The Baltimore RIA had only raised $65 million in its first five years but jumped its overall haul to $165 million after its growth rate held up
Brooke’s Note: The RIA business model that scales is the virtual model whether it’s Ken Fisher, Peter Mallouk, Empower or Facet. Over and again, you see high-growth and high-profit margins. Facet has by far the lowest AUM of that troop but also by far the highest growth rate — and technically very little dependence on AUM to drive revenues. It’s enough to attract $100 million from VCs old and new and make RIAs stand up and take notice. It’s about where Learnvest left off with a similar planning-based model but Facet is without any apparent plan to sell out to Northwestern Mutual.
Facet Wealth announced today (Jan. 19) it has raised $100 million in a round led by Durable Capital Partners LP, which has a considerable feather in its cap–the purchase of DoorDash shares pre-IPO.
A previous investor, Warburg Pincus also joined in. TeleSoft Partners, and Green Cow Venture Capital invested for the first time.
Facet expects its cash windfall will benefit its efforts to maintain its meteoric growth rate.
“The company has grown by 10x since 2020, and the funding will be used primarily to continue to fuel that top tier trajectory,” Facet says in a release.
“Facet will also make investments across its technology and product suite, and client experience.”
A query was sent to Facet via Co-founder and CEO Anders Jones’ LinkedIn page, asking what the 10X refers to. So far he has not responded.
At the forefront
The Baltimore virtual advisor, founded in 2016, had only raised $65 million in its first six years as it grew at a wild rate but with low absolute client numbers and a large staff of underutilized human advisors.
Now it has doubled AUM to $1 billion in the past year and reduced its ratio of advisors to assets.
The trick is that Facet better automated a portion of financial advice less conducive to robotics and more so to investing — financial planning, according to Henry Ellenbogen, Durable’s chief investment officer in a release.
“Facet stands at the forefront of an era in which people will benefit from the use of new technology that results in personalized financial plans suited for their specific needs and aspirations,” he says.
New standard
Jones put a finer point on it by touting his advice software but also his subscription model.
“Today’s financial advice is poorly designed, and the incentive model many firms use is completely misaligned with people’s needs. We have created a new standard for what financial planning should be,” says Jones.
Subscription models not only get past the churning and conflict criticism leveled at the brokerage model but also reverse churning in the AUM model, a problem that may be industrywide See: RIAs may face ticking time bomb after SEC slams a $1.9-billion RIA for neglecting ‘orphan’ accounts while charging fees.
Facet’s revenues are tied more to the number of clients it serves than the AUM because those investors pay a subscription fee, in the $3,000 ballpark, not an AUM-based fee.
Yet subscriptions are not immune from criticism. An investor with $100,000 paying a $3,000 subscription fee is paying the equivalent of 300 basis points — albeit with potentially better planning advice.
By the numbers
A typical RIA advisor manages the accounts of 80 to 100 clients. Facet believes its advisors can handle a maximum of 250.
“[This] is the year when we’ll start to realize significant efficiency in the planner capacity that we’ve invested in in the last couple of years, so I anticipate that those numbers will hold pretty close to what we’re projecting,” said Jones in a March 2021 interview.
When RIABiz last wrote about Facet in March, it reported just $502-million in AUM and 6,000 clients. In October of 2020, Facet managed $350 million. See: Facet Wealth is doubling in size every six months with subscription model, on-the-job training, no central offices and a rising belief it can be the ‘next Fidelity’
Facet now serves more than 10,000 clients with a combined $1 billion managed and has about 300 employees in 42 states.
Last March, Facet employed 240 people so its staff has only increased about 25%. At the time, it predicted it would hire 100 new employees by the end of the year, including planners, client services staff, software engineers and sales people.
Of the 240 staff, Facet had 80 advisors, with 40 additional planners expected to come on board by the year’s end.
Building relationships
A Facet advisor is not the same as other CFPs operating remotely at the big firms, Jones said in an earlier interview.
“[Schwab et al.] basically hire folks who studied for three years to get their CFP, and then have them answering an 800 number, limiting them to asset allocation and maybe some retirement planning … [often with] sales targets on their heads as well,” he explained last March.
“Our CFPs build relationships; what they got in this industry to do.”
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