Facet Wealth gets Vanguard's RIA man in Arizona with hopes he can replicate the fund firm's $115-billion success--before burning through Facet's VC backing

Anders Jones put to good use the $33-million check he got six months ago. He continued inventing his business model, hiring away a Vanguard Group executive and spending leftover change on a few more planners. See: A 31 year-old CEO raises $33 million for very RIA venture -- buying too-small RIA accounts, then serving them on a Merrill Edge-type platform in Baltimore.

The 31 year-old CEO of Baltimore-based Facet Wealth poached "senior manager" Tyler Craig straight from the Malvern, Pa.-based investing giant.

Craig's mandate is nothing less than to do for the CFP-for-mass-affluent startup what he helped do at Vanguard Personal Advisor Services (VPAS). 

VPAS has roared from near zero in 2015 to $115 billion as of Dec. 31 -- an RIA launch velocity never before seen, says Jones, via email.

"He hired and managed a team of more than 100 CFPs while at VPAS. Those CFPs managed more than 11,000 clients ... The plan is for that to be the exact same journey he takes at Facet," Jones explains.

Aye, aye, captain, says Craig, via email.

"VPAS saw a period of rapid growth during my tenure, and I played an integral role in helping to scale both its clients and advisor workforce," he explains. 

"Facet has an ambitious growth plan and--in terms of the experience of leading a fast-growing planning team--they wanted to find someone who had already been on that journey."

A team leader

Craig's appointment at Facet as its planning team leader was announced on Apr. 2, although he joined the firm on Mar. 25. He spent 14 years at Vanguard, most recently as a VPAS senior manager. Indeed, Craig is mostly a Vanguard lifer.

Prior to joining the fund giant in 2005, Craig, a Wharton alum. spent one year at $670 million AUM retirement firm The Household Group in Scottsdale, Ariz. He worked there as a financial advisor. 

He also worked for a similar amount of time as an internal wholesaler at financial services giant ING Group. His appointment at Facet has been in the making since just before the turn of the year.

Like his 10-strong team of CFPs, Craig will work remotely, in his case from his Arizona base.

What Craig won't have in his new job is the Vanguard brand, or the ability to convert from launch trillions of dollars of legacy assets. He also will have less of a green-field opportunity. Top competitors -- both corporate and startup -- are piling into the segment.

Charles Schwab & Co. is the most recent. It re-priced its service from asset-based fees to a "subscription" model with a $360 maximum. See: Schwab hopes to blend into the subscription world of Netflix, Amazon and Apple by dumping asset-based fees and wooing millennials with Intelligent Portfolios for $30 a month.

Hockey pass

But Jones believes his approach hits the mark and thinks Facet is right on schedule in a nascent channel.

"We’re in this to build the next major financial services company; the caliber of our team, the capital that we’ve raised, all point to the massive opportunity ... We already are where the puck is going."

Facet's plan is to get hockey passes from RIAs as it skates up the ice. It buys uneconomical accounts from larger firms, then reaps profits by gearing overhead costs to revenues. It keeps overhead low by allowing CFPs to work from zero-rent offices -- typically home-offices.

It also offers a fee structure that differs from Vanguard's 30 basis points with no maximum fee. Facet charges a minimum $480 to a maximum $5,000 per year. But planning is Facet's bread-and-butter; it charges a flat fee of about $1,600.*

Given the 500 clients on Facet's books, revenues amount to just over $800,000 per year. Based on an initial $66,125 annual  salary for US-based CFPs, the firm's planners, alone, consume 83% of its revenues, explaining its need to grow in a hurry.

Goin' shopping

In the last six months, Facet has snapped up the mass-affluent portion of "two to three" books of business every thirty days; lifting the value of assets under its management from $23 million to $70 million. Of that, $26 million has come through the door in the last 3 months. The value of assets under administration has also jumped to upwards of $400 million, according to the firm.

Over the same period, Facet has signed referral deals with 20 fresh RIAs -- bringing the total to 120 -- and added 27 staff.  Seven have joined the firm since Dec., with more inbound, and four are CFPs, taking the firm's planning headcount to ten. 

Yet, for all of Facet's growth, Jones' business has a long way to go before it catches up with his ambition.

Facet's $70 million under management is very much on the small side of the RIA market, where the average firm manages $359 million, according to a late 2018 report from the Investment Advisor Association. See: How many RIAs are there? No, seriously, how many?

Facet is also far from the first to attempt to fill the planning niche for mass-market clients. LPL Financial and Marty Bicknell tried and failed with NestWise and FirstPoint Financial, respectively.

Despite the dismal track record, Jones intends to race ahead at rapid speed to build massive scale.

Looking back on his own experience, Bicknell scorns the referral model.  It just doesn't work, the CEO of Overland Park, Ka.-based Mariner Wealth Advisors told RIABiz in Oct. Mariner manages in excess of $25 billion. 

"Advisors aren’t going to refer clients to an outside advisor, regardless of size," Bicknell said.

The big difference for Facet's strategy is in how it tackles the thorny client-acquisition model that plagues robo-advisors and other low-fee-for-mass-market startups.  It involves solving its own growth problems by solving for RIA firms and broker-dealers upmarket.

Either Facet Wealth will buy accounts outright -- sometimes dozens in a transaction -- from a single firm. Or, it'll pay for referrals from RIAs -- albeit only if the clients convert.

Role models

In the final analysis, the real inspiration for Facet is VPAS, which surged ahead of first-generation robo-advisors when it launched in 2015. It has three times the assets of Schwab's similiar budget service, Schwab Intelligent Portfolios, and seven times those managed by classic robo front-runner Betterment.

Now Jones intends to turn his two-year-old start-up into the RIA planning equivalent of VPAS with a growth strategy supercharged by a hiring and buying spree. 

Craig will be front-and-center as the firm's new planning team leader. See: Facet Wealth appoints Mark Tibergien's 'reverse mentor,' Kayla Kennelly, to woo cast-off RIA clients, a boon to a mass affluent strategy that's failed more than once.

The plan is for Craig to bring what he learned at Vanguard to bear at Facet, says a spokesperson for the firm, via email. "[His] mandate is to scale the distributed team, maintain high-quality service, and nurture Facet’s unique culture within our planning team."

"As Facet continues to grow, [Craig] will lead the expansion of the planning team, overseeing hiring, on-boarding, training, coaching and development processes to maintain a consistent client experience and job satisfaction," the release further clarifies.

"[Craig] was at Vanguard through the rapid scaling of VPAS, and we’re looking forward to having his expertise," says Jones. "[Our] model of dedicated CFPs, full planning and subscription fees - which was validated by Schwab last week - is the future." See: Schwab hopes to blend into the subscription world of Netflix, Amazon and Apple by dumping asset-based fees and wooing millennials with Intelligent Portfolios for $30 a month.

The lure for Craig is "the opportunity to build something from the ground up," he explains. "Their clear mission and focus on the mass-market [also] drew me to join them.".

Facet raised its Series A funding in Sept. 2018 in a round led by New York City private-equity firm Warburg Pincus.

Other Facet investors include Zeitgeist Holdings, which holds consumer data capture firm BlueCava in its portfolio; Slow Ventures, which has invested in credit eligibility restorer BloomCredit;  Accelerator Investors, a backer of title and escrow software vendor Snapdocs and Upshift Partners.

* Although Facet receives an estimated $1,600 annually in fees from its average client, or roughly 41 basis points, its fees vary from $480 to $5,000. Its most basic plan involves advice from a CFP, portfolio design, asset allocation, and lifestyle, cash-flow, and expense planning. Its most costly plan includes extras like small business, as well as charitable, and estate planning.