If the traditional financial planning industry doesn’t care about Facet Wealth’s business model, it doesn’t.
Facet, which was founded in 2016 with $ 60 million in venture capital backing, was designed to bridge the gap between the increasingly popular robotic advisory platforms and the traditional financial planning model based on assets who can’t make money with people who don’t. to have lots of money.
“There are 38 million homes in this country that have more nuance than a digital solution can solve, but they don’t have the assets to work with a traditional financial advisor,” said Anders Jones, Founder and Managing Director of Facet. .
The Facet Wealth platform, which has won over over 7,000 clients, including 4,500 last year, is succeeding by disrupting the traditional planning relationship.
For starters, the fees aren’t based on client assets, but an algorithm that estimates each client’s financial services and planning needs.
Jones said the average annual fee is $ 2,500, with fees currently ranging from $ 1,200 to $ 6,000 per year.
The massive adoption of the largely proprietary technology drastically reduces the time Facet advisors spend on non-client tasks, dramatically increasing the number of clients each certified financial planner can work with.
“We’ve made our CFPs much more efficient by looking at how the average CFP spends their time and removing most of the non-client stuff,” Jones said. “Our planners work with an average of 250 clients each, which compares to the industry average of 75 clients. And our planners spend about 15 minutes preparing for every hour of customer contact, which compares to the industry average of about three hours of prep work.
The difference on prep work, Jones said, comes down to a technology platform that combines traditionally separate systems for things like customer relationship management, risk analysis, financial planning, and customer management. wallet.
“At the most basic level, we’ve created a fully integrated financial planning system and CRM that makes it very clear to the planner what the client meeting agenda is and what action to take,” Jones said.
He recognizes that while he is going against the grain of the industry, he is not alone in his efforts to expand access to affordable financial planning.
“It would be naive to say that we don’t have any competition, but we do a lot more for our clients than robots, and we do it better and cheaper than traditional advisors,” Jones said. “I know there are a lot of people talking about different models of financial planning.”
The Facet model is disruptive in every way, said Bob Veres, owner of Inside Information, which writes a book on the history of financial planning.
“There is nothing like it; they completely broke the mold, ”he said. “There are several innovations out there that create more efficiency and take a lot of the work out of the consulting office. And the software they developed means planners don’t spend time working with separate, siled programs.
In addition to bypassing the industry-standard asset-based fee model, which Veres describes as “lazy and flawed,” Facet leveraged the virtual business model to rapidly scale up to 90 planners in 42 serving states. customers in all 50 states.
Jones said all meetings with Facet planners are happening virtually, and he admits that the bottlenecks brought on by the pandemic have helped increase acceptance of the model.
While Facet is still technically based in Baltimore, Jones moved to Florida when the pandemic restricted official office meetings, and he said he had no plans to reopen the Baltimore office, which means that Facet’s 250 employees will likely work from home all the time.
Although the Facet scheduling program is highly automated, it is still supported by human CFPs who are primarily hired outside of call centers in places like Vanguard and Fidelity.
Jones, who is not a CFP, said 75% of Facet’s clients had no previous experience working with a financial advisor, which he cites as evidence that the model expands access to financial advice.
Customers at the bottom of Facet’s fee scale are “in their mid-twenties and just starting out,” Jones said. “They don’t have a ton of complexity, but can have student loan debt and cash flow issues. They may be trying to save money to buy a house or start a family.
He describes the core client segment as young families and people in their late twenties to early fifties who face “common financial life events, but with some nuances and complexities.”
A smaller number of clients who pay the highest fees are typically small business owners with more complexity when it comes to tax and trust and estate matters.
Jones said that Facet advises on investments and portfolio management for around half of clients, which underlines the distinction between Facet’s customer relationship-based subscription fees and money-based advisory fees that disposes the client.
“If you charge an asset-based fee, the value you provide is tied to the assets, and no advisor is adding value today on the asset management side, and if they tell you, they lie to you, he said. “With asset-based fees, the incentives are misaligned. There are powerful forces that keep the AUM model in place, but if you do a great job at work and get a big bonus, should your financial advisor be making more money because you have a bonus? “
As a rare example of an advisor using an asset-based fee model working with smaller accounts, Ryan Nelson, owner of Alchemy Wealth Management, offers some reduction in subscription fees, by especially for small accounts.
“No-cost models are great, but there are some people who are hiding behind the subscription model,” he said. “If a customer who only has $ 30,000 in assets pays an annual subscription of $ 2,500, that’s over 8% of their assets. While this might be great for me, it’s not great for the client.
Nelson said he can accept smaller accounts at higher than average fees, but he views those accounts as long-term investments.
Its asset-based fee starts at 1.9%, with the first break point at $ 50,000 and the second break point at $ 1 million.
“I don’t have a minimum account, so when I hire a client with $ 30,000, I invest in them with the idea that they will likely be a profitable client over time,” said Nelson. “Over a period of 30 years, I will have earned more on the client and he will have saved more for his retirement. “
Veres is not convinced that asset-based pricing will continue to work in a modern financial planning world.
“It seems to me that the AUM model is really lazy to assess the time and energy it will take to work with a client, and sooner or later this profession will have to learn to assess the complexity of the client relationship,” he said. -he declares. noted. “Advisors should rethink everything they do, but it’s inevitable that they end up having to do it, as more and more people realize that there isn’t a lot of value in the role of asset management ”on which the advisory fees are based.