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Edelman-Bach split devolves into threats of legal action over trade secrets

Their partnership started off on a promising, if unusual, note: best-selling author joins $13 billion dollar RIA. But three years and one termination later, the relationship has deteriorated into a war of words — and threats of legal action.

Ric Edelman, owner of an eponymous wealth management firm, has threatened to sue his former partner, David Bach, for allegedly stealing trade secrets to build his own rapidly growing RIA, according to a cease-and-desist letter obtained by Financial Planning.

The letter, dated Oct. 3, was sent to Bach by Edelman Financial's lawyer. It alleges that Bach is using Edelman proprietary information in violation of an employment agreement he signed while employed at the RIA. The letter, which points to comments by Bach in news articles, asks him to stop his alleged activities. Reached by phone, Edelman verified its authenticity.

"I am shocked," Bach said, before referring further inquiries to a spokeswoman who denied the allegations in a statement.

“These allegations are utterly false, misleading and a sad attempt by Ric Edelman to torturously damage David Bach's personal and professional reputation and successful growing business,” the spokeswoman says.

It’s a far cry from how their relationship began in 2014 when Edelman brought on Bach, author of the popular "Finish Rich" series of books, as vice chairman in hope of converting some of Bach’s millions of readers into clients at Edelman Financial. At the time, the RIA managed $13 billion in client assets.

Yet the following year, the high-flying partnership fell to earth when Edelman parted ways with Bach.

"We are both disappointed, but that is how life goes sometimes," Edelman told Financial Planning at the time of the split. "We have no animosity towards each other, and we wish each other the best.”

Bach subsequently teamed up with a Topeka, Kansas-based marketing firm, Advisors Excel, to form AE Wealth Management.

AE Wealth Management offers practice management and other support to independent advisors; the RIA also offers investor education and advisor training seminars that are created by Bach, who serves as director of investor education.

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In March, the firm had approximately $2.76 billion in assets, according to its Form ADV. By September, AE Wealth Management's assets had mushroomed to $5 billion, according to a company press release.

Edelman's cease-and-desist letter accuses Bach of breaching a confidentiality requirement he signed when he joined Edelman Financial, requiring him not to use or share any trade secrets he obtained during his time with the firm. The letter cites an RIABiz article, as well as a September story from ThinkAdvisor.

"Being vice chairman of Edelman was a fantastic opportunity," Bach told RIABiz in August. "It took 28 years for Ric to build what he built, and I got a unique insight into that institutional knowledge at a level very few ever get. … It worked out fantastically. Now I get to do with AE exactly what I set out to do at Edelman, only at scale, and with a 100-times bigger platform."

Edelman's cease-and-desist letter also cites a confidential information provision allegedly contained in an employment agreement Bach signed in 2014.

"Employee shall not disclose any of the confidential information, directly or indirectly, or use them in any way, either during the term of this agreement," according to an excerpt from that agreement cited in the letter, which underscored the following in bold and italics: "or at any time thereafter."

Speaking by phone, Edelman says: "We were shocked at the media reports where David described rather bluntly and boldly that he apparently was interested in our firm for the proprietary information he could obtain and later use for his own gain."

Bach, through a spokeswoman, claims that RIABiz falsely stated that he “used Ric Edelman's blueprint” when he actually “provided RIABiz with very positive and complimentary statements” about Edelman.

Bach has not violated any agreement nor used any Edelman proprietary information in his work at AE Wealth Management, according to the spokeswoman. In fact, it is Edelman who has breached agreements with Bach. “Mr. Bach is considering all options in holding Ric Edelman and Edelman Financial accountable for those breaches and their false statements,” the spokeswoman writes in an emailed statement.

Edelman's firm, meanwhile, has grown rapidly since parting ways with Bach. This spring, Edelman, the author of nine personal finance best-sellers, merged his company with the much larger 401(k)-specialized planning firm Financial Engines, with venture capital backing. At the time of the merger, Edelman Financial had $22 billion in AUM.

Both men's ventures are some of the best-known among dozens of competitors vying to develop RIA brands on a national scale. To that end, Bach and Edelman both speak publicly on a regular basis, articulating their own visions for their firms.

In December, Bach spoke at a MarketCounsel conference. "He's building these franchise models where advisors can buy into his scripts and use his seminars," consultant Timothy Welsh says. "Bach is on to something because he's growing very fast."

Edelman says that while he doesn't care about where Bach speaks or works, he cares how his former partner operates in his new job.

"David can sell and promote whatever products he chooses, it's just not acceptable that he do so by stealing our proprietary information," he says.

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