Facet Wealth, a Baltimore-based technology company that connects investors with financial advisors, has doubled its growth rate during the Covid-19 pandemic, raised a fresh $25 million in funding, and is launching a new service for employers.
In a year when venture capitalists have given wealth management startups a cold shoulder, Warburg Pincus, the private equity firm that manages $53 billion in assets, led a group of existing Facet investors in the $25 million Series B round of funding. The private equity firm also led Facet’s $33 million Series A round of funding in September of 2018. Facet has raised a total of $62 million in funding.
Investing in companies at Facet’s stage of business growth is not typical of Warburg Pincus, but it has been a valuable financial and strategic partner to the fintech company, Facet co-founder and CEO Anders Jones told RIA Intel.
“They are the ideal investor in that they are very hands off and then they share observations when they think it would be useful,” Jones said.
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Facet employs financial advisors and then connects them with investors. Those clients pay a flat annual fee of $600 to $5,000, depending on their needs, for a financial plan and ongoing consultation — all done remotely. Most advisors make money from commissions on transactions or a fee based on a percentage of assets they manage, and typically have face-to-face interactions with clients.
That investors would be open to working with a wealth manager without ever meeting them in person is more than just a thesis. There are already practices run this way and other wealth managers, including Charles Schwab, that offer something similar to Facet. But exactly how many clients exist willing to engaged them exclusively remotely is unknown.
Jones believes most of the 30 million U.S. households considered mass affluent, or those with $100,000 to $1 million to invest, are potential clients. (And wealth managers who successfully serve them will be one of the “two winning models” in the industry, according to McKinsey.) The pandemic has further proved there is a large market for more affordable financial advice, even delivered remotely, Jones said.
Before the Covid-19 pandemic, Facet was adding about 50 new clients each week but that rate has since doubled to 100, according to Jones. It’s a remarkable rate given that most RIAs don’t dramatically increase the number of households they work with, or the assets they manage, year-over-year, let alone weekly. From 2015 through 2019, the median RIA went from having 302 to 389 clients, a compound annual growth rate (CAGR) of 4.7%, according to Charles Schwab’s 2020 RIA Benchmarking Study. The same report showed assets managed by the median RIA with less than $250 million had an organic growth rate of 7.4% in 2019.
“When the markets went crazy, more and more people raised their hands and said, ‘wow, now is the time to talk to a financial planner,’” Jones said. “Myself included.”
The number of new clients Facet adds each week could double again to 200, too, Jones said.
“Now that a client has experienced the convenience of working with their advisor from home, why on earth would they go back to the logistical hassle of meeting in an office or to the restrictions of regular business hours? Just as the daily commute is likely a thing of the past, so too are face-to-face meetings with service providers that are just as effective in a virtual environment,” he said.
“That aside, the strength of our model lies not just in our virtual delivery, but really in the value prop of flat fee financial planning delivered by a dedicated CFP Professional. Virtual or not, that is the financial services model of the future.”
The new $25 million in funding will largely go to support and improve Facet’s existing direct-to-consumer business. It has 54 employees (including a head of marketing from outside the industry) with the Certified Financial Planner designation and has doubled the number of software engineers working at the company. Facet currently has 175 employees and hopes have 250 before next year.
Prior to the pandemic, most of Facet’s employees were already working remotely, making the change internally at the company seamless.
Along with the latest capital raise, Facet announced Tuesday it was launching a new service for employers that could further boost growth.
At some companies, Facet clients began referring colleagues to the wealth manager at a rate that caught the attention of benefits and human resources groups. Companies are thinking about the financial wellness of employees more than ever and financial planning is one of the fastest-growing perks. Facet’s Financial Wellness service is built to do that.
Once an employer has partnered with Facet, its employees receive a free 45-minute coaching session by phone with a financial advisor. They talk to them about the benefits package at their company and how it should fit into their financial life. Facet dedicates a few advisors to each employer it partners with, so that they are familiar with the benefits at the firm.
ClassPass (a company that provides access to different fitness classes for a flat-rate monthly fee), MyVest (a wealth management platform), and Chili Piper (a scheduling app used by Facebook, Intuit, and other companies) have partnered with Facet already.
Eventually, Facet wants Financial Wellness to be further integrated with employee onboarding at its partner companies; a part of every explanation of benefits and something employers are encouraging.
Financial Wellness is already paying off for Facet. About 20% of the partner company employees who use the free coaching session end up becoming clients of Facet, the same rate of conversion as its existing direct-to-consumer business.
Jones says that Facet is not competing with the advisors overseeing corporate retirement plans, a business getting more complicated for both plan sponsors and advisors. “We’re actually not trying to compete with the 401(k) advisors. We have no interest managing the plan,” he said.
Retirement plan advisors often end up managing the private wealth of some employees, but Facet isn’t trying to steal their lunch either. There are plenty of employees who aren’t company executives and don’t have the minimum total of investable assets to work with most advisors, but still need and are willing to pay for financial advice, according to Jones.
Facet only manages assets for half of its clients, Jones said. “That’s not our value [proposition] and it never will be.”
Michael Thrasher (@Mike_Thrasher) is a reporter at RIA Intel based in New York City.