While UBS’s acquisition of Wealthfront may have ended the era of purely digital independent robo advisors, many remain bullish on the potential for technology to deliver affordable financial advice to younger investors.
UBS plans to use its $1.4 billion purchase to expand its presence among the mass affluent, and banks across the industry continue to
More recently, Facet Wealth, a fintech firm that pairs digital financial planning with virtual access to advisors, closed a $100 million round of fundraising led by Durable Capital Partners. The Baltimore-based company has raised a total of $165 million since launching in 2016 and had 10X growth since 2020, according to co-founder and CEO Anders Jones.
What separates Facet from other hybrid robos — a catchall term for combining automated investment management with access to a human advisor — is its revenue model. Instead of charging clients based on a percentage of assets under management, Facet charges a flat subscription fee based on the services a client uses. The annual fee for an average client is around $3,000.
“We’re doing something different. We’re targeting a different group,” Jones said. Though the company initially grew by acquiring small clients from traditional RIAs, today roughly 75% of Facet’s 10,000 clients have never worked with an advisor before. And for the 50% of clients that ask Facet to manage investments, Facet doesn’t charge them for it.
“We’re focused on financial planning for your life today, not just ‘give us money that we’re going to manage,’” Jones said. “Cash flow, debt planning, saving for a house, starting a family, changing jobs — we’re going way deeper and way broader than what the vast majority of advisors will talk about.”
While hybrid robos charge only a fraction of the management fees of traditional RIAs, the AUM model requires that clients have enough invested assets to be profitable. For example, Betterment’s digital-only service has a $0 minimum investment, but clients must have at least $100,000 to access a Betterment CFP.
The subscription model lets Facet deliver planning and advice from CFPs to households with more complex financial situations than a purely digital robo can handle, but without the investment minimums required to access an advisor, Jones said.
It also helps explain why investors are so interested in the business model. With just $1 billion AUM,
“The growth is coming from non-investment advice for non-AUM. That’s the point,”
After eight years, the XYPN —
“That is not just a tagline about ‘democratizing financial advice’ and Silicon Valley talk,” Kitces said in an email. The market for subscription-based, fee-only planning is “a genuine blue ocean market opportunity for consumers in their 20s, 30s and 40s who were largely locked out of the financial advice marketplace.”
While the flat-fee model was widely criticized as unprofitable and unsustainable when Kitces and co-founder Alan Moore launched XYPN in 2014, it’s rapidly growing in popularity. In 2020, Kitces and Moore
“The market for consumers that could buy fee-for-service advice is actually larger than the market for consumers that hire AUM advisors, and no one was serving it,” Kitces said.
The model still receives it’s fair share of doubters. Critics say Facet’s private equity and venture capital partners will eventually want to increase revenue by offering investment and insurance products to clients.
Congrats on big raise. Wont be subscription only for long in my opiniomln. Firm & VC backers will want to offer investments & insurance to increase revenues for investors based on strong planning/guidance relationships...Thats the model.
— P.J Miguel (@PJMiguel5)
January 20, 2022
Facet’s investors deny that they are in a rush to juice the firm’s revenues with AUM fees or product commissions. The company’s business model is what makes it an attractive opportunity for growth, said Jeffrey Stein, a managing director at private equity firm Warburg Pincus. Warburg led a $33 million round of fundraising in Facet in 2018 and a $25 million round in 2020 before participating in the most recent funding round.
“If you’re going to dilute that value proposition, it would take a lot away from the excitement about the company,” Stein said. “I think there is going to continue to be a place for all revenue models. AUM works well for some certain advisors and clients, and subscriptions work well for others.”
While Facet’s latest infusion of capital is a nice milestone, Jones disagrees that it validates the momentum of the fee-for-service model. It’s a movement that’s been building for years, and not just in wealth management, he said.
“There are a number of very successful businesses … that have successfully changed a transaction-based model to a subscription model,” Jones said. “We’ve been grinding away for the last six years. We may appear to many as the new players on the scene, [but] we’ve been at it for a good amount of time.”
