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02/14/2019

Why Facet Wealth Wants to Buy Your Small Accounts

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by Marianne Brunet, 12/10/18

Anders Jones is CEO and co-founder of Facet Wealth, a next-generation financial services firm reinventing financial life management for the mass affluent. An entrepreneur and early-stage investor with experience in building companies to scale, Anders co-founded Facet Wealth in 2016 to break down the cost barrier of full financial planning access, and to offer partner RIAs a responsible solution for smaller accounts. Prior to Facet, Anders was a founding partner at Argyle Ventures, investing in emerging advertising, fintech and healthcare IT startups. He earned his BA at Stanford and MBA at the Wharton School at the University of Pennsylvania.

I spoke with Jones at The MarketCounsel Summit in Las Vegas on December 5.

I understand that Facet Wealth is focused on financial life management. Tell me more about your firm and why you launched Facet Wealth.

Facet is a next generation financial services company, focused on providing high-quality planning and advice for the mass affluent market. There are folks with less than $1 million that still need holistic planning and advice that we see as a massively underserved part of the population.

If you’re a mass affluent client—suppose you have $200,000—then you have two bad options for wealth management.

You can either go to a “do-it-yourself” robo-advisor, which is great for cheap market participation, but as soon as you start having planning questions or anything that really impacts your broader financial life, that model breaks down very quickly.

Or you can go to a traditional human advisor. But at $200,000, that’s a very difficult client for the advisor to service based on their cost structure.

There are about 33 million mass affluent households in the U.S. They all need help in some form or fashion, and many of them are not getting it. That’s where Facet comes into play.

What level of service do you provide to clients?

Our value proposition and approach is to take a white glove, high-touch wealth management experience that someone with $2 million would receive, and make that available to someone with $200,000 using a combination of people and technology.

As a Facet client, you get a dedicated CFP relationship. We’re not a robo. The client works with one of our advisors. You have a human on the other end with whom you’re building a trusted relationship with for full planning, not just asset management. Unlike robos, we’re looking at every aspect of someone’s financial life.

You don’t pay based on your assets; you pay based on the services that you’re receiving.

When we onboard a client, we do a full deep dive into their entire financial life. We look at all of the different things that we can potentially help them with, and then customize the service based on that. Our fees range from $500 to $5,000 per year, depending on what we’re doing for the client.

Our average household has a net worth of $350,000, and our average client pays us $1,600 a year.

On an apples-to-apples basis, you’re looking at about 45 basis points for full planning, which at our end of the market is about a 60% discount to what is available to those folks right now from a human advisor.

You’ve said that Facet is disrupting the wealth management industry, but that it wants to be seen as a partner to advisors, not a competitor. Tell me about how Facet Wealth partners with financial advisors.

Facet is a partner to the financial services industry. This is another unique thing about our model—we don’t do a lot of direct-to-consumer marketing. Instead, we partner with the industry to solve another big problem, that of small accounts.

We work with both individual financial advisors and firms to transition small clients that don’t fit their ideal client profile away from them and over to Facet. That allows those advisors to free up time and resources to focus on their ideal clients, usually those with over $1 million. We do pay for those clients, so it’s a capital infusion as well.

We work with advisors who are trying to solve one of three key challenges.

Growth or capacity issues – Often you’ll find advisors who are totally swamped and overworked with too many client relationships. Not only is it killing their work-life balance, but it’s impeding their ability to grow because they can’t take on new clients. We found that if you pull some of those smaller clients away and move them to Facet, it opens up the growth trajectory for those advisory firms.

Profitability or valuation – A lot of these mass-affluent investors are actually negative gross margin to advisors. Advisors are losing money every time they talk to those clients. We can help advisors optimize their profitability. Whether they’re thinking about it for the long term or preparing for a transaction, we can help them improve their practice’s valuation.

Branding – More and more advisors are realizing that you can’t be all things to all people. You can’t have two different service models, where you’re serving high-net worth and mass-affluent clients. If you try to do both, you’re going to end up not pleasing anyone, and hurting your business.

We spend a lot of time helping advisors figure out where they want to be positioned in the market. Then we help them with the clients that don’t fit that aspirational service model.

How does Facet help advisors from a fiduciary and practice management standpoint?

We get involved in three different ways with a firm.

One is this ongoing practice-management solution, and the three things that I just talked about all fall into that bucket.

Another is with referrals on an ongoing basis. As advisors grow and get prospective clients who don’t meet their minimum thresholds, they can send them to us. We’ll give those clients a great experience and make that advisor look like a hero for having a relationship with us.

Then the last is partnering around M&A. If you’re a buyer, we can partner with you to buy a firm or a book that you might not otherwise consider because there are too many small clients that don’t fit your firm profile. Or if you’re a seller, we can help you get your book ready for a transaction.

What kinds of advisors do you work with? Why is partnering with Facet a strategic way for advisors to grow their practice?

We work up and down the spectrum. We can help smaller advisors who are looking for a succession solution, or bigger advisors who are buying a smaller firm.

Then, we can help any advisor thinking about the next leg of growth. A lot of practice management folks talk about the three different stages of an advisor’s lifecycle, which centers on their practice: first, breaking that $100 million barrier; next, the transition when you reach $400 to $500 million AUM, where you move from a practice to an actual business; lastly, when advisors reach $800 or $900 million AUM, when it’s like, “Okay, you’re actually turning this thing into a real company.”

At each one of those stages, there are a set of strategic things that you need to think about and do. Often, that’s a great time for us to get involved.

Whether you’re investing in a technology project, changing your service model or you’re doing a big marketing push, each one of those things require resources, time and money. That’s where we can come in and provide all three of those things.

Why is partnering with Facet Wealth a better alternative for advisors than considering M&A or other avenues for growth?

The two are not mutually exclusive. We’re an enabler to other initiatives.

If you’re an advisor thinking about M&A, you should definitely talk to us. We help create a more profitable transaction, whether you’re a buyer or a seller.

If you’re thinking about growth, you should definitely talk to us, because we can help you grow faster.

If you’re thinking about brand, you should come and talk to us, because we can help you zero in on who you want to be and how best to get your message out to the market.

What would you say to advisors who are concerned about how working with Facet will impact their fiduciary obligation?

We are a great thing for an advisor’s fiduciary obligation.

Every advisor who we work with is working to help clients. Oftentimes, advisors feel like not all of their clients are getting the services they need. Partnering with us is a relief. The advisor knows that their smaller clients aren’t getting the time and attention that they need, and so transitioning them to Facet means that they’ll be well taken care of.

If an advisor partners with you, what’s the process like in terms of transitioning the accounts? How does it impact their fee model and their general practice management?

It’s funny, a lot of advisors get a little gun shy about the transition process, because it feels like it would be a very difficult conversation to have to “fire a client.” It’s actually very easy and straightforward, and we’ve gotten very good at helping advisors work through this process.

We have about an 85% success rate on transitions, and the other 15% of investors just elect to stay with their previous advisor.

The advisor will first schedule a call with a client to explain what’s going on. Generally, it’s a fiduciary conversation around: “I’ve looked at the services that I’m providing and the fees that you’re paying. Based on what I’m doing for you and your financial situation, it just doesn’t make sense for you to be paying me this much. I found a great, long-term partner with Facet. They work with folks exactly like you.” Then we’ll take over from there.

Does the advisor stay active in that relationship thereafter?

No, we take over completely.

There is one nuance, though, which is if an advisor transitions or refers a client over to us, and that client grows above $1 million, we’ll actually send them back to the referring advisor.

We don’t want to compete with the industry or go upstream. Frankly, once you have $1 million, you have a different set of needs and requirements, especially on the asset management side. We’re not set up to do that. Those investors are much better suited back with the advisor who focuses on folks exactly like that.

I understand you recently secured $33 million in series A funding from Warburg Pincus and Slow Ventures. What will this investment in Facet Wealth be used for?

It will be used for two things. One is increasing the number of partnerships that we’re able to do. Obviously, we’re buying partial books of business, so that’s capital intensive. But we’re also ramping up our industry partnerships.

The other is around continuing to invest in our platform and our advisor efficiency to make our client’s experience that much better. We are doing a lot of investing in technology and people.

What is the technology experience like for an advisor partnering with Facet? Can you explain how you do all this and what makes your platform so different?

We built all of our technology to use internally. The Facet advisors are W2 employers of Facet, and they’re the only ones using our platform. We’re not selling technology.

The way to think about the technology that we build, and really the “secret sauce” that enables us to provide really high-quality service at a lower cost, is that we’ve invested very heavily in our advisor efficiency. The average advisor now works with about 75 clients, but ours work with 300.

We’ve said, “Okay, how do we maximize the amount of time an advisor can spend in front of the client and minimize the time doing everything else?”

If you’re doing full planning, you’re spending about three hours of prep time for every one hour of client-facing time. Our goal with our technology platform is to get those three hours as close to zero as possible. At the moment, we’re somewhere around 38 minutes. Our tech investment keeps driving that down.

How does your technology help advisors approach those meetings and still have a strong understanding of the financial life-management goals for that specific client? That’s a lot of clients to keep up with.

We have invested very heavily in AI and machine learning for the Facet advisor experience. When they log into their computer every morning, we’ve already looked at their calendar, and we’ve seen who they’re meeting with. We’ve pulled all of the relevant client data, built the financial plan, built the action items and recommendations for advisors to review.

All of our advisors are CFPs, so they’re very qualified. They look at it and do a quality check on it. Sometimes the platform gets it wrong, so they feed it back in and our technology gets smarter.

All of the back-end work around building the plan, pulling all of the relevant data, and putting it in a nice presentation for the client, happens automatically.

The advisor still has a very personal relationship with the client and is very involved and understands what’s going on. It’s just the administrative back-end work is automated and done through AI.

Marianne Brunet is an economic analysis manager at Advisor Perspectives.

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