Scott MacKillop got his flat-fee startup to $1.4 billion in eight years, negotiated its sale over nine months and largely got friends and family investors cashed out

Scott MacKillop started First Ascent Asset Management at 63, and he is selling it at 71, but the self-described “freak of nature” plans to keep pushing to the summit.

For MacKillop, 71 is the new 51 – something his firm's new owners get.

"This is not Scott winding down … his role might even get bigger … this rejuvenated him," says Colin Falls, president and CEO of GeoWealth in Chicago. 

MacKillop's Denver company is merging with GeoWealth and becoming a customer of its TAMP software. 

"It was important to us he was going to stay around … he’s the youngest 71 year-old you’ll meet. He’s forgotten more than I know … [and] he can bring more to a company of our scale," says Falls, 37.

And he's not about to leave and start again. He signed a five-year noncompete clause with Geowealth after completing a mostly cash deal that closed Mar. 23 after nine months of negotiation.

Neither party would disclose the value of the deal, nor would they disclose the equity stakes given to First Ascent shareholders, MacKillop included, although it is on the smaller end of the scale, with “very little dilution," according to Falls.

No last act

GeoWealth is still relatively flush with cash after a $19-million raise in Jan. 2022. J.P. Morgan Asset Management and Kayne Anderson Capital Advisors were the lead investors from that round. See: GeoWealth raises $19 Million to out-tech Orion, SEI, AssetMark and Envestnet on RIA outsourcing but then goes after their talent

The buzz around GeoWealth is that its TAMP technology was purpose-built for RIAs, whereas most TAMPs cater primarily to IBD reps.

RIAs want more control of the investing process but want help to deliver a bundle of compliant managed portfolios.

MacKillop insists, like Falls, that the sale of First Ascent is far from his last act.

“I understand the skepticism … [retirement] is an obvious question, but it had never occurred to me to retire or even slow down after this transaction … [I'm] energized by the possibilities of what we can build … my creative juices are flowing,” he says. 

“I may be a bit of a freak of nature, but I still like climbing big mountains … and I still like the challenge of building companies that can take on the bigger players through insight and innovation.”

Staff, offices remain

All of First Ascent’s backers retain a stake in the now combined companies, according to MacKillop.

"Our investors are all remaining after the transaction and will benefit from the future value of the GeoWealth stock we will receive in the transaction. None are being [fully] cashed out,” he says.

“But like any investor, they were glad to see their investment finally pay off,” he adds.

First Ascent will continue to operate as a stand-alone subsidiary, following its sale. Its combination with GeoWealth creates a TAMP with roughly $21 billion of administered assets and about 180 clients, over 90% of which are RIAs, according to Falls.

The combined firm has 100 staffers for the first time. All First Ascent’s staff bar Teresa MacKillop, Scott MacKillop’s wife and a part-time administrator, will stay on at GeoWealth.

The Denver and Chicago offices will remain in operation, as well. 

“This is not an asset purchase where you rip out the technology and fire everyone. The only proprietary software First Ascent has is their onboarding technology … There won’t be lay-offs. This is a growth story,” says Falls.

“This is a good deal for First Ascent because they are going to be set up to grow faster, and more profitably. They [will] be less bogged down by operational tasks and [combining] will allow them to take on more firms and AUM,” he adds.

Flexibility, responsiveness

Though none of the First Ascent software is being “ripped out,” there will be a loud ripping noise from Omaha, year-end 2023. The license will end for Orion Advisor Solutions' performance reporting, billing and other applications.

It'll give First Ascent an immediate bump in cash flow – to break-even –  and a longer-term business benefit, MacKillop says.

“There are certainly cost benefits, but the main benefit we see is the flexibility and real-time responsiveness we will have to evolve the technology in the way that makes the most sense for our business.”  See: Orion leaps to the top TAMP tier.

MacKillop can also exhale after watching every penny as the company burned cash throughout its startup history. See: Liberated (in part) by an Envestnet deal, Scott MacKillop isn't ho-humming a second-round infusion of $1.5 million.

Until its sale to GeoWealth, First Ascent relied on investment from family, friends, a smattering of angel investors and a $1.5 million 2018 Series B funding round. 

“Our burn rate more or less kept up with growth … [and we] tried to run as close to profitability as we [could] without sacrificing growth or the level of service,” says MacKillop.

“When the integration of the two firms is complete later this year, First Ascent will be profitable and should stay that way.”

Counting up differences

First Ascent and GeoWealth differ in a number of ways beyond technology.

MacKillop's firm levies a flat-fee for its services of $1,400 per household, with an additional $500 charge for every $1 million over $3 million that any given household has in investable assets managed by First Ascent.

GeoWealth charges an AUM-based fee of as much as 2.5%, according to its Form ADV2, although Falls describes its highest fee as an “outlier," included for compliance purposes. He says GeoWealth mostly undercuts the roughly 25- to 50-basis-point fees of most TAMPs.

Neither firm intends to change its pricing following the sale, and each will receive compensation for services rendered to avoid post-hoc revenue splitting, according to MacKillop.

“We can refer business back and forth depending upon which business model is most appropriate," MacKillop explains.

‘An endless number’

First Ascent gives GeoWealth direct relationships with RIA custodians, meaning GeoWealth will soon be able to handle administrative tasks, including account opening, processing contributions and distributions and managing the billing process.

As an asset manager, First Ascent also builds and sells its own portfolios and investment products; GeoWealth, as primarily a software vendor, relies on third-party model portfolios, from which advisors can pick and choose.

As a result, the intention is to use the First Ascent brand to represent a “full service” GeoWealth TAMP, and the GeoWealth brand as a software and backoffice administration service.

“First Ascent[will] become the business model and engagement model for the full service TAMP and GeoWealth for enterprise RIAs,” Falls confirms.

It's a big win for First Ascent, adds MacKillop.

“By combining the two firms, we can service an advisor who wants full-service, model-portfolio management, support with self-managed portfolios, direct indexing, or even OCIO-type services. We will cover the full spectrum of advisor investment needs,” he explains.

“Prior to the transaction, if we found such an advisor, we could only take on a few of them, or we could send them to Orion or GeoWealth; now we can take on an endless number,” he says.

Leaving a legacy

In selling to GeoWealth, MacKillop is also giving up the independence he earned when he founded First Ascent, after roughly 45 years working in the financial industry, including stints at four separate TAMPs.

"It just feels like the right people at the right time to join forces with," he says.

"I [feel] comfortable giving up some independence in order to achieve the higher goal of creating the best TAMP, pure and simple. Call it my creative impulse coming out, or my desire to leave a legacy of excellence.

“I know there'll be sacrifices in terms of autonomy, but I am of the firm belief that those sacrifices will be well worthwhile. I hope I’m right. In any case, it’s a bet worth making.”

It's the kind of thing MacKillop thinks about as a matter of course. He wrote the book on raging against the dying of the light and is an avid climber and skiier.