Big Virginia RIA sees an opportunity in wirehouse fumbling and he's grabbing it

March 25, 2010 — 5:27 AM UTC by Elizabeth MacBride

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Elizabeth’s note: When Ric Edelman told me that his decision to open offices in the Washington, D.C., market was in part driven by clients who were refusing to fight the traffic to reach the Tysons Corner skyscraper that houses his office, it clicked in my mind. I’ve never lived in a place where traffic governed so many decisions, from where to live, to what time to schedule an interview, to where to go for dinner. Whole segments of the day are lost for travel purposes, because getting on any major road between 3 and 6 p.m. means consigning oneself to hell for those hours.

Ric Edelman, one of the nation’s biggest and best-known advisors, plans to open 18 offices in eight major metro offices around the nation this year.

The aggressive geographic expansion plans make him a rarity in the advisor world, where even the largest advisors tend to move fairly slowly and aggregate asset under management in a handful of offices.

The Northern, Va.-based company, which had $4.5 billion in assets under management as of Jan. 31, opened six offices in the New York City area last fall. Edelman reports that, combined, those offices now have $138 million in assets under management.

More cities, faster

“Not bad for six months!” he says in an e-mail.

Their success led to an intensification of the firm’s expansion plans, which back in August were to open offices in four or five major cities.

Now, the plan has ramped up. In February, Edelman opened four additional offices, including one in Brooklyn, one in Baltimore and two in Washington, D.C. Each office costs between $250,000 and $500,000 to open, and is staffed by 2-3 advisors, who are paid by a combination of salary and a percentage of the office’s revenue.

Edelman Financial LLC is 76% owned by publicly held Houston-based Sanders Morris Harris Group, a publicly held wealth/asset management company with a market capitalization of $176.65 million. Its stock closed yesterday at $6.20. Edelman is the single largest component of Sanders Morris Harris, which manages $9.5 billion in client assets and has 600 employees.

Edelman says the vast majority of his revenue comes from fees, though he maintains a FINRA license to serve some older clients and to liquidate assets for some clients who are new to his firm. He targets the mass affluent market, offering both financial planning services and asset management.

His plans call for him to reach many more clients. The company now plans to open additional offices in the following metro areas:

Baltimore: 1
Washington: 3
Boston: 2
Chicago: 3
Detroit: 2
Miami: 1
Richmond:1

Traffic patterns

Baltimore-Washington was not in Edelman’s original expansion plans last summer. The metro area joined the list in part because of the significant demand in the market – Washington has performed better than the rest of the country in the recession — but also because of traffic.

Because traffic had gotten so horrendous in the Washington, D.C. area, clients and new prospects were more reluctant to cross the river to his offices in Northern Virginia.

“Traffic is the number-one political issue here,” he says.

Edelman’s strategy is built on his national reputation. His radio show and books generate 1,000 to 2,000 calls from around the country every year, he says. The new offices make it easy for him to refer those callers to a nearby financial advisor who works for Edelman.

He followed that strategy in New York, marketing the offices via seminars and word of mouth. He didn’t do any other advertising or marketing.

Quiet presence

In fact, his offices made very little splash in New York.

“I didn’t even know he was here,” said Joel Isaacson, a Manhattan-based advisor, noting that in New York, the chief competition is with old wirehouses, rather than between advisors.

Ironically, the New York market can be seen as remarkably open because it’s been so dominated by traditional brokerages; those firms provide little financial planning. The opportunity is particularly ripe in the wake of the financial crisis.

“The wirehouses have done themselves a lot of damage this year,” says Edelman.

Edelman has long had his eyes on scaling up, and in an earlier interview offered some ideas for RIAs who are seeking to do so.

He first tried an expansion model whereby a network of advisors nationwide paid for his investment advice, but were not employees. “The quality control wasn’t as strong as we’d like,” Edelman said in August.

The employee model seems to be working better. Edelman, which has 193 employees now, plans to hire about 75 additional workers by the end of the year, including 30-40 advisors. There are about two dozen positions open now.



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