Facet Wealth financing follows business model change

Having recently raised $100 million, technology advisory hybrid Facet Wealth is capturing more than just venture capital. It remains an object of curiosity for the wealth management industry, with Facet’s changing client acquisition strategy and the particularly high number of clients it says it allocates to each advisor.

For three years after its inception in 2016, Facet Wealth’s client acquisition strategy was to buy other advisors’ books of business. He focused on buying the business from smaller clients who weren’t profitable for the advisors, a group that included older clients on the cusp of retirement.

In the end, CEO and co-founder Anders Jones ended the strategy which he described as “moderately successful”. Advisors selling their clients to Facet had a hard time explaining to those same clients why they wanted to move them in the first place, he said. Since 2019, he’s found a more effective strategy: going directly to consumers with a subscription-based service leading to financial planning, not investment management.

The change in strategy has led to a growing clientele of people new to human financial advice. Seventy-five percent of Facet’s business volume has never worked with an advisor before, according to Jones.

“When you’re building a business and trying to get the most (return) from the dollars you spend…you want to make sure it’s put to the highest and best use,” Jones said. “It’s so much easier and a much higher ROI to go direct to consumer.”

Facet’s current strategy, which Jones calls a “digital marketing machine,” benefits significantly from changes made to the SEC’s so-called advertising rule last year. In addition to using paid media, social media and search optimization, Facet uses “an influencer program” of satisfied customers who encourage potential customers to contribute their assets to the hybrid, according to Jones. These paid testimonials are then targeted to people new to the financial advice provided by the man, with a focus on factors such as paying off debt, starting a family or buying a home.

Another factor in Facet’s marketing playbook is the expertise of COO Shruti Joshi, who was hired last year. Joshi previously led Verizon’s efforts to attract customers to its FiOS network and founded his own marketing startup, called Compell’d, Jones said. Compell’d is a peer-to-peer service that allows the user to “collect, organize and share trusted recommendations”.

One aspect of Facet’s marketing is its focus on customer metrics that don’t fit into regulatory filings under a traditional AUM umbrella. Among the company’s customers, more than 400 babies were born last year, Jones said. It was a measure of success, he said, because it showed that Facet clients had enough confidence in their financial plans to be ready to grow their families.

“We’re managing over a billion dollars at this point,” he said, “but only about half of our clients actually invest money. The rest we help with those very tangible life milestones .

According to its latest regulatory filings, Facet manages $961 million in assets across 9,664 accounts. Those assets are owned by about 5,000 clients who benefit from asset planning and management, less than 1,000 of whom are considered high net worth — a customer segment the firm isn’t targeting, according to Jones. The approximately 5,000 other clients receive financial planning starting at $1,800 per year.

For clients who have chosen to invest their money with Facet, the company has its own trading operations and a set of self-built model portfolios. It uses Apex Fintech Solutions and Fidelity to hold the Vanguard and BlackRock funds it trades. Accounts have a $500 minimum. Clients are interested in a crypto investment vehicle, which is under consideration, Jones confirmed.

While Facet has big aspirations (the firm wanted to work with 24,000 clients by the start of this year), it remains subject to human limits. Four years ago, Jones said his company’s technology would allow each Facet adviser to work with between 250 and 300 clients. Today, that number has been revised down to 250 clients per advisor. The average adviser works with 90 to 94 clients, he said, noting that advisers who are just starting out work with fewer clients while more experienced advisers have between 220 and 250 clients.

To be sure, even 220 customers is well beyond a “cognitive limit” on human groups, often referred to as “Dunbar’s number”. First proposed in the 1990s by British anthropologist Robin Dunbar, the number – 150 – represents the maximum size of a stable social contract.

A decade ago, industry watcher and advisor Michael Kitces applied that number to advisor-client relationships, noting that advisors tend to “‘cap’ at a maximum number of clients. [of] about 100-125. The observation was anecdotal, he said, but added that “it may be unrealistic to expect planners to ever be able to maintain more than about 75 to 125 actual customer relationships.”

Observations on Kitces’ productivity also conflict with Facet’s growth plan by increasing the number of customers per advisor, rather than the number of advisors. Three years ago, Kitces wrote that “understanding the average revenue per client also provides an indication of the ‘maximum’ revenue the advisor can ever earn (eg $3,000/client each year means a maximum of $300,000/ year of income for the firm! )”

Coincidentally, Facet said its average customer spends $3,000 a year on Facet’s services, and the company’s revenue last year had grown north of $25 million. The firm has approximately 110 advisers, working with 10,000 clients (an average of approximately 90 clients per adviser). It takes more than a year for each adviser to be at full capacity, Jones said.

Without hiring another adviser, the company should be able to serve about 27,500 customers, according to Jones’ forecast and expectations. If each advisor works with 250 clients, and those clients continue to pay an average of $3,000 per year for Facet’s services, the company should generate approximately $82.5 million in revenue without increasing labor costs. work.

Facet expects to hire just five financial advisors in 2022 as it strives to maximize the capacity of its advisor workforce.

So far, Facet has yet to reach the center of advisor effectiveness set by Jones, but as they move in that direction, the market is wide open for exponential growth, he says.

“There is a huge market of people who need help or who need [financial advice] and don’t work with a financial advisor at all because they don’t believe the industry has a solution or offering that meets their needs,” Jones said. Facet intends to “build a durable, sustainable consumer brand that truly addresses this massive market need.”

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