The former chief executive and chairman of Vanguard Group, F. William McNabb III, has invested in and joined the board of Altruist, the upstart custodian to RIAs.
“That is as significant a board member as you can find in our industry. So, we’re really excited,” Jason Wenk, the founder and CEO of Altruist, told RIA Intel. “His knowledge of the financial advisor business is quite exceptional; I think more than people would think."
Altruist, which says it can save financial advisors as much as 90% of their technology and custody costs, first met McNabb in early 2020. He joined the board two months ago and has already made a difference at the startup. Wenk said McNabb seemingly has valuable insight on every topic and is “one of the nicest guys you would ever meet.”
An endorsement by McNabb, in the form of an investment or his presence on a board of directors, is one of the most high-profile in all of business, let alone the wealth management industry.
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In 1986, McNabb joined Vanguard, an asset manager attracting a growing number of investors with its low-cost index mutual funds. He eventually succeeded John Brennan and served as CEO of the company from 2008 to 2017 (and chairman from 2010 to 2018). During his stint as the chief executive, Vanguard’s assets under management swelled from less than $1 trillion to $4.4 trillion. It remains one of the world's largest asset managers, last reporting $6.2 trillion under management in January of 2020.
In addition to Altruist, McNabb is also on the boards of IBM, UnitedHealth Group, the financial consultancy Duff & Phelps, and the on-demand legal talent platform Axiom. He was unavailable to comment for this story.
McNabb was part of a short list of high-profile investors who participated in a new round of funding for Altruist that was previously unreported. Venrock, the Palo Alto venture capital firm that led Altruist’s $8.5 million seed round in 2019, led the latest round.
The Altruist product and Wenk’s following have generated “extraordinary” inbound interest from RIAs, according to Venrock Partner Nick Beim. As a result, the company attracted the investors it did. “We were very fortunate in this round to have some big players in the industry join us, including Bill [McNabb] and Ron Carson.”
Beim told RIA Intel that McNabb is someone who appreciates the scale of what Altruist is attempting: Disrupt a part of financial services dominated by an "oligopoly" of huge custodians, with 50% of independent RIA assets. “His experience in building Vanguard into the company it is today is invaluable. And his ethos is doing the right thing for the customer, which is very much Altruist’s ethos.”
Ron Carson, the founder and CEO of Carson Group, an Omaha, Neb.-based RIA that manages $14.5 billion, also participated in the latest round. “When I got a chance to meet him a few years ago, we just hit it off,” Wenk said about the Nebraskan. Carson, who has invested in other wealth management startups, including the recruiting platform FA Match in December, had expressed interest investing in Altruist if there was an opportunity.
Wenk declined to share how much money Altruist raised in its latest round, at the request of a fourth investor. He also declined to name the investor, who asked to remain anonymous but plans to reveal themself this year.
The founder said McNabb is “still very close with Vanguard” and that the asset manager was aware of Altruist. But when asked if the unnamed investor was Vanguard, Wenk frankly replied, “I can’t say who it is.”
But he anticipates the eventual reveal will make a splash. “People will be like ‘wow,’ regardless of the dollar amount they invested.”
Wenk said he feels fortunate for the investors that have taken an interest in Altruist. He knows the challenges many businesses face when raising capital — he’s experienced it in the past, too. Now, the new challenge is choosing the right investors who can bring value beyond capital. “There is 100 times more interest from investors than there is need from the company,” he said.
Still, Altruist needed cash to maintain what Beim called a “steep growth curve.” The custodian has a waitlist of RIAs who want to sign up and use it, but it has intentionally been onboarding about 100 RIAs every month to maintain a high level of customer service, according to Wenk. He expects that rate will improve as the company grows. He declined to share additional details about the custodian’s growth.
With the money raised, Altruist plans to continue to invest in new tools and hire more employees. It more than doubled its workforce to about 70 employees in 2020 and plans to add 100 more in 2021.
“I can’t share the exact business metrics, but things are going very well. Once we do share those numbers, I think people will put us in those top three or four RIA custodians, you won’t be able to not mention us with Schwab and Fidelity.”
Michael Thrasher (@Mike_Thrasher) is a reporter at RIA Intel based in New York City.