Wealthfront is buying San Francisco-based Grove Advisors, according to an announcement made today, but the acquired registered investment advisor will be dropping its clients. Grove Advisors, which lists 42 accounts and $4 million in assets under management in its regulatory filings, will be “shift[ing] our focus to building technology and automation on a large and growing platform,” according to an email provided to clients. Grove is turning to tech-advisor hybrid Facet Wealth to provide advisor services, including financial planning, for the clients it is jettisoning.
“As of August 23rd, Grove itself will no longer offer financial planning services or investment advisory services to clients. To facilitate the transition to Facet, Grove has entered a strategic agreement with them to offer financial planning to those of our clients who are interested in continuing to receive fiduciary, flat-fee financial advice,” according to information provided by Grove. The firm offered clients three check-ins per year, a "dedicated financial planner," investment recommendations and a strategy session, along with other financial services, for a flat fee of $780 per year, billed monthly, with a one-time setup fee of $560.
Both Facet and Grove were focused on "virtual financial planning," so it made sense for Facet to be first in line to acquire the RIA's clients, said Anders Jones, CEO at Facet. The actual number of households that will be eligible for transition to Facet is closer to 500, he said, noting that the regulatory filings for Grove were outdated. He expects "a chunk of the CFPs" at Grove to transition to Facet, along with some of the planning team management. "If we got three or four of their planning team, we'd be really happy with that. Their team is a bit smaller than ours," he said. Grove counted 17 employees in its most recent regulatory filing. CFPs that move to Facet from Grove will work from home as part of the remote advisor services offered by Facet.
Facet has about 20 CFPs right now, said Jones, with clusters in Phoenix, Ariz. and Tampa Bay, Fla. The remotely located advisors are spread across more than a dozen states, he added.
By buying tech, not clients, Wealthfront is signaling it is more interested in the intellectual property of Grove than the investors benefitting from it. “Grove clients signed up for a hybrid financial planning service and we want to respect that preference,” said Kate Wauck, spokesperson for Wealthfront. “As such, Grove is working with Facet Wealth to offer current clients the option to continue to receive flat-fee fiduciary advice from CFPs.” She noted Wealthfront is “delivering financial advice solely through technology.”
Grove's sale to Wealthfront, which believes "financial planning and advice does not need to be delivered through a person," is an about-face for Grove co-founder and CEO Chris Hutchins. Just two years ago he was championing human-provided financial advice. "Understanding people's priorities, their goals, their risks, their families, is something that I don't think software can perfectly do right now," Hutchins said at the time. "Our goal isn't to replace the human financial advisors in the country with a bunch of software algorithms; it's to make software allow them to be the most efficient possible so we can kind of have the best of both worlds."
Terms of the acquisition were not disclosed in the release, and Wealthfront did not immediately respond to an inquiry about the price paid for Grove or how many of the firm's employees would be transitioning to Wealthfront, other than a statement from Wealthfront CEO and co-founder Andy Rachleff that "Chris and the Grove team" will be added to the automated advice platform, or so-called robo advisor. Both Grove co-founders are named Chris.
Grove was founded four years ago by Hutchins, a former Google Ventures employee, and Chris Doyle. The firm had since raised $10.1 million in funding, according to Crunchbase, including capital from Silicon Valley notables like Winklevoss Capital Management, founded by Tyler and Cameron Winklevoss, Kevin Durant's VC startup Thirty Five Ventures and First Round Capital, which was an investor in Uber, Square and Warby Parker. Grove did not immediately return a request for comment on the acquisition.
The technology developed at Grove will be used to continue Wealthfront's development of its personal financial services, according to the firm, which aims to take investor deposits to pay bills, fund savings and make investments, all automatically.
It's also telling that Facet, which developed its own technology and has roots in Silicon Valley, decided against purchasing Grove's technology. The firm lured a former Vanguard Personal Advisor Services' manager away from the financial services behemoth earlier this year and said it hopes to scale its practice such that each advisor could handle as many as 400 clients.
A well-placed source, who asked not to be quoted, said the deal between Wealthfront and Grove looked like an acquihire, where a firm buys another for its talent.
Or it could be a reaction to Charles Schwab's move to subscription pricing, said Michael Kitces, co-founder of XY Planning Network, in a series of social media posts. "Expect to see [Wealthfront] now repurpose the [Grove] tech to be an even-more-holistic planning software platform," comparing the eventual result with that of Personal Capital. Grove and Wealthfront's financial planning service "will likely emulate the monthly subscription model that Schwab has already shown can convert a monthly financial planning fee into billable AUM (plus, of course, the planning fees themselves," he added. He predicted a "rapid escalation in the monthly subscription pricing battles in the next month or two."
He doesn't see the end product of the Wealthfront-Grove deal being a "significant competitor" to advisors.
While declining to comment on Wealthfront's acquisition of Grove, citing a lack of details, Jones noted that his firm is well-positioned to help service clients that other firms may not want to take on. "Our ability to absorb clients that another firm doesn't have a home for has sort of been our core thesis all along. In the more traditional RIA space, we've partnered with firms that have gone through an acquisition and the buyer just wants to buy the million-dollar-plus clients and we bring on the other clients," he explained.
The deal between Wealthfront and Grove is "a little bit different," added Jones. "This is more of a fintech company, as opposed to a traditional RIA, but it's a great example where Facet's a great partner in the M&A space."