April 3, 2013

Why I Think Ric Edelman Is Ahead of the Curve, Again

I have great respect for Ric Edelman. First off, he’s a recovering financial journalist made good. How good? If you haven’t heard of Edelman Financial Group (of which he’s the president and CEO), it’s a Fairfax, Va. independent advisory firm, that, thanks to its merger with the Sanders Morris Harris Group in 2005—and Ric’s emergence as a publishing and media star—now has a cool $18 billion under management. Not bad for a husband and wife team who decided to make a career switch and become financial advisors in 1987.

I met Ric in the mid-90s, when his firm was just beginning to take off, and was  impressed that he was following his own vision to serve the needs of the “middle market” with minimums of $50,000, rather than following the trend toward targeting ever-wealthier clients that still persists in the advisory world today. That vision involved providing whatever services his clients required to meet their financial goals, which back in that day included mortgage loans,which he provided in-house, making Edelman one of the forerunners of the current trend toward hybrid advisory firms. From 529 plans to ETFs to advising on 401(k) and IRA assets, he’s stayed on the leading edge of retail advice ever since.

So I took note the other day when I came across Andrew Osterland’s January 20 article on InvestmentNews.com about the new Edelman Online platform, with minimum investible asset limits of $5,000. Ric was quoted as calling the move a “long-term loyalty program,” in the hope when these new customers “receive their inheritances,” they’ll give it to him to manage. But Mr. Osterland pointed to research suggesting that smaller clients almost never become “wealthy” clients in the advisory business, which I believe to be the experience of most advisors—smaller clients may become affluent, but they usually don’t become rich. 

That leads me to believe that Edelman—who undoubtedly knows this as well—was being coy rather than revealing. To my mind, Ric was probably being more  forthcoming when he said: “This is the direction the world is moving, and we're at the beginning stages of it. Technological advances in the next three to five years will have a radical, disruptive impact on financial advice and how it's delivered.”

That reminds me of one of my favorite quotes, by Dr. Paul Saffo of Stanford’s Institute for the Future: “It takes people about 100 years to figure out the best use for major technology advancements.” Think of the printing press, the internal combustion engine and electricity. And now the Internet. I believe Al Gore invented it back in the ‘70s, so that means we still have another 60 years or so to get this Internet thing right. 

Like many “old guys,” I’m not wild about where technology is taking us. I think Facebook is mostly a colossal waste of time, have yet to see a tweet that changed my life and am increasingly concerned about the growing volume of emails in my mailbox every morning. With that said, I can remember back when insurance execs would tell you with a straight face that “insurance will always be sold, not bought.” That was right about in the middle of the demise of the captive agency system in the ‘80s.  We old guys will always have dozen reasons why things will never change—just before they do. 

To me, one of those things is face-to-face financial advice. Over the years, I’ve found independent advisors to be great people. So, I probably overlook the fact that many people view going to see a financial advisor the same way they did being sent to the principal’s office: you’re going to get a lecture you really don’t want to hear. This is probably especially true of younger folks. If they can handle their finances online, and skip the lecture about how they shouldn’t have bought that Beemer or taken the whale-watching cruise to Alaska, I’m guessing they just might. 

I’m also guessing much of this is already on Ric Edelman’s mind. His middle market focus makes his firm particularly well suited to move online—he already has the systems in place to efficiently handle larger volumes of smaller clients. Leverage is one of the things technology does best (Facebook is built on sending your vacation pics to all your relatives and friends with a couple keystrokes).  The independent advisory industry already has been moving toward increased leverage for more than a decade through staffing and technology. It seems likely, even to an old guy like me, that future increases in leverage—of both workload and marketing—will likely come from the technology end of the business. 

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See Shareholder Services Group's Dan Skiles' latest Investment Advisor column on how to measure the effectiveness of your technology spend.

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