The late comedian Mitch Hedberg once said that if you’re ever lost in the woods, just build a house. “I was lost but now I live here! I have severely improved my predicament,” he joked.
A new generation of registered investment advisors are taking a page out of Hedberg’s book when it comes to technology. With the fintech that's currently on the market falling short of the digital experience they want to offer, these firms instead are just building it themselves.
Companies like Farther and Savvy have spent significant time building custom, proprietary technology before going public and attracting advisors from wirehouses, broker-dealers and other RIAs. Rather than being hybrid robo-advisors or fintechs offering their product for other advisors to use, these companies launched a traditional RIA serving high-net-worth investors on top of their own technology.
It's early, but the strategy appears to be working. After launching to clients in 2020 with just one advisor, Farther now has 40 advisors. Assets under management have grown from $70 million in 2021 to $675 million at the end of March.
Savvy, which launched last August, has attracted six financial advisors and $120 million in AUM, but that doesn't include assets that are currently in transition, said co-founder and CEO Ritik Malhotra.
There is such a dearth of good technology in wealth management, whether at independent shops or at larger institutions, it’s no surprise advisors are building it themselves, Malhotra said. “The lack of integrated solutions actually hinders the … client experience. The issue is front and center for [advisors].”
By building their own technology, Farther and Savvy can offer a modern digital experience that advisors and clients can’t find anywhere else. The companies also believe they solve the problem that continues to plague independent advisor fintech — getting the pieces of software to connect with each other.
“When you build on modern rails from the very beginning, you control more of the experience,” said Taylor Matthews, co-founder and CEO of Farther. “We built what ought to be built, but that’s very challenging to do if you’re not building from scratch.”
Farther’s proprietary technology provides digital account opening across four custodians — Charles Schwab, Fidelity, BNY Mellon Pershing and Apex Fintech — and asset transfers. There are also custom features for financial planning and portfolio management, but the company is looking to integrate select third parties to expand what it offers advisors. On Thursday, Farther announced integrations with 55ip, StepStone Private Wealth, Wealth.com, Ethic and Vint.
Because of the custom infrastructure Farther built, it can bring in services from select third-parties more easily and with a deeper level of integration, Matthews said.
Matthews estimates that one-third of Farther’s advisors have come from wirehouses, with the rest coming from independent broker-dealers or other RIAs. Advisors can join as either full-time employees or independent contractors. The firm also offers what Matthews said is a transparent payout grid: 50% on the first $500,000 in production and 75% thereafter. Advisors who join also receive equity in the company.
“Our focus tends to be on advisors who have demonstrated success and are bringing a book of business with them,” Matthews said. “We are very geared toward advisors who are focused on growth and were already successful and building a book of business.”
Savvy doesn’t have a standardized payout structure, instead deciding on a case-by-case basis based on how the advisor runs their business, Malhotra said. The firm has recruited financial advisors from BNY Mellon, Merrill Lynch and Morgan Stanley, with its most recent recruit a Bank of the West advisor who managed $150 million.
“The writing is on the wall,” Malhotra said. “We are just in the early innings.”
Both firms are hitting on key trends that are driving important trends in the industry, said Josh Book, the founder and CEO of Parameter Insights. Consumers want to feel more in control of their finances but have a modern connection with an advisor to help them, and it requires good technology to realize this, Book said.
It will all depend on how successful Farther and Savvy are at marrying human advice with the proprietary technology to deliver something that feels personalized for each customer, but delivered at a large scale, he added.
“I think they have a real chance to meet consumer demand for a more modern, less expensive, wealth experience,” Book said in an email. “Firms of all shapes and sizes are working to converge the way overall wealth management services are delivered and experienced.
“A winning recipe has, to date, been somewhat elusive but the industry is making strides,” Book added.
Despite the early success of both firms, neither Matthews nor Malhotra expect their approach to become a significant trend among independent advisors. There's already a clear pathway for firms going independent, and developing a custom infrastructure from scratch requires both time and resources.
Like fintech startups, both firms sought outside funding to develop their infrastructure before opening to clients. Farther closed a $15 million Series A round in August, led by Bessemer Venture Partners, that brought its total funding to $22 million. Savvy closed a $11 million round in November to bring its total funding to $18 million.
Though one of Farther’s partners is MassMutual Ventures, this doesn't mean Farther advisors will be forced to sell insurance products, Matthews said.
“Advisor independence is core to Farther’s mission, and key to our success attracting top talent from across the wealth management industry who are looking for more control over every aspect of their business,” he said in an email. “We don’t offer proprietary products or generate fees from commissions, so advisors are never pressured to sell anything.”
While building technology isn’t most advisors’ core competence, Malhotra expects some additional advisors will follow a similar path.
“Someone once told me that a good idea is something that you yourself will have, while a great idea is something that 10 other people will have,” Malhotra said. “It’s not a surprise that there are multiple different approaches to this problem.”
“The market is big and allows for multiple participants. It’s not-winner take-all,” he added.
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