How did he do it? "In a word, delegation," he explains. "Most advisors try to do it all. As a result, they hit a wall. Everyone thinks I have a really big ego. The fact is I am willing to hire people who are better at their job than I am."
In 2003, while his firm was growing-at that point he had 19 advisors, 5,000 clients and $2.5 billion in assets under management-he realized he needed a partner to provide capital and open additional offices. He and his wife Jean also wanted to pull some money out of the firm because at that point nearly all of their net worth was tied up in it. He decided to sell a majority stake.
They hired an investment bank and, as Edelman puts it, "went shopping" for an acquirer. Over the next two years, they talked to banks, brokerage firms, insurance companies and private equity and venture capital firms, and they wound up meeting with more than a dozen. They received six offers, narrowed it down to two, and a bidding war ensued. They wound up choosing Sanders Morris Harris Group (SMH)-even though the other offer was higher-because the firm offered capital, expertise and Ball promised to stay out of the way of Edelman, who retains executive control over Edelman Financial Services (EFS).
The deal was the largest ever done by an independent advisor at the time, and may still be. "It was quite a bombshell when announced in 2005," Edelman says.
In 2011, the parent firm changed its name from Sanders Morris Harris to The Edelman Financial Group (NASDAQ: EF) which now owns 76% of EFS. Edelman himself owns 11% of TEFG and 24% of EFS, which gives him effective ownerhip of about 33% of EFS. Ball and original founders Don Sanders and Ben Morris own a combined total of 17% of EF shares; other insiders own an additional 5%.
Other major shareholders include Royce & Associates and the T. Rowe Price Small-Cap Value Fund.
For now, Edelman continues to grow the firm and says he will be adding another 20 advisors by the end of the year. "Our growth is based solely on demand: As long as people call us for help, we will grow in order to accommodate them," Edelman says. "When they stop calling, I'll stop growing."
As for the parent firm, Edelman says TEFG owns stakes of 50.1% to 100% in many different affiliates, though EFS generates about 50% of the parent's revenues and profits. EFS itself converted to fee-only in 2005, but TEFG purchases interests in firms with different business models. He says TEFG continues to look for acquisitions and currently is in negotiations with a firm managing $1.1 billion in assets that could close this spring.