North Carolina federal court against Edelman. According to SEC records, Hederick first registered with Merrill Lynch in 1999; in 2007, he registered with The Mutual Fund Store before Financial Engines bought The Mutual Fund Store in 2016 (Edelman and Financial Engines later merged).
According to Hederick’s complaint, as part of an agreement granting him “phantom units” (a deferred employee concentration plan), the advisor had to sign a non-solicitation agreement with Edelman that would extend 15 months after he was fired or left the company. The deal would keep him from communicating with his clients or “any other client that received services from any office branch or principal work location” where he was based, according to the complaint.
Over time, Hederick became “increasingly uncomfortable” with how Edelman’s executives were managing the firm, according to the complaint.
“Each change in ownership at (Edelman) brought new policies and administrative changes—many of which focused on cost-cutting at the expense of providing high-quality customer service,” the complaint read.
Hederick pointed to several issues, including criteria for a promotion that he argued were “inexplicably and arbitrarily changed” before Hederick could move up. As a result, he lost out on the benefits of moving into an executive director position and the chance to hire a dedicated “senior level” customer service associate.
Afterward, Hederick said Edelman made him use a CSA, which he believed made numerous mistakes that negatively affected clients, and that Edelman did nothing despite his protestations.
The firm also allegedly transferred accounts managed by an advisor who’d passed away to two younger North Carolina-based advisors without allowing Hederick to work with them.
According to the complaint, Hederick came to believe the “changes in company culture” and their unwillingness to listen to him meant he had to leave.
But Edelman had a “well-documented history of aggressively suing” advisors who left and notified clients about their resignation, according to Hederick.
When an advisor leaves, Hederick alleged Edelman typically tries to assign the advisor’s accounts within the company, tells that advisor to inform clients that their previous rep left without notice and does not tell clients where the advisor went.
“Given (Edelman’s) past litigation history, Mr. Hederick has good reason to believe that (Edelman) will not allow him to notify the clients he is servicing of his departure and/or that it will not participate in the process in good faith,” he argued in the complaint.
In a statement to WealthManagement.com, an Edelman spokesperson said the firm disputed “the allegations in their entirety.”
“We continue to invest in our people and our planning team resources so that we can best serve our clients; and we remain committed to safeguarding our business and defending against this action,” the spokesperson said.
Hederick resigned in late September and said he’d informed clients of his resignation (though he stressed that he hadn’t solicited their business when doing so). He quickly joined Prime Capital Investment Advisors.
Earlier this year, Tim Dowden and Jennifer Staben filed similar suits to break their restrictive covenants when they left Edelman for Prime Capital. Like Hederick, Staben felt unsatisfied with the CSA assistance she received from Edelman, according to her complaint in California state court.
Edelman is in a legal battle with Mariner, accusing the latter firm of stealing trade secrets, breaching confidentiality agreements and helping reps break non-solicitation clauses. Edelman argued that Mariner waged a “calculated campaign” to lure Edelman planners away, losing about $621 million in managed assets.
But Mariner accused Edelman of a “nearly three-year campaign to unlawfully stifle fair competition” in the industry, believing Edelman’s suit was meant to send a “chilling public message” to any employees opting to leave that they’d be a litigation target.
In June, a federal judge dismissed Edelman’s defamation claims against Mariner Wealth, although the conspiracy and misappropriation claims are moving ahead.
