If the traditional financial planning industry isn’t worried about the Facet Wealth business model, it isn’t paying attention.
Facet, which was founded in 2016 with $60 million in venture capital support, was designed to fill a gap between the increasingly popular robo-advice platforms and the traditional asset-based financial planning model that can’t make money off people who don’t have a lot of money.
“There are 38 million households in this country that have more nuance than what a digital solution can address, but they don’t have the assets to work with a traditional financial adviser,” said Anders Jones, Facet’s tech-savvy founder and chief executive.
The Facet Wealth platform, which has attracted more than 7,000 clients, including 4,500 last year, is succeeding by turning the traditional planning relationship on its head.
Jones said the average annual fee is $2,500, with fees currently ranging from $1,200 to $6,000 a year.
The heavy adoption of technology, much of it proprietary, dramatically reduces the amount of time Facet advisers spend on non-client-facing duties, which in turn dramatically increases the number of clients each certified financial planner can work with.
“We have made our CFPs a lot more efficient by looking at how the average CFP spends their time and stripping away most of the non-client-facing 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 prepping for every hour of client-facing time, which compares to the industry average of about three hours of prep work.”
The difference on the prep work, Jones said, boils down to a technology platform that combines traditionally separate systems for things like client relationship management, risk analysis, financial planning and portfolio management.
“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 agenda for the client meeting is and what the action items are,” said Jones.
He acknowledges that even if he is going against the grain of the industry, he isn’t alone in his efforts to expand access to affordable financial planning.
“It would be naïve to say we don’t have competitors, but we do a lot more for our clients than the robos do, and we do it better and for a lower cost than traditional advisers do,” Jones said. “I know there a lot of people out there talking about different financial planning models.”
The Facet model is disruptive in all the right ways, said Bob Veres, the owner of Inside Information, who is writing a book on the history of financial planning.
“There is nothing similar to it; they’ve completely broken the mold,” he said. “There are several innovations there that create more efficiency and take a lot of the work off the advisory office. And the software they developed means the planners are not spending time working with separate siloed programs.”
In addition to bypassing the industry standard asset-based fee model, which Veres describes as “lazy and flawed,” Facet has leveraged the virtual business model to quickly scale up to 90 planners in 42 states serving clients in all 50 states.
Jones said all meetings with Facet planners are conducted virtually, and he admits the pandemic-induced lockdowns helped increase the acceptance of the model.
While Facet is still technically based in Baltimore, Jones relocated to Florida when the pandemic restricted formal office gatherings, and he said he has no plans to reopen the Baltimore office, which means that all 250 Facet employees are likely to be working from home permanently.
While the Facet planning program is highly automated, it’s still backed by human CFPs who are mostly hired away from call centers at places like Vanguard and Fidelity.
Jones, who is not a CFP, said 75% of Facet’s clients had no prior experience working with a financial adviser, which he cites as proof that the model is expanding access to financial advice.
Clients on the low end of the Facet fee scale are “mid-20s and just starting out,” Jones said. “They don’t have a ton of complexity but might have some student loan debt and some cash-flow issues. They might be trying to save to buy a home or start a family.”
He describes the core segment of clients as young families and people in their late 20s to early 50s who are dealing with “common financial life events, but with some nuance and complexity.”
A smaller number of clients who paying the highest fees are generally small business owners with more complexity around taxes and trust and estate issues.
Jones said Facet advises on investments and portfolio management for about half the clients, which underscores the distinction between Facet’s subscription fee based on the client relationship and an advisory fee based on how much money the client has.
“If you’re charging an asset-based fee, the value you’re providing is tied to the assets, and no adviser is adding value today on the asset management side, and if they tell you they are, they’re lying to you,” he said. “With asset-based fees, the incentives are misaligned. There are powerful forces keeping the AUM model in place, but if you do a great job at work and get a big bonus, should your financial adviser make more money because you got a bonus?”
As a rare example of an adviser who uses an asset-based fee model working with smaller account sizes, Ryan Nelson, owner of Alchemy Wealth Management, offers some pushback on subscription fees, especially for smaller accounts.
“No fee models are perfect, but some people hide behind the subscription model,” he said. “If a client who only has $30,000 in assets is paying a $2,500 annual subscription fee, that comes out to more than 8% of their assets. While that might be great for me, it’s not great for the client.”
Nelson said he can take on smaller accounts by charging above average fees, but he views those accounts as long-term investments.
His 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 an account minimum, so when I take on a client with $30,000, I’m investing in them with the idea that it will probably be a profitable client over time,” Nelson said. “Over a 30-year period, I will have made more on the client and they will have saved more for retirement.”
Veres is not convinced that asset-based pricing will continue to work in a modern financial planning world.
“It seems to me the AUM model is really lazy in terms of evaluating how much time and energy it will take to work with a client, and sooner or later this profession will have to learn to assess how complex the client relationship is,” he said. “Advisers would need to rethink everything they do, but it’s inevitable they will have to do that eventually because increasingly people are realizing there’s not a lot of value in the asset management function” on which the advisory fees are based.