Making Time (and Money) for Everyone

Ric Edelman's firm puts up incredible numbers. Edelman Financial Services of Fairfax, Va., has $2.75 billion in assets under management and counsels 7,500 clients. Last year, the firm generated $17 million in gross revenue, making EFS one of the country's largest and most successful independent registered investment advisors. Of course, Edelman has help: His team consists of 16 other financial planners

Ric Edelman's firm puts up incredible numbers. Edelman Financial Services of Fairfax, Va., has $2.75 billion in assets under management and counsels 7,500 clients. Last year, the firm generated $17 million in gross revenue, making EFS one of the country's largest and most successful independent registered investment advisors. Of course, Edelman has help: His team consists of 16 other financial planners and a gaggle of support staffers.

At a time when advisors are being told to increase profits by shedding small investors and focusing on fewer, wealthier clients, Edelman Financial is thriving by doing the opposite. It has no minimum account size or net-worth requirements. It's true that Edelman Financial does have its share of the rich; Edelman says roughly 1,000 of the firm's clients have more than $1 million in liquid assets and the average account size is about $350,000. “Our youngest client is 16; the oldest is 96. The poorest owes $400,000 to credit cards, and the wealthiest is a dot-com billionaire,” Edelman wrote in a recent company newsletter.

So, why doesn't Ric Edelman just shave off, say, 6,500 clients and focus on the millionaires, per the industry's prevailing wisdom? “Imagine a doctor that said, ‘I only work with rich and healthy people,’” says Edelman. “I don't think society is well served by turning millionaires into multimillionaires. It's not right that the people with all the financial-planning knowledge are running from the people who need it most.” Edelman says many of his clients have been ignored or underserved by other advisors because they had few assets. “My clients are thrilled with us because they've been ignored for some dumb reason for so long and now they're finally getting treated with respect.”

Concentrating on the Clients

And just how does he make serving the little guy work? “It's all about the infrastructure,” he says. For instance, every one of the 17 planners (who handle upwards of 400 clients each) is given four sales assistants, who make up the majority of the 86-person staff. “The bulk of my staff is serving the advisors,” he says, streamlining the planning process and freeing up planners to focus on core client issues instead of handling paperwork or answering routine service questions.

To further increase the time his planners spend on current clients, he also prohibits them from doing any advertising or marketing, which he says is the No. 1 time suck for most advisors. Typically, financial advisors spend up to 40 percent of their time on marketing, according to consultants. Getting new clients is Ric's job, and for good reason.

Besides writing six books that have cumulatively sold more than one million copies, he's appeared on Oprah five times and addresses the greater D.C. metro area weekly on radio and TV.

As to how Edelman operates with only 24 hours in the day, he says he spends 40 percent of his time with clients; 40 percent of his time managing the firm; and 20 percent on media and educational activities, like seminars. (Edelman says Kris Chaze, a planner with the firm for 13 years, also helps him handle his clients.) Ric has no children but his wife, Jean, who founded the firm with Ric, is the “office mom.”

The business model seems to be working. Staff turnover, says Edelman, hovers between 4 percent and 6 percent, and no planner has ever left the firm. “Three retired, one died and I fired two,” he says. And he only hires top people: All EFS planners have at least 10 years of experience. Washingtonian magazine also voted his firm one of the Top 50 best places to work two years in a row. “Their comp exceeds industry metrics,” he says of his planners.

Target Pricing that Hurts

As it should, since the fundamentals of the business are so solid. Edelman charges $800 for a financial plan and he offers break points for assets under management (2 percent on the first $50,000, decreasing as assets go up). And while he eschews any suggestion that his firm pays attention to “revenue per client,” his margins are impressive. Revenue per client (gross revenue divided by total number of clients) is $2,266, and, with roughly 440 clients per financial planner, revenue per financial planner is just under $1 million.

According to Philip Palaveev, a principal with Seattle-based consulting firm Moss Adams, those are handsome numbers for such a large practice. Edelman's success, he says, seems to be a creative and efficient balance of pricing, time and resources. He also says Edelman has realized what many advisors fail to. “These people [his clients] don't have a lot of assets, but that doesn't mean they don't have a lot of income, that correlation is very dubious,” says Palaveev. “Getting paid 10 basis points on a $1 million account is not more attractive than $2,000 for financial planning, it's just a different pricing model,” he says.

In May 2005, Sanders Morris Harris, the Houston-based financial services company with $10 billion in client assets, bought 51 percent of EFS and will buy the rest over the next four years for a total of $128.5 million.

Edelman says success is measured in a simple way: “We provide much higher levels of service than any other firm I've looked at. Our client satisfaction and [our] client loyalty corroborates that.”

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