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Technology > Marketing Technology

This Innovative Business Model Makes Small Accounts Profitable

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A year ago, Facet Wealth CEO Anders Jones snagged my attention (and in full disclosure became one of my clients) at a conference. My presentation topic at the event, ironically, was about developing excellent client-service models to increase the value of advisory firms.

Jones told me he and his Facet team “…created a unique business designed to service smaller client accounts on which most advisory firms lose money.”

Admittedly, I was skeptical. Throughout my career, I have heard the “we are unique in how we serve clients” line for what seems like a million times. Following my speaking engagement, Jones and Facet CFO Lisa Rapuano explained further.

The team at Facet created a client experience backed by a proprietary technology platform designed to cost-effectively provide fiduciary financial planning advice to small accounts — less affluent clients. What they did (through artificial intelligence) was take the financial planning process using the components and teachings of the CFP curriculum and scale it for the benefit of the average American.

I was floored upon viewing the technology platform that drives their financial planning process and encompasses their client experience. There were two things that truly stood out about it.

First, it is genuinely financial planning focused.

Each client within Facet Wealth receives access to their technology program driven by systematized, one-on-one meetings. The technology helps guide the client through their goals and planning, giving the client many choices and pathways to direct their financial lives.

Second, each client is assigned a living, breathing CFP to work with them.

The scale of the technology allowed every CFP in the country who works for Facet to impact more lives, increasing the average 75 clients per advisor to 200-plus clients.

This alone should have been enough of an impact for Facet to stop there. They have built an experience that will change the lives of many average American families. But, instead of stopping at the consumer market, Facet also decided to impact the advisory industry as a whole.

More Problems Solved

Today, the average advisory firm has roughly $400 million in assets and an average of 920 clients. Using the 80/20 rule (80% of the revenue driving assets are held by 20% of the clients), this means roughly 736 clients are virtually unprofitable to the typical advisory firm.

This creates a myriad of issues around growth, profitability and capacity for firms operating between $200 million and $1 billion in AUM.

For firms with a disproportionate level of unprofitable clients, hiring and turnover involved in serving those clients can hurt profits, and in turn, decrease firm valuations significantly.

Facet decided to solve this problem, too. It has offered to “buy” less profitable clients from existing advisory firms.

And here’s the brilliant part: Once those small, unprofitable client accounts are sold to Facet, the traditional advisory firm growth, profitably and capacity issues are solved.

The domino effect exploded the valuations of those firms where we’ve made those transactions. In a typical transaction, Facet could increase by two to three times, profits, owners income, and firm value of a traditional advisory firm in less than three months.

Based on the success of the idea and the processes created to make it work, Facet Wealth, recently received a $33 million infusion of private equity from Warburg Pincus.

Facet’s success is an excellent example of what today’s independent advisory firms can achieve. There are more ways to create value in your businesses than simply attracting more assets and increasing revenues.

The service models created for firms — if unique — can also create considerable enterprise value. This is business value that most valuation companies in today’s advisory industry largely have ignored, until last week, when Facet proved that the way you attract and service clients can command significant value.

The key element of a good client-service model is a unique and clearly defined client experience targeted to a specific group of people that enables more clients-to-advisor interaction.

To create this kind of client experience, these service models need the right number of client meetings for each client and a process that every client goes through.

The takeaway here is if an advisory business focuses on serving clients and the industry, through a great client experience, the value will transcend into substantially increased profitability, owner income and market valuation for your business.

While many advisory firms may not be able to develop the level of robust technology Facet did, they can control how and what clients get served in their individual practice. If you do that, success, growth and value ultimately will follow.

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