This article is part of AdvisorEngine®'s community conversation initiative. We're excited to bring you interviews with wealth management professionals from across the industry. We hope you find inspiration and insights from the life lessons they've learned and the business practice challenges they've faced. If you’d like to participate or know someone we should profile, reach out to us here.
“We saw a real opportunity to change the industry.”
Anders Jones’ inspiration for launching a financial advisory firm came from an unlikely source: the Department of Labor.
In 2014, the government agency proposed a fiduciary rule that many financial service firms opposed, arguing it would make working with clients who had relatively small retirement accounts too onerous, in part, because it would simply be too costly.
That’s when Jones, the CEO and co-founder of Facet Wealth, saw his business opportunity. “There are close to 40 million households in the U.S. who don’t have enough assets to be attractive to most financial advisors,” he says.
But that market comprises individuals or families with between $100,000 and $1 million to invest who aren’t all interested in do-it-yourself investing. “We saw that the industry was not serving that group well and they needed help,” he says. “We saw a real opportunity to change the industry.”
At the time, Jones was director of business development for LiveRamp, a digital advertising firm and a partner at the venture capital firm Argyle Ventures. But his interest in financial services started much earlier — growing up in Boston, his mother was a top executive at Fidelity who worked extensively in the company’s retirement and philanthropy businesses.
“My mother gave me an appreciation for the importance of financial security,” Jones says. “And the older I get, the more I understand how much she influenced me.”
After graduating from Stanford and getting an MBA at Wharton, Jones returned to Silicon Valley in 2009 and was the eighth employee hired by LiveRamp. He credits the company’s CEO for giving young employees like himself “carte blanche to figure stuff out.”
Jones was given “huge responsibilities very early on,” he says. “There’s no way I could do my job now without that experience. I acquired a healthy disregard for the status quo and realized there was always a way to do something better.”
When Jones and co-founder Patrick McKenna started Facet in 2016, the initial business plan was to pay established RIAs a fee to acquire mass affluent clients that those firms viewed as unprofitable.
The plan “made sense on paper” but was difficult to execute and make scalable, Jones says. But thanks to Facet’s website and social media, the firm’s value proposition of offering clients digital services along with a human advisor at a reasonable subscription fee was resonating and Facet became a direct-to-consumer company.
The industry trade journal RIABiz described Facet’s business this way: “The RIA combines the best ideas of Learnvest, PersonalCapital and XYPN for planning virtual service and subscription fees. Then it sprinkles in some Vanguard and Schwab aspects to provide mass-customized human RIA advice.”
Facet targets households with young families and small business owners and offers financial planning and investment management services for an annual subscription fee that starts at $1,800 a year.
The RIA’s formula is paying off: Facet reports it grew four-fold in 2020 and is on track to repeat that feat this year. The firm has over 5,000 clients, over $500 million in assets under management and a virtual workforce of 250 people in 42 states, many recent college graduates and newly minted certified financial planners.
“We want to build a long-lasting, generational company,” Jones says. “The last company like that was Schwab and the industry is ripe for another entry at that level. And we believe Facet is the model of the future.”
Chip Roame, managing partner of Tiburon Strategic Advisors and a Facet board member, agrees.
“Facet’s quick ramp-up is evidence of the demand, as is the fact that a huge percentage of its clients have never before utilized a financial advisor,” Roame says.
Venture capitalists, led by global private equity firm Warburg Pincus, are believers and have invested $79 million over three fund-raising rounds in Facet.
Facet recently quadrupled its client base in one year. The company’s biggest bet, however, is still far from decided.
For decades, the established business model for independent financial advisors has been to charge a fee on a client’s percentage of assets under management, usually set at 1%. Advisors and their clients do well when the stock market appreciates — as it has for the past 11 years.
To offer clients more fee flexibility and service tied less to market performance, a number of financial advisors have expanded billing options, including offering hourly rates or flat fees for their services. The popularity of streaming apps convinced large brokerages such as Schwab to even adopt a subscription model for some financial advice offerings.
Advisory firms are also leaning more into client segmentation strategies to broaden their target market and figure out how to profitably serve clients, regardless of size or revenue model.
The AUM-only model is nearing an inflection point, Jones asserts.
“Advisors say their value is in financial planning, but clients pay through asset management,” he says. “They’re being charged a huge amount of economic rent and that won’t be sustainable much longer.”
This blog is sponsored by AdvisorEngine® Inc. (“AdvisorEngine”) and Junxure, an affiliate of AdvisorEngine. The information, data and opinions in this commentary are as of the publication date unless otherwise noted, and subject to change. This material is provided for informational purposes only and should not be considered a recommendation to use AdvisorEngine or deemed to be a specific offer to sell or provide, or a specific invitation to apply for, any financial product, instrument or service that may be mentioned or to provide tax, legal or other professional advice. AdvisorEngine makes no representations as to the accuracy, completeness and validity of any statements made and will not be liable for any errors, omissions or representations. As a technology company, AdvisorEngine provides access to award-winning tools and will be compensated for providing such access. AdvisorEngine does not provide broker-dealer, custodian, investment advice or related investment services.