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This Tech-Advisor Hybrid Wants Your Small Clients

Facet Wealth’s wheelhouse is the same client profile advisors are typically trying to offload.

Despite their youthful appearance, Anders Jones and Patrick McKenna are Silicon Valley veterans: Degrees from Stanford, Wharton, and Georgetown appear on their resumes. After being on the team that sold a startup to Acxiom for $310 million, Jones was a founding partner at venture capital firm, Argyle Ventures. McKenna helped nurture a string of startups as both a co-founder and angel investor after an earlier stint at Morgan Stanley and in the U.S. Army.

But for their latest venture the bigger influence is closer to home, they say. Jones’ mother spent a career helping others save for retirement; Mckenna’s mother, a postal worker, was on the other side of the table as a client, having been nearly convinced by a broker to convert her life savings to an annuity she ultimately didn’t understand.

Both were inspirations for starting Facet Wealth, a technology platform designed to bring sophisticated financial planning to small-account clients. These are often the same clients many traditional financial advisors struggle to serve because the preparation and execution of their financial plans is barely, if ever, profitable. 

So Facet Wealth’s unique client acquisition strategy fills a need, they say: They will “buy” an RIA’s small, unprofitable clients, and move those clients over to the Facet Wealth platform. There, the automated planning tools they’ve developed (backed by human Facet Wealth advisors) will bring the clients a better planning experience delivered with a less-expensive price tag. For the RIAs that sell to Facet, it’s a way to shed costly clients from the books, improve profit margins and refocus a business upstream. It is, the Facet Wealth founders argue, a win-win-win all around. 

Facet offers to buy an advisors’ small-asset client business at close to market rate. For example, say an advisor wants to sell the book of business for all of the 200 clients they have, each with less than $500,000 in investable assets. Facet Wealth would make that purchase at a one-time multiple of the revenue that advisor earns from those clients in a year, paying 25 percent upfront, 50 percent after client transition, and the remaining 25 percent at the end of the first year. There is no minimum number of clients an advisor needs to make a deal with Facet Wealth, the company said.

Clients are notified by their current advisor of the partnership with Facet Wealth, as well as the financial relationship. The team works with clients and advisors to make the onboarding as smooth as possible.

For its services, Facet Wealth charges a client a flat fee depending on the size and complexity of the service provided. While charged as a subscription, it initially averages out to roughly 45 basis points, the firm said, calculating an average client household to have $350,000 in investable assets and paying an average fee of approximately $1,600. The company said its clients are 55 years old on average and work with the same Facet Wealth advisor throughout their time with the firm. “It’s not a kind of call center approach,” added Jones. Should a client hit the $1 million threshold, Facet Wealth will move the client back to his or her previous advisor for the more high-touch service, should all parties agree.

To be sure, the strategy is relatively young, and it remains to be seen if enough advisors can be convinced to “monetize” their unprofitable clients with a one-time fee, or if many will simply let those clients remain on the books, charging them an assets under management fee without providing much in the way of service or planning. It’s also unclear if enough clients will welcome being shifted to their advisors’ partner platform, even with the added services and cheaper fees. Facet Wealth just starting buying and servicing small-asset clients from other advisors in early 2017; it has acquired some $23 million in AUM and has four advisors working with clients.

The idea is to grow that client base, relying on computing power to scale the planning services their advisors provide. “The average advisor right now in the U.S. works with 75 clients,” said Jones. “Ours can work with between 250 and 300.”

Patrick Rush, a CFP and the chief executive of Triad Financial Advisors, Inc. in Greensboro, N.C. said his firm has transitioned 25 to 30 clients to Facet since meeting the company’s principals a year and a half ago. Triad manages $650 million in AUM for 659 clients that are a mix of affluent and high net worth.

“We were confronting the problem many advisors face and that’s how to both do what is best for the client and run a successful business, and we just came to the conclusion that you simply cannot help every client to the extent you would like,” Rush said. His firm has 14 CFPs on staff and each meeting usually includes two, plus an assistant. “When it comes down to it, 90 percent of our meetings are in person, in our office, and that can really eat up your capacity,” he said.

Facet’s focus is not on investment management, an area teeming with robo technology. Facet Wealth is focused on disrupting financial planning. Jones estimated a full hour of client-facing time costs an advisor about three hours of preparation and wrap-up time. “When we build our tech, our whole focus is on how to take that three hours of prep and wrap-up time and get that as close to zero as possible, so that our advisors are fully utilized with time in front of clients,” he said. “We’ve actually built some pretty sophisticated artificial intelligence that is almost like a computerized CFP—it’s like a CFP brain.”

It is this focus on planning that made Rush feel confident that the firm would do right by the clients they were sending to them. “They are like-minded when it comes to the type of planning they do and it feels very good not sending these clients to a really big firm and an 800-number call center. We think Facet is going to be a good middle ground between fully automated and full service” said Rush, whose firm focuses on goals-based planning built around MoneyGuidePro software.

“This is a frontier we’re going to see a lot more movement in,” said Alois Pirker, research director at Aite Group wealth management division. “[Financial planning] is one of those areas that have been traditionally delivered to the high net worth.” Technology enables advisors to profitably serve the mass affluent with an offering somewhere between full-service and self-service, he explained. “Complexity reduced to a level that’s helpful and not distracting; this is a tall order to get right.” 

Part of Facet Wealth’s technology planning is that by limiting the asset size of the client, it narrows the range of inputs the algorithms handle. After bringing in a client from another advisor, Facet Wealth runs an onboarding process that gathers up hundreds of data points, much as any other planning firm would. With that knowledge, the firm’s technology can match those inputs to roughly 30 different services that most clients will need, from cash flow management to income planning, from budgeting, saving and financing for life goals to debt management, from trust and estate planning to small business planning.

After Facet’s technology has completed evaluating the client, a human advisor steps in. Nothing goes to a client without a CFP signing off on a financial plan, said Jones. “There is an enormous gap between what a human advisor can do for someone versus what even the most sophisticated pure tech solution can do for someone right now.”

Facet Wealth’s business model also limits variables the company needs to account for, said Pirker. By buying books of business that an advisor no longer sees as profitable, the firm is by design picking up older clients. Those clients, later in their earning years and on the cusp of retirement, have a different set of needs than someone with the same level of assets, but who has more earning years to grow assets. 

The firm’s investment management approach utilizes model portfolios with low-cost, passive market participation. “We’re not trying to do anything fancy, so it's fairly straightforward,” said Jones. “But we do have different kinds of risk return profiles depending on where a client is in their life.”

While the firm is content to grow the business through new client acquisitions from advisors, Facet Wealth sees more growth opportunity with even smaller clients. “As we’re thinking about expanding our target market, what’s way more interesting to us is how do we go below $100,000?” Jones said.

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