Sign up today and take advantage of member-only content — the kind of timely, cutting edge industry insight that only Money Management Executive can deliver.
  • Exclusive Online Only Content
  • Free Daily Email News Alerts
  • Asset Management Blogs

How 529s Jump-Started a $2 Billion Practice

Fund companies have jumped on the 529 bandwagon as a way to boost assets, but Ric Edelman, chairman of Edelman Financial Services, believes these college savings vehicles are a way to cement relationships and cross-sell a variety of investment vehicles. Edelman should know. The Fairfax, Va., financial planner was one of the first to offer college savings plans to his clients - and he has parlayed his original fledging college savings practice into a $2 billion business.

MME: How receptive were people when you started your college planning practice in 1986?

Edelman: I began by calling presidents of elementary school PTAs and offering to do college planning seminars for them. Their first reaction was, "You need to talk to the high schools." And that was my point: You can't wait until your child is a teenager. Back then, information was pretty limited. Even the phrase "financial planner" was not yet a well-known term.

MME: How did you know that all this legwork would pay off?

Edelman: I knew it was severely needed in the Washington community. But I didn't know it would pay off. People were getting information from people who were trying to sell them things, and that's not a great way to learn. We created our firm as a resource for people to understand the risks, fees and also the benefits and opportunities. It was clear that people were starved for the information.

MME: How have you seen the financial planning community change since then?

Edelman: Today, there is a huge availability of financial planning resources. There are a large number of magazines, thousands of books, entire television networks devoted to financial planning - and, of course, the Internet. So in the past, people could complain they didn't have access to information. They can't complain about that today.

The second thing that has changed is the vast availability of vehicles and products. When I started, there were 400 mutual funds. Today there are 13,000.

MME: How would you suggest a fund company help a planner build their practice today?

Edelman: They need to help them position themselves as experts - whatever part of the field an adviser chooses to emphasize. They can become an expert on a particular demographic like retirees, or people with stock options, or airline pilots - and fund companies can send supporting information.

MME: So, it would appear, then, that fund companies should tailor the information they send to financial planners and other selling partners. But has your firm now broadened beyond your original 529 college savings specialty, and are you now receptive to a broad array of investment choices and support?

Edelman: Yes, when you're small, you need to pick your niche. I don't think you can be small and be a generalist. We are now ranked by Bloomberg as the sixth-largest independent financial planning and investment management firm. Because of the depth of practice in my firm, there is almost nothing we can't handle.

MME: How do you advise your clients?

Edelman: Our fundamental philosophy is extensive diversification and long-term buy-and-hold. We are not the idea-of-the-day club. We do not follow fads. We avoided bubble-mania and avoided the dot-com and hi-tech. That was clearly a fad. We have a very specific methodology.

MME: Do you have a minimum?

Edelman: That's one of the most arrogant practices in the financial planning world. It's like a doctor saying he'll only work with healthy people. And it's a disturbing trend. We will work with anyone who needs us. We do pro bono work with clients as needed when they are unable to pay us.

That said, we don't work with no-load funds. We have to be paid. If I were to offer a client a no-load fund, I'd have to charge the client a fee.

MME: Any other suggestions to build a practice?

Edelman: Develop a network of practitioners who will support your efforts. The days are gone when you can be a solo practitioner.

MME: Can't a consumer do this on his or her own?

Edelman: It's a foolish consumer who tries it. They can't possibly know everything they need to know. It's one thing to get educated, and quite another to implement a plan all by yourself.

MME: How do you find clients?

Edelman: They find you, and more so now than ever before. The explosion of information has actually created greater confusion among consumers. People need a good adviser more than ever.

MME: What advice would you give to fund companies and advisers alike about growing their business long-term?

Edelman: Focus on the investors' best interest rather than on their own. The more they give away, the more they'll get back.

Copyright 2003 Thomson Media Inc. All Rights Reserved.