Facet Wealth, an up-and-coming digital wealth management platform, landed $33 million in funding with the premise of providing holistic, personalized financial advice to the mass affluent.
Unique to its growth model is that Facet Wealth acquires small clients from RIA firms, with the promise that if those clients reach over $1 million in assets, the firm will offer to move them back to the advisor.
“We want to be seen as a partner to the industry, not as a competitor,” says Anders Jones, CEO and co-founder of Facet Wealth.
Leading the Baltimore-based fintech’s Series A round of funding is investment firm Warburg Pincus, which was also a major investor in Financial Engines. Also participating in the round was venture capital firm Slow Ventures, which had previously invested in Facet Wealth.
The startup hit a number of themes important to the investment fund's outlook for the wealth management space, said Jeff Stein, managing director at Warburg Pincus.
"In a market traditionally underserved by advisors, they have the ability to serve these customers well, but profitably through a combination of innovative technology and a purposeful workflow model," Stein says.
Facet Wealth sees "enormous opportunity," to work with the client with assets from $100,000 to $1 million, Jones says, adding that every client works with a dedicated certified financial planner and pays an average 41 basis points. Facet Wealth's average client is 55-years-old, transitioning to retirement, and holds $350,000 in assets. The firm currently has $23 million in assets under management.
"There is a gap in the market," Jones says. "These small clients have more money and more complex lives than what a purely robo advisor can help with, but not enough assets to attract the high-net-worth advisor."
The startup's model is to charge not on assets but for services rendered, Jones adds. Proprietary technology allows for its current roster of six CFPs to service 250 clients each, four times more efficient than the industry standard, he claims.
"None of our advisors are compensated on sales," he adds.
Facet Wealth's pitch to advisory firms is that by taking on these clients, they can help a firm optimize its book of business, leaving them to focus on larger clients that provide a higher margin of revenue. Jones says Facet has transitioned clients from a dozen advisory firms.
"You can free up capacity without additional headcount," Jones says. "If you're gunning for that next level to grow from $500 million to $1 billion, the capital resources we can provide can fuel that growth."
Jones adds the startup works with advisory firms to first get them comfortable with the hand-off and assured that their clients will be well-managed. And the offer is there to shift them back to the original RIA if they pass over $1 million in assets. "We don't view this as transaction, but rather a partnership," he says.
Alois Pirker, research director for Aite Group's Wealth Management practice, says Facet Wealth's model is an example of new specialization within the industry brought about by technology.
"They are fine-tuning the process of engagement," Pirker says. "Every RIA hasn't figured that out, many are still working within a general purpose, one-size-fits-all model."
Pirker notes that Facet Wealth's clients are generally past 40 years of age, at which point advisory firms mark them as less desirable if they are not at a certain level of assets. "Particularly for the client at a later stage in life, there is decreased hope in their lifetime value representation to a firm."
Pirker noted that United Capital has also employed the model of taking over clients from firms. "But United Capital's client has skewed to bigger clients. [Facet is] honing in on the smaller client demographic."
Warbug Pincus' Stein acknowledges the potential for other startups or incumbents to imitate Facet Wealth's business model, or employ a similar offering to clients but cheaper by relying entirely on automation and the use of artificial intelligence.
"There are 47 million mass affluent households with some kind of wealth management relationship today, and there are are tons of different types of relationships within," Stein says. "But we absolutely think there is a market for Facet. A good provider with dedicated financial advisors, offering true financial planning at a cost effective price is lacking in the market today."
