Last month, private equity firm Warburg Pincus infused virtual RIA Facet Wealth with $33 million in Series A funding. The Baltimore-based startup, founded in 2016, differentiates itself in a commoditized digital advice marketplace with an unconventional client acquisition strategy, fee-for-service pricing structure and call-center-based advice delivery model. None of these strategies are unique in a vacuum, but Facet is the only firm to wed all three approaches into a blueprint for servicing down-market clients. Ultimately, the firm’s success hinges on its ability to efficiently deliver high-touch, tailored financial planning services to the mass affluent at-scale.
Much of Facet’s media attention is centering on its client capture strategy. The firm shirks the exorbitant customer acquisition costs that plague other digital advice startups by purchasing small accounts from RIAs. The success of this approach is far from guaranteed, as demonstrated by the disintegration of Marty Bicknell’s FirstPoint Financial. FirstPoint employed the same cross-RIA referral model for small book purchases but ultimately ceased operations, despite support from Fidelity Investments and Bicknell’s renowned reputation. To avoid a similar fate, Facet Wealth must successfully convince advisors to part with their smaller clients, many of whom were their very first accounts.
The B2B robo movement and advent of financial-planning-lite tools, like eMoney’s recently announced Foundational Planning software, has made it easier than ever to profitably and efficiently service smaller accounts, so there’s less incentive for advisors to shed their b-list clients than there was 10 years ago. Despite this, Facet Wealth seems to be gaining traction, having already onboarded 113 clients from 100 different RIAs. The next battle is keeping those clients post-transition. Facet essentially solves the customer acquisition dilemma by creating a potential client retention problem: will clients be receptive to their sale from an established advisor relationship to an unfamiliar virtual CFP staffed at a call center? To achieve a successful conversion rate, Facet needs to provide a smooth onboarding process, minimize the drop-off in human support and offer superior client-facing technology.
Even if Facet implements a successful client retention strategy, the firm must find a way to systematize its advice delivery model to accommodate the largest client-to-advisor ratio possible, as scale is the only way to profit down-market. The need for delivering cost-effective advice is not lost on Warburg, which reportedly sent a McKinsey team armed with stopwatches to time advisors’ turnaround. Reconciling the demand for high-touch services with the need to deliver efficiently is certainly achievable: Personal Capital has successfully proven the viability of the call center concept, and Facet’s adoption of a complexity-based fee-for-service pricing structure over the conventional AUM-based model is a good start.
The startup undeniably faces an uphill battle and may very well end up relegated to the boneyard of advisory firms that failed to serve the mass affluent profitably. But its success would serve as a crucial stepping stone toward the democratization of financial planning services.