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Edelman expansion slows; back office 'overwhelmed'

$5.5 billion RIA pours money into top-line Microsoft CRM

Thursday, October 21, 2010 – 4:29 AM by Matthew Robinson
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Ric Edelman: I needed to give my staff a breather.

Edelman Financial Services will open 13 new offices year, instead of the 18 it had originally planned.

New clients at existing offices overwhelmed Edelman’s back office, forcing the company to postpone the other five offices by six months, says Ric Edelman, principal of one of the nation’s largest RIAs.

Edelman, which is partly owned by Houston, Texas-based Sander Morris Harris Group, brought in $1 billion of new assets in the past 9 months. Edelman now has about $5.5 billion in AUM, up from $4.5 billion on Jan. 31.

“I needed to give my staff a breather,” he says. “We needed to pause further office openings, so we could hire additional staff, improve/continue staff training and bring online several new technologies that have been under development.”

Back on track

To get the expansion back on track, Edelman invested roughly $3 million in a customized CRM system from Microsoft. “It will be a substantial leap forward,” Edelman says.

With 14,000 clients and 29,000 separate accounts, the new CRM will allow extensive data mining into client demographics, portfolio and investment performance.

The new software also takes advantage of Edelman’s marketing machine, one of the most successful in the business. His radio show and books generate 1,000 to 2,000 calls from around the country every year, he says. See: What Ric Edelman is like live on stage

Callers into Ric Edelman’s radio show will be added to the CRM. Some call and don’t get to ask Edelman a question, so they are referred to one of his offices. The office answers the question, say it’s on 529s, free of charge and their information is added to the database. The office then might reach out to that caller a few months later if there are new developments related to 529 plans.

The CRM investment is more than a year in the making and will be launched after next year’s tax season. Edelman is also investing in telecom for more in-house video conferencing.

Office expansion is a big investment

The new offices are costing Edelman’s parent company roughly $800,000 a quarter, says Rick Berry, SMHG’s CFO. Each office is expected to take between 18 to 24 months to recover costs and then turn profitable soon after. See: Sanders Morris Harris Group, serious competitor to the big roll-ups, launches bid from Texas

The new offices are bringing in a relatively small portion of the firm’s total growth is coming from the new offices.

In fiscal 2009, SMGH lost $370,000 on revenue of $175 million. Its annual revenue from wealth management – which came from Edelman and Sanders Morris Harris Inc, Kissinger Financial Services, The Rikoon Group, among others — was $101 million, according to its 2009 annual report. Its stock was trading at $5.98 Wednesday, off from its 52-week high of $6.49.

Edelman produces the bulk of SMHG’s revenue and growth strategy. There are 17 offices open now; it started its expansion in September 2009. Offices have opened in cities saturated with financial advisors such as New York, Bethesda, Md., and New Jersey. Edelman markets to the mass affluent – a space less crowded than the high net worth one. many analyst consider 'mass affluent’ to have $500,000 to $1 million. See:RIA aims to take NYC with six new offices; Chicago, Detroit, SF, Miami to follow


Besides establishing more offices, Edelman plans acquisitions and is taking advantage of “the recent economic turmoil” by recruiting advisors who are “disheartened” by their current employers, according to the company’s second quarter report.

“Making acquisitions over the next couple years will be a significant part of our growth,” Edelman says, adding that an acquisition would likely be announced by the end of the year.

“We’re not a roll up,” Edelman says. He said the firm is looking strategically at advisories with half a billion to $10 billion in AUM.

At that level, it might make sense for principals to consider selling.

“It’s a firm that is too big to be small and too small to be big,” says recruiter Mindy Diamond CEO of Diamond Consultants. Basically, well-established firms that are deciding on whether to make a bigger investment into the company might put up a for-sale sign instead.

Advisors that join Edelman tap into the firm’s giant marketing engine. One to three advisors staff each office and are paid a salary plus a bonus based on office production.

“We don’t do cold callings,” says Edward Swikart, one of two advisors at the new Short Hills, N.J., office. Swikart says his office adds roughly 10 new clients a month, each with investable assets of about $400,000 to $500,000.

Rather than spending time on leads, advisors just pick up the phone. For each dollar they bring in they take home roughly 35 cents.

In an industry that is dominated by mom-and-pop shops that traditionally don’t do aggressive marketing, Edelman is a rarity. Some point out that the approach has a certain danger in a business built on relationships.

“I suppose there’s always a danger with this famous person strategy,” says Dan Inveen principal of Seattle-based FA Insight. “In the event that something happens to that individual, how do you structure the firm to carry on terms with same culture and philosophy of investing association without Ric Edelman?”

But then again, who remembers the people behind the names Goldman Sachs or Merrill Lynch? For now, Edelman’s star power continues to help his firm’s aggressive expansion.

H2. As much steak as sizzle

When asked how the success of his books, radio show, etc. is tied to the success of his business, Edelman answered, “It’s hard to pinpoint. There is no question that our extensive financial education activities – books, newsletter, web site, seminars, radio show, TV show, interviews, etc – have contributed to our success.”

The aggressive expansion plans have a few critics calling the new offices a marketing ploy.

“We all want growth, but if they’re focusing on marketing rather than what’s best for their clients,” says Fred St. Laurent, managing director of recruiter SCI Partners of Atlanta, Ga. “I think that’s a problem.”

Edelman is quick to point out his client satisfaction and investing success. “Our latest client survey, 92% of our clients say they refer people to us,” he says

Edelman reports the performance of more than 20 of his portfolios on his website – a trend few other firms follow. Many portfolios followed the drop in the stock market in 2008, but rebounded in 2009. [Link to portfolio page]

Marketing can only get clients in the door, he says. “No one ever got a job with a resume, you just get the interview.” He said for his critics to research his track record. “There is as much steak as there is sizzle.”

Current Offices

Tysons Corner


Silver Spring
Howard County

New Jersey
Short Hills

New York
White Plains
Staten Island
Garden City

South Florida

Opening in Q1 and Q2 of 2011
Boston, MA
Detroit, MI
Columbus, Ohio
San Francisco, CA
Plus likely additional offices in New Jersey, New York, Virginia, and Florida

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Top Executive: Frederic St Laurent Jr

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