Episode 16 - Anders Jones, CEO and Co-Founder, Facet Wealth

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Wealth Management v2.0: The AdviceTech Revolution, Episode 16 with Anders Jones, Co-Founder and CEO, Facet Wealth  

PODCAST TRANSCRIPT  

Gavin Spitzner (President, Wealth Consulting Partners, LLC): 

Welcome to "The Wealth Management Version 2.0," the advice tech revolution podcast where we are focused on the business of the business, the business of advice, and specifically we study and celebrate firms that are leveraging the combination of technology and humanity to deliver better advice to more people, better outcomes for more people through that combination. And, in this case our studies, involve a return visit with Anders Jones, co-founder and CEO of Facet Wealth who I had last summer, the summer of 2020. So, it's been about I guess closing in on 18 months, Anders. I think you've been pretty busy but welcome back. And we'll dive into it, welcome,

 Anders. 

Anders Jones (Co-Founder and CEO, Facet Wealth): 

Thanks, great to be here. I guess we have to make this an annual thing at this point. 

Gavin: There you go. Well, we traded some posts in social when I saw you hitting some different milestones. So, that set us on our return visit. So, let's go back though. You set out, when you founded Facet Wealth to fix what you saw was broken or sub-optimal in the advice business, maybe let's start there, take us back a little bit to that origin, what you set out to do with Facet Wealth, your mission, and then kind of take us through where you've been on that journey. 

Anders: Yeah, absolutely. I might reframe how you describe that a little bit and just think about it more in terms of building financial planning the way that it should be. And I think like a good place to start...and, I know a lot of your listeners are in the industry, like financial planning, as it exists today, does do wonderful things for people. And, so I do like to sit here and rail on all the things that are wrong with it but I think it's worth acknowledging that this industry is filled with people who really do care about their clients and their clients' outcomes. And that's really important. But, with that being said, let me take the gloves off. We started the company in the wake of the DOL fiduciary rule failing. And, if you remember, the industry pushback was, if you pass this rule, you're going to have 8 million households that lose their advisor relationship because the advisor can't afford to both act in their best interest and service them at the same time. And, so that was sort of, in my mind, a very public admonition of, "Okay, this is the industry saying that they're basically screwing 8 million of their clients." And, when we kind of dug a little bit deeper, what we realized is a couple things. One is that 8 million was actually representative of a much bigger market of folks that really need help and don't have good options. 

So, we estimate it as basically 40 million households in the U.S. And we talk about these as people have too much nuance and complexity in their financial life for a robo or a DIY solution but they don't have the investable asset level to be interesting to a traditional advisor. And then I think the other kind of more nuanced point in the DOL role and the pushback against it was that the cost of providing human-based financial advice is really high. The cost of the advisor is really high. And, so, we sort of put all these things together we said, "Okay, well, these are folks who definitely want to work with a human."  We did a bunch of market research, we talked to a bunch of customers, potential customers, and they said, "Yeah we want to work with a human." And we realized that, if we could lower the cost and sort of change the value prop away from asset management or retirement planning to kind of full life financial planning, we say, "We get involved with everything in your life that money touches..." And to a certain extent, every decision is a financial decision and we want to be there for all of it, there was a huge opportunity to build a really meaningful and generational business here. 

So, the quick...and then I'll stop talking once I get through these four points, but the quick kind of four pillars of Facet, number one, each one of our clients works with dedicated CFP. So, highest level of expertise in the industry, you're working with a human. And it's not an 800 number, it's not a call center, it's your person you build a relationship with over time. Number two is we look at everything in your financial life. Number one thing we help people with is starting a family, and then some close seconds are changing jobs, buying a house. Cash flow's a huge one just like money going in every month, money coming out. We only manage money for 50% of our clients. And, so I think that kind of shows you how important the planning aspect is relative to the money management. We charge an annual subscription. So, this is what I love to kind of bang the drum about. I think the future of how advisors charge for advice is not AUM-based, it's going to be flat-subscription-based. And then, underpinning all of it is we built a really significant proprietary tech platform that basically makes our advisors four times as efficient as the industry average. So, they work with a much higher number of clients, and that's where a lot of the cost savings comes in that we can pass along to our clients. 

Gavin: Fantastic. All right, lots to unpack there. Let's start with kind of the proof is in the pudding, and then we'll work backwards to how you've gotten there and where you're heading. The growth. So, a day doesn't go by where we don't see some big mega RIA deal. There was a big one today, there was one yesterday, and you don't even need to know what day we're recording this to know that that's true. But the lifeblood of this business is organic growth. And, so, thinking back to our last conversation, at the time, you were...well, you were definitely under 5,000 clients, probably closer to 2,500. You're bringing in around 50 clients a week. And I think you've hit some big milestones even recently, you're nearing some additional ones now. So, I'm no math wizard but I feel like, based on the numbers I have seen, that you've shared publicly, you've probably close to doubled in maybe a year, a little more than a year. So, talk about that and what's driving that. 

Anders: Yeah, absolutely. So, I can put some real numbers around this. So, we are what I would describe as days away from crossing the 10,000-client mark. We're adding at this point close to 200 clients a week. We talk about it in terms of annual recurring revenue, so we started 2020 with about $2.5 million of ARR. We ended it at 10 million, so, we 4xed during COVID. Right now we're sitting around $23 million, so, we've more than 2xed this year. And we've got big plans for next year and beyond. So and actually I should say, just to kind of bring this all back to my previous point, so, of 10,000 clients, 75% of our clients have never worked with a financial advisor before. So, the original thesis that we had that there is a market of folks that, if you can design the right service, they will buy it. That is very much now born out in the data.  Gavin: That is music to my ears, that is one of the things that motivates me in this business is there are so many people that, for all kinds of reasons, have not worked with an advisor before. Whether that's trust, costs, didn't think that they were, quote unquote, wealthy enough to work with an advisor. So, 75%, that's great. Because so much of what's been happening has just been recycling the same clients moving them around, trying to consolidate, wallet share, all that. So, kudos on that. 

Anders: Thank you, I think that's actually probably like the favorite stat I have about our business because I think it really shows that we're doing something new and different, not just better. So in terms of client acquisition,  we're in this to build a massive standalone brand. And so everything that you would expect to see from a direct-to-consumer venture-backed company, we spent a lot of money on customer acquisition, as you can imagine is in place. So we have our own sort of demand-generation machine that is out there doing...it's all digital at this point digital marketing a bunch of partners that refer us clients, a whole bunch of different types… search, social, affiliate. We're starting to get into the influencer game a little bit… a lot of content marketing…so, you'll see, on our website, we've got a big...we call it our learn hub of like 150 articles about the financial impact of different life milestones. And that's where we find customers typically want to start the conversation with us is around like, "Hey, I'm thinking about buying a house. What are the financial-planning implications of that?"  

Gavin: How about on the...I think we had touched on a little bit, last time we spoke, the company, the workplace side. Anything happening there in terms of partnering up with companies to help their employees? 

Anders: Yeah, we have some great early partnerships there. Financial wellness is a huge topic for HR departments and people organizations. And there's a lot of data that now shows that financial wellness is as important as physical wellness when it comes to workplace productivity and that sort of thing. I actually think it's as important regardless of the workplace, it's important just to live a better life today. And, so, it's a really hot topic. And, so, I would say that we are still in the sort of dipping a toe in the water stage. I mean we've seen such explosive growth in our core direct-to-consumer business that we have really focused our resources on making sure that we can scale appropriately to handle that growth. And we're still figuring out what the right sort of product and offering is for the employer market. But there's definitely a big opportunity there. And it's funny if you look at other massive financial services companies, like you'll get Fidelity or Schwab or Vanguard, there's two very solid legs of the stool, one is the retail business and one is the employer business. And I don't anticipate that we're going to be offering 401k plans anytime soon but I think the next iteration of that will be something in the wellness space for sure. 

Gavin: Yeah. Talk about the client profile. I remember…I forget the exact age…but I remember being surprised having this mindset, "Okay, virtual, a little bit different, different pricing model," that average age was going to be like 30-35. And I remember it being older than that. So, can you talk about the age and any other demographic information? 

Anders: Yeah. So, we did a big project earlier this year to really figure out how to quantify our core client segments. Because we have clients who are 18-years-old, our oldest one is 96. Actually, she was our very first client, believe it or not. And, so, and everything in between. And we sort of said, "Okay," like, "what is our core client base?" Yeah, so, I think the average is 55 but, when you actually drill down and say, "Okay what is the right sort of demographics around the course segments that we have?" the number one segment for us is young families. And, so, these are folks who we basically define them as they have kids under the age of 16 or they're just starting a family. And what's interesting about it is actually the age is kind of all over the place, anywhere from late 20s to early 50s. And the assets are all over the place, income is all over the place. The thing that is consistent is that they all have about 75 major financial decisions to make, over the course of 10 years, that involve different aspects of building a family. And, so "What 529 plan should I fund?" or "how should I think about saving for a second house?" or, "what should I do about taking care of my aging parents?" Those decisions are all very consistent. 

And, so, what's interesting is that each person has a very unique set of circumstances but when you sort of disaggregate all of it, the back-end is all very similar. So, our approach to both marketing, when I talk about some of the content that we're creating, but also the actual service delivery, it's really to think about things in a very modularized approach. So, we have our starting a family module where there's a certain set of data that we need to collect from our clients, there's a certain set of calculations we need to do, there's a certain deliverable that makes the most sense. We've automated all that and we have these playbooks. And there's certainly human components in that, right, asking the right questions and delivering the right advice. But more and more we're working towards getting that as completely integrated into our platform as we possibly can. 

Gavin: Talk about...we've got like 15 jumping off points from that, but let's talk about the planners and the advisors you've talked about how based on the investments you've made and, obviously, the thoughtful way you've thought about the technology and workflows that you've pushed up the capacity of advisors that work for you. So, where is that? And I'm not sure, maybe you've staffed maybe ahead of the ultimate capacity but what's that look like? And within that, maybe talk a little bit about the day in the life of a planner at Facet Wealth. 

Gavin: No question. So, put a tickler in your homegrown CRM system for that 10 years out and collect on that bet. All right, I got a lot of places I want to jump around to in our remaining time. Let's see...how about, from a capability standpoint, what have you learned from clients over the past few years that have led you to add capabilities? Or maybe even just adjusted something in your client experience. And maybe, as a subset of that, you can't have a podcast, wherever the heck this thing is without bringing up, crypto. So, you must have clients, you're back to you want to be involved with everything that involves your client's financial life, money, crypto fits into that. So, you must have clients that, with you or without, separately owned crypto. So, capabilities...I threw a lot in there. Capabilities, evolutions in the client experience, crypto. 

Anders: Let's start with crypto because I think that's a fast one for us, which is first of all, it's clear crypto's here to stay. Right? I think 50 plus million Americans own some sort of crypto currency or crypto product. So, it's not going anywhere. I view crypto right now as the internet in 1996. And I think that like there's something there for sure. What it's going to look like in its final version or final iteration I don't think we know. And I think that there's going to be a lot of pain between now and when we figure it out. And, so, we are in the process of developing sort of a more formal position on crypto and what we think about it, because clients do ask us about it all the time. But the way that we talk about it now, and I think it's the appropriate way, is our job is to help people have a stable financial life around whatever they want to do. And, so, if they want to put 10% of portfolio in crypto, fine. Our job is to make sure that the other 90% of their life is in good shape so that when, shiba inu drops 50% on an Elon Musk's tweet they're not destitute. So, that's how I think about it now. 

But it wouldn't shock me if, in 2022 we have some sort of crypto offering for clients whose assets we manage. Or at least have a much stronger view on how to think about it. In terms of sort of client experience and additional offerings, this year has been really interesting for us because I think one of the things that we have really realized is the addition of some sort of implementation or execution service on top of just pure planning is incredibly valuable to the client. And, actually, I'll give you the backstory because I think it's kind of interesting. 

So, I mentioned we manage money for about 50% of our clients and we're over a billion in AUM. Kind of funny thing, we beat all of the big robo advisors to the billion dollar mark and we weren't even trying it. But one of the things that we've noticed is that clients who we manage money for have a different retention dynamic. So, they stick with us longer. And it's meaningful. And, so, I always thought, "Okay, well, that makes sense because in cases where we're doing account debit, they're not seeing the fee leave the account as much as a client who's paying us by credit card every month,"…we don't have to justify our value as frequently, basically exactly how the industry set it up to be intended. But when we dug into it, what we realized is that, if we managed $300,000 for a client and we were deducting a $2,400 fee, or whatever it was, from their account, they had the exact same retention dynamic as a client who we managed $10,000 for and we were still charging them on their credit card. So, like, as an example, we have a lot of clients who are right out of law school and they don't have any real savings but they're making good money. 

And, so, their first real sort of investable account is is an IRA that they start with us. And there's a couple thousand dollars in there, it's not an account that we're going to feed off of, obviously. And, so, what we realized is that those two things, those two types of clients have the exact same behavior. And the fact that we are doing something for them and actually fulfilling part of the plan is more meaningful than anything else. And, so, we said, "Okay, well, what are some other things that we can do for our clients?" And we came over the whole list. And then, earlier this year, we launched tax prep and estate planning. So, I'd say estate planning is probably the most interesting one because like, right now, you go to your advisor, they say, "Hell, you don't have a will, you better go get a will. Here's the name of an estate planning attorney." And then it's 1,500 bucks, it's a huge pain in the butt to pull all your data together. You got to go through another onboarding process and all that. We have all that data, we can do it very easily and make it a great client experience. So, we launched that in August. Same deal with tax prep, we launched that in September. And the pilot groups that we've pioneered this with have been really, really, really positive. So, as I think about what's the client experience of the future, we're basically going to sort of offer almost like a family-office level of service across all the implementation components of a financial plan and make it available to someone at a $2,500 or $3,000 price point. 

Gavin: Fabulous. I'm guessing a lot of your clients, given the profile, have a 401k, some kind of a plan away from you. Are you doing anything there? Are you advising on that? There's some advisors now that are actually using some capabilities too to get in and trade for the clients, anything in that regard? 

Anders: Yeah, we definitely help clients think about asset allocation there. I would say that's a...I don't know, one-off is probably the wrong term, but we're not doing it in any sort of systematized way. It's just one other thing that we consider as part of the overall financial plan. But stay tuned, there's some interesting innovations in that space that I think might make their way into our fold in the near future. 

Gavin: Yep. All right, lightning round, just like crypto, we can't not at least bring up AI. Data sounds like, based on the way you've built out your tech stack and the underlying data...I don't know if you consider it a warehouse or a lake but you've got access to lots of data tied to planning and a lot of opportunities to surface insights. Anything on that front? 

Anders: I think data is such a critical lifeblood of our business. And I think that anyone that's building a scalable company, in any industry, getting your data right in your analytics on top of the data right is so important. And, so, for us we think about it in a few different ways but it's just like having the right data at the right time to answer the right question is super important. And, so, but, at the same time, you want to balance it out with...you don't want to ask your client 500 questions in the first 2 hours of meeting them because that's just an awful client experience. So the first version of our sort of client intake form that we built, it was like a spanking machine, it was just so painful to go through. And going back to the idea of kind of modularizing it or modularizing the planning process we've now gotten it down to the point where it was like, "Okay, we're going to ask you seven questions to really dig in on your cash flow. And then we're going to ask you another 10 questions to think about starting a family." And, so we're starting to make it sort of like, we call, "just-in-time data," to really know when we need a piece of data and where to apply it. In terms of AI that's one of those sort of catch phrases that I think it sounds a lot cooler than the reality of where it is. I think we're still a long, long, long way away from a computer replacing a human advisor. But I think that what we are starting to see is that we now have hundreds, if not thousands, of client interactions a day. And, so, we get to collect a lot of data on, "Here's the picture of the client's financial situation. Here's their desired goals and outcomes. And here's what we're recommending." And as you get more and more reps of those three things interacting, you can actually start to build some pretty cool recommendations. And, so, we're starting to sort of feed those in to the platform. And what's cool about that is that you can see a world where that becomes so accurate or accurate enough that you could actually release that out as a separate product and more of like a self-serve component. And I don't think humans are going anywhere but I also think that there's a lot of goodness that you can do with just taking that knowledge and making available at a much lower price point to folks who want sort of one-off help. 

Gavin: Well, and I agree humans aren't going anywhere in that light. I think about AI in this business as augmented intelligence as opposed to artificial. Right? So, augmenting their ability to understand, maybe anticipate, predict based on all the history and all that data you have to really help clients...ultimately, it's for the client, help them get ahead and think through. , people in your situation often..., let's look at, over the next 3 to 5 years, these are the types of things that very often come up in strategies too to deal with it before they become an issue or where you can really optimize your outcomes. Two last things I want to talk about your future, there have been a few things written. But before we do, in terms of the planning process, I'm curious..., another area that I'm passionate about, we talked about 75% of your clients having never worked with an advisor. There's also been, historically, a focus in the business on a single...let's say we're dealing with a couple, a single member of that couple often in a very investment-centric way, as opposed to planning and helping both people, partner one, partner two, explore these things in a way that helps them achieve what they want collectively. Any thoughts on that? Anything that you guys are doing to help engage both members of a partnership? 

Anders: Yeah, it's an interesting question. I would say that it is not something that I think about from a client's experience standpoint. But that's not to say it's not important, like I think that that's...especially given our sort of core segment of like people starting families, I think that's super important. What I would say is that, being virtual, I actually do know this that a large percentage of our meetings are basically like sort of virtual conference calls. So you have three people on a Zoom meeting. So the old model of, "Okay, we're getting in a car and going to our advisor's office together,"…we can now have people, one person sitting in a hotel room on a business trip and the other one's sitting at home. So, I think the virtual model definitely enables that. But yeah, I think the other thing too that is of interest to us that we're starting to think more and more about is how do we engage multiple generations. And I don't know that that's terribly unique to us, I think that's one that is something that the industry's been trying to do for a long time, mostly to target the inheritors. I think in our case we want to get ahead of financial planning at an early age and almost like from a financial literacy standpoint. Right? How do we help kids understand how to make better financial life choices? 

Gavin: Love it, I love it. So, we spoke 2020. I think, at the time, you had raised maybe 40 million, something like that and, since then, another 40ish, been some talk about going public, at some point. Which is interesting, since every public company wants to go private. So, any thoughts what's down the road? SPACs, obviously, another path to going public. I just, updated my SPAC map in financial services and there's still quite a few out searching for their life partner. Thoughts on that. 

Anders: Yeah. So, I think, as it relates to Facet for us, we're going to do whatever is best for the company in the long run. Right? We want to build a company that's here 100 years from now. And that will likely involve some sort of change in capital structure. So, it wouldn't shock me if we target an IPO. With the obvious caveats, yeah, being public it's a very different animal. But when that happens and under what conditions and how we get there I think we'll just do what is best for the company at that point. We have raised a lot…we've raised, you nailed it, about 80 million bucks total… we will certainly raise more. And I've had some great conversations with long-term capital partners to think about minority investments. Right? We're here to kind of chart our own future, we're not interested in selling the company. 

But it's a great time to be an entrepreneur, it's a great time to be an amazing management team and have a big vision for what you want to build because there's a lot of money out there on the sidelines. And, so it's a great time to be on the operating side of things. In terms of the landscape right now, I mean, I don't know, we've been saying it's overheated for the last 5 years. I mean I remember, when I was at my first company in San Francisco, we were sitting there in 2010 saying, "It looks like there's a bubble in the series A market." And that, obviously that was for like 3-million-dollar series A checks, and now that's like considered a pre-seed round these days. So who knows? What's the saying is that the market can stay irrational longer than you can stay liquid. So... 

Gavin: Some corollary for what's going on in the space with PE and aggregators and all. And it goes back to where we started. It's all sustainable with organic growth, bringing more clients into the fold, finding different ways to serve them effectively and help them achieve their goals. So, I think that's a great place to end. Anders, really enjoyed it. Like you said, we'll have to do this annually. I'm sure I'll talk to you before a year from now. But we'll let other people listen in sometime in 2022 as well. 

Anders: Sounds great. Thanks for having me back.  

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