Ric Edelman removes a major impediment to his firm's future growth--himself--the last act in a 36-year career that will leave Edelman Financial Engines to fend for itself
It must 'demonstrate that it can operate and grow without me,' says Edelman, who pulled the trigger on his departure, following the company's recapitalization.
12 min read- Edelman Financial Engines eliminates reliance on Ric Edelman to foster future growth.
- Ric Edelman shifts focus to cryptocurrency after a recent liquidity event.
- Warburg Pincus' investment valued Edelman Financial Engines at $7.3 billion.
- Edelman's departure follows a six-year plan to reduce his firm dependence.
Brooke's Note: We know Ric Edelman too well. So when the initial word came that he was truly severing ties with the RIA bearing his name -- including his radio show -- we felt we had to take a deeper look. What we know about Ric is that at age 63, he isn't exactly slowing down. If anything he's been gearing up by adding a sort of second career in cryptocurrencies while maintaining his radio duties and playing a role in education, marketing and peripheral oversight of his company, recently valued at more than $7 billion. Though there are limits to what Edelman Finacial Engines and Edelman himself would reveal, Lisa Shidler was able to piece together a more thorough understanding of Ric's future that fits with how we know him. There's ambition, opportunity, a new radio show and nothing that looks much like a finish line. And there was a liquidity event for Edelman Financial Engines that assures this financial planner will retire comfortably if he ever gets around to it.
Parting may be sweet sorrow, but neither Ric Edelman nor the firm he served for 36 years appears to be shedding tears as they chart separate courses toward an uncertain future.
Edelman Financial Engines is eliminating what Edelman himself perceives as a major threat to its long-term health -- namely its heavy dependence on Ric Edelman.
"That’s not healthy for any organization to be solely dependent on a single individual. We’ve talked for years about the need for me to reduce my role and the firm’s dependence on me," he says, via email.
The four year-old partnership between the Silicon Valley robo-advisor and the mom-and-pop RIA in suburban Virginia co-evolved to become a wildly successful company worth nearly $7.5 billion.
Yet, hidden from view was a drag on innovation and growth. Edelman also perceived that he was the cause.
"It’s in the context of sending children to college ... It’s healthier for the firm and better for the clients," he explains.
Cashing out
Edelman is turning his sights to cryptocurrency, while his self-named RIA and bolt-on robo will sail on without him after three-plus decades, first as co-founder and CEO, then as board chairman and finally as chairman of financial education and client experience.
His last, rather nebulous title, was his final official connection to the firm. The RIA announced, Jun. 7, that Edelman, 63, will give it up and leave by the end of the year. His current job will go unfilled.
The parting of ways, in the making for six-plus years, is as anticlimactic as it is odd for one of the most high-profile executives in the RIA industry.
Edelman rebuffs the idea that he was nudged out of his job by the Silicon Valley whiz kids who joined the firm after it merged with Financial Engines in 2018.
“Gentle nudge? I don't know about that. But given the current circumstances, this seemed like as good of time as any [to leave]," he says, via email.
"It’ll be good for the firm to now have the opportunity to demonstrate that it can operate and grow without me," he adds.
Kicking dependence
The catalyst for his break appears to be the firm's private-equity recapitalization with Warburg Pincus in March, valuing the firm at $7.3 billion.
"There’s never an ideal time for a transition like this ... [but] we’ve just emerged from the pandemic ... and we closed with Warburg Pincus, which was another significant liquidity event for shareholders," Edelman explains.
The deal cashed out shareholders, including Edelman, to the tune of an estimated $730 million, according to analysts.
Edelman still remains the firm's largest independent shareholder, although his stake is minor, and he will continue as a strategic advisor and board member.
But his exit will liberate the company from an unhealthy dependence on his star-power. His face -- and voice -- have been the brand, he explains.
"There’s no question that the firm has been heavily depending on me as the founder.*
Jason Van de Loo, executive vice president of retail and marketing says the decision to part ways was mutual, and president and CEO Larry Raffone confirmed Edelman and wife Jean pulled the trigger together.
"Ric and Jean determined that now is the right time for them," he explained, via email.
The decision to leave the firm has been emotionally challenging, Edelman says.
"[It’s] sad for us to leave our baby. It was just Jean -- the two of us. [We grew] it into one of the most successful RIAs in the country."
Alleging gambling habits, SEC concerns and steady AUM declines, The Mutual Fund Store is offering $5.5 million to Jeff Roper to sell and walk away
"It’s hard to walk away. We’re struggling with that. We know the planners will be fine and take great care, which gives us the confidence," he explains.
Well orchestrated
As far as succession planning goes, it's a job well done, says Tim Welsh, president of Nexus Strategy in Larkspur, Calif., via email.
"It was a pretty well-orchestrated succession -- they had a CEO for some time now and professional management in place. I don’t think [Edelman] stayed on too long."
The giant $270 billion in managed assets (AUM) Palo Alto, Calif., RIA also confirmed it will drop him as anchor of the company's popular radio show -- once a key source of client referrals, albeit of dwindling importance now.
The show only brings in 10% of Edelman's total referrals, according to the company.
Even so, the company has no plans to drop its name, according to the firm, although past practice suggests that may change.
Financial Engines bought The Mutual Fund Store from Warburg Pincus in late 2015 for $560 million.
At the time of its acquisition, the Mutual Fund Store also featured a top radio show, presented by founder Adam Bold, who has since retired from the financial advisory business. See: Alleging gambling habits, SEC concerns and steady AUM declines, The Mutual Fund Store is offering $5.5 million to Jeff Roper to sell and walk away
Financial Engines ended the radio show and kept the name for a time, before eventually dropping it.
Edelman started "The Ric Edelman Show" in 1991 on WMAL-FM in Washington, D.C. It was picked up by ABC Radio Networks in 2007.
The company's radio show will continue after Edelman scales back his role in the firm, albeit, under a different name.
Edelman will make guest appearances, ensuring an "uninterrupted run." But the show's format and its potential host, or hosts, remains under review, according to Raffone.
Non-branded leads
Along with "The Ric Edelman Show," the company will also see diminishing returns from the network its founder built through TV, books, seminars and media appearances.
Edelman has published seven financial books and writes a nationally syndicated weekly column, "The Truth about Money," distributed by United Media's Newspaper Enterprise Association.
"We’ve never really been able to ascertain precisely how clients hear about us. It’s like Coke." Edelman explains.
Story Timeline
"Tell me how you first heard of that soft drink. That company doesn’t even try to ascertain the answer."
The company now plans to pursue "'non-branded' leads, a relatively new approach, since the merger with Financial Engines, according to Edelman.
"That effort is picking up steam, and, with my departure it will have to become the dominant source of new business," he says.
The plan all along
Yet moving away from its reliance on Edelman's star power shouldn't prove too tricky, says Welsh.
"They have a powerful lead generation machine when it comes to rollovers, so I don’t think they will miss much from his radio show ending," he explains.
Indeed, that was the plan all along when Edelman Financial merged with Financial Engines, says Michael Kitces, founder of the Bozeman, Mont. XY Planning Network and writer of the popular "Nerd’s Eye View" blog.
“From the start [the merger was] a pathway to make Edelman’s firm less dependent on Ric for business development -- by pairing it with the huge base of Financial Engines 401(k) plan participants that could fuel growth long after Ric retired."
Chasing dot money
Wanted: New CEO for Edelman Financial whose name is not Ric Edelman
Edelman may be out, but he's far from retiring and a non-compete clause won't interfere with his plans, he asserts.
Next year, he will launch a new radio show, focused on cryptocurrency and blockchain technology, titled 'The Future Dot Money'.
It will appeal to a general audience, despite cryptocurrency's still fairly wonkish status, he says.
"My new show will be as interesting and informative for all consumers as my current show has been for the past 29 years," he explains.
That said, he declined to reveal if he has already signed a deal with a radio station, if his new show has obtained syndication, or any of his sponsors, if any.
Edelman also says his new show will deliver a "return on investment" to future sponsors, implying that referrals will not go to Edelman Financial Engines by default.
The market capitalization of the crypto space he will soon cover stands at $1.27 trillion, compared with his old show's topics, which covered a market in excess of $20 trillion.
Edelman says all portfolios should hold at least 1% in cryptocurrencies. His old company will soon add crypto assets to its client portfolios, he adds.
He will also step-up his involvement in crypto through the 2018-founded RIA Digital Assets Council (RIADAC).
"There’s sorrow in leaving behind the firm we built and devoted our lives to for the past 36 years, but we’re equally enthused about all our future activities," says Edelman.
RIADAC provides education on crypto and blockchain technologies to advisors. More than 700 advisors, spanning seven countries, have enrolled for its courses. RIADAC is getting a branding facelift, becoming the Digital Assets Council of Financial Professionals (DACFP).
Edelman co-founded the firm with Jamie McIntyre, founder and CEO of financial technology vendor, Rewire Technology, Paul Pagnato, founder and CEO of RIA PagnatoKarp, and Ray Sclafani, founder and CEO of advisor training firm, ClientWise.
Crypto College
The new name will better illustrate that the Fi360-like crypto college is aimed at all financial professionals, not just RIAs, according to Edelman.
"We’ve had requests from many financial services firms to assist their efforts to figure out their digital asset strategy and to educate their financial advisors. We’ve mutually realized that, while I built RIADAC, a broader financial community has equally emerged," he explains.
"We’re broadening our charter to embrace all financial firms including banks, insurance firms and brokerage firms," he adds.
DACFP services the entire planning industry including broker dealers, wirehoues, institutional investors, family offices and trust companies and insurance regulators as well as advisors licensed by FINRA.
DACFP is the education partner blockchain and digital assets for such organizations as the Financial Planning Association, The CFP Board, NAPFA, XY Planning Network, QUAD-A, Money Management Institute and the Investment Advisers Association.
The firm currently offers webinars and online content, and on May 1, it launched the Certificate in Blockchain and Digital Assets for financial advisors. Its latest course, a 13-credit continuing education program, comes in two parts. The first delves into how crypto functions technologically. The second takes in practice management, choosing investment products, tax reporting, tax rules, and regulatory compliance.
Diversifying growth
Edelman sowed the seeds of his eventual departure in 2015 by moving to replace himself as CEO. See: Wanted: New CEO for Edelman Financial whose name is not Ric Edelman
In 2018, Hellman & Friedman took Financial Engines private in a $3 billion deal and merged it with Edelman Financial.
After the acquisition, Edelman gave up his position as chairman of the board, becoming the company's chairman of financial education and client experience. See: Edelman Financial gets its CEO from LPL but the chief executive's job description isn't exactly what the old one was
"A big part of bringing the firms together in 2018 was to create an even more diverse growth platform, and that's exactly what we've done," says Van de Loo, via email. See: Why the PE that helped take LPL public now controls Edelman Financial and plans to invest more heavily.
Edelman founded the mom-and-pop, Main Street planning firm in 1985. William Sharpe, a Nobel Prize winning economist, founded Financial Engines in 1996.
Mission continues
Both firms have benefited from their three-year combination based on AUM growth.
In 2018, Financial Engines managed $156 billion of low margin 401(k) assets, and $13 billion in higher margin retail assets. Edelman managed $21.7 billion in retail assets.
Today, the combined firm manages $220 billion in 401(k) assets--a $51 billion bump--and $50 billion in higher margin assets, a $15.3 billion gain, the company states.
Edelman Financial Engines has 1,500 employees and 340 financial planners, who serve some 1.3 million clients, many of whom the company is working hard to rollover into its full service RIA business.
The company will continue to carry out Jean and Ric Edelman's original mission to provide important financial education, says Raffone.
"We remain committed to our mission in both the workplace and retail businesses as an industry leader focused on providing unbiased, personal finance education and advice, and always putting our clients’ interests first," he adds.
On its website, Edelman Financial Engines describes Edelman's departure as a "transition to an advisory role", and highlights his status as an industry icon. It also emphasizes Edelman's planning-centric "philosophy" as integral to the firm's future.
"When you work with us, you get a lifelong partner," the company states.
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