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The bright side of offloading clients

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SAN FRANCISCO — Tony D'Amico of Fidato Wealth Management never thought he would be the type of planner to offload clients with small accounts.

But, on the advice of a coach and advisors with larger practices, he realized he wasn't doing his smaller clients any favors by keeping them while his practice evolved to serve those with $1 million or more in assets.

As a fiduciary, D'Amico told attendees at SourceMedia's In|Vest West conference, "I realized I wasn't putting their best interest first by keeping them."

In all, D'Amico shed 100 clients this year. Today he serves about 200 people and is approaching $200 million in AUM.

While he says he feels good about sending a first batch of 45 clients to TD Ameritrade in January, he feels better about having discovered and partnered with a new kind of RIA: Baltimore-based Facet Wealth, which began onboarding the remaining 55 in August.

Facet, a startup backed by $40 million in private equity, launched in 2016, just before the Department of Labor released its fiduciary rule, with the aim of serving the millions of clients pundits forecast would be dropped by firms once regulators forced planners to serve people at a fiduciary level.

Although court decisions this year ultimately killed the rule, many in the financial services industry have made fundamental changes to their business models to comply.

Facet's investors include PE firms Warburg Pincus and Slow Ventures. The startup serves some of the millions of mass affluent clients nationwide with account sizes too small to be of interest to most financial services firms, according to Anders Jones, Facet's CEO and co-founder.

Jones and D'Amico shared their experience of working together with conference attendees.

"We are an RIA, but sort of a fintech company," Jones explained. "Our target audience is folks with less than $1 million [in AUM]."

Facet aims to "take a $2 million high-touch, white-glove experience," he said, "and make it available to someone with less than $1 million and, in reality, less than $500,000." The firm's average client account size is $350,00, Jones says.

With the help of its backers, Facet is growing inorganically by offering clients such as D'Amico checks to buy all or portions of their books of business outright. Often, when advisors sell books of business, they negotiate compensation based on a buyer's ability to retain clients over time, frequently as long as several years out. The terms of Facet’s deal with Fidato were not disclosed.

D'Amico said it was important to him to find another firm committed to providing his soon-to-be former clients with fiduciary-level care. Facet does not charge commissions, but instead charges clients flat fees, not on a percentage of assets, and provides clients with a dedicated CFP with whom they work virtually. The firm has no brick-and-mortar presence. It also makes an unusual pledge: Once any of its clients grows too big for its model, it returns them.

"If a client grows above $1 million in assets, we will send them back to the advisor," Jones says.

For the past year and a half, Facet has been purchasing partial books of advisors' business. "We have done 20 deals and have another 120 advisors sending us inquiries," Jones says. After he and D'Amico spoke at In|Vest, another two potential advisor clients expressed interest in following in Fidato's footsteps.

To accomplish the transition of his own clients, D'Amico says he regularly worked extra long days, explaining his decision to each of them individually.

"I did some soul-searching and it was true: I was spent at the end of the day," he says. "Most people understood. I probably had 5% or 7% or so who weren't happy about it, but I kind of knew, going into that, that was part of the deal."

"Full disclosure," he added. "After Christmas, I'm going on vacation with the family and I'm not checking email."

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