An asset management firm is actually a factory for manufacturing and processing investment portfolios on an assembly line, but most asset managers won’t admit that. So says Scott MacKillop, CEO of First Ascent Asset Management. His “factory” uses a method that produces portfolios financial advisors can offer for a flat $500 per account, as he tells ThinkAdvisor in an interview.
Low-priced flat-fee portfolios are one answer to the challenge of how FAs can price flat-fee financial planning in a way that compensates them fairly. MacKillop is betting that an increasing number of RIAs who conduct such planning will realize the benefits of his offerings.
First Ascent is the first and only asset manager to make available portfolios for a flat $500 fee, or $1,000 per household, versus an AUM basis, according to MacKillop.
In the interview, he discusses the major role that technology plays in enabling him to offer these — technology he modeled after that of robo-advisors — in order to gain an edge over competitors, including robos.
First Ascent, not yet two years old, introduced the concept in February 2017 and is counting on economies of scale to reach profitability, projected for 2019, when MacKillop hopes to manage $300 million in assets. So far, the firm has more than $100 million in AUM and is growing fast.
Before making a switch to financial services, the native Californian, 66, practiced securities law in Washington, D.C., for 15 years. He had interned at the Securities and Exchange Commission (“It was a really strong enforcement department at the time and exciting.”) He started off in the industry at ADAM Investment Services and later became president of both Portfolio Management Consultants (1998) and Frontier Asset Management (2007).
ThinkAdvisor recently interviewed MacKillop, on the phone from his base in downtown Denver. Off-hours, he gives his creative side free rein by playing rock ‘n‘ roll guitar in a church band. Fun fact: A pre-“Grateful Dead” Jerry Garcia was his local guitar teacher in California.
Here are highlights of our conversation:
THINKADVISOR: What’s the biggest flat-fee planning challenge to advisors?
SCOTT MacKILLOP: They have to figure out a flat fee that’s justified based on the amount of work they need to do for the client so that they can be compensated appropriately. Some advisors are using a tiered pricing structure, where pricing depends on the services they provide.
How do your $500 flat-fee portfolios benefit FAs?
Suppose a client is paying 30 basis points, or a $3,000 fee. The advisor can say, “I know that I can save you $2,500 right now.” In a world where there are a lot of intangibles, this is concrete savings.
What are other advantages?
Transparency and certainty. Also, there’s logic to what we’re doing that isn’t in the assets-under-management pricing structure: Because we have nothing to do with markets going up or down, there’s no reason for us to get rewarded more in bull markets.
Are you competing with robo-advisors?
Anybody who’s providing asset management services to financial advisors and their clients is technically a competitor of ours, including robos that are doing that.
How has technology allowed you to offer a $500 flat fee portfolio?
We created our own version of robo technology to facilitate the account opening and generate portfolios for advisors. We stole a few pages out of the robos’ playbook and replicated that for our business.
Why do you think you’re the only asset manager — as far as you know — offering $500 flat-fee portfolios?
I’m guessing there are two reasons: One is that it’s very difficult for a firm that’s been in existence for, say, 10 years, to all of a sudden go to a flat fee. That was one of the things we were counting on: We wanted to come into the industry having built our firm differently from all the others, catch them off-guard and gaining a competitive advantage by charging flat fees.