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Startup Turns Portfolio Pricing on Its Head

Financial Advisor IQ

By Thomas Coyle | June 20, 2016

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First Ascent’s fee schedule is an eye-catcher.

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By Thomas Coyle June 20, 2016

In 2015, after an eight-year stint as president of Frontier Asset Management, Scott MacKillop started wondering what a brand-new money-management firm would look like if it could work out how to blend all that financial technology and academic insights had to offer with price sensitivity, transparency and high standards of end-client service.

The embodiment of these initially “random thoughts” is First Ascent Asset Management, a new firm MacKillop founded to provide portfolios to clients of independent RIAs.

In an approach to asset management some observers consider unique, Denver-based First Ascent outsources all infrastructure, puts passive investments at the core of every portfolio, and thinks charging on the basis of assets under management “makes no sense,” according to MacKillop, who in addition to having run Frontier was head of the Portfolio Management Consultants, now part of Envestnet, and architect of US Fiduciary’s investment platform. “It’s especially hard to justify if you’ve outsourced the operations.”

First Ascent offers three core-and-satellite portfolios. The cores are made of low-cost index funds or ETFs for “broad exposure to global securities markets,” as the firm’s website puts it. The satellite portion — no more than 15% to 20% of a portfolio, says MacKillop — consists of actively managed funds added “selectively to improve the portfolio’s performance,” according to the website description.

Investors who work with First Ascent through a financial advisor pay 50 basis points for one of these portfolios with a minimum of $400 and an absolute maximum of $1,500 a year.

So where, for example, the owner of a $300,000 account pays the $1,500 maximum at the 50 bps rate, a $500,000 account holder pays 30 bps, a $1 million account holder pays 15 bps, and a $5 million account holder pays 3 bps.

“With the outsourcing we have, if you’re managing $100,000 or $500,000, the work is pretty much the same,” says MacKillop. “We want our fees to reflect that.”

The aim here is to make FAs look good to their clients.

Scott MacKillop
“In some cases, our pricing means investors are starting out a few thousand dollars ahead of where they’d be with traditional AUM-based fees,” says MacKillop. “We want advisors to look at that and say, ‘That’s a benefit I know I can get for my clients.’”
Though First Ascent’s fee schedule is an eye-catcher, its stance on outsourcing may give it bragging rights as the first pure-play investment-model manager in existence, according to TD Ameritrade’s Skip Schweiss.

“It’s the first firm I think that’s really focused on running the model,” says the head of TD Ameritrade’s institutional retirement plan business, noting First Ascent’s radical stance on outsourcing its operations. “In that regard, it’s similar to nothing.”

It’s also clear First Ascent has big plans, says Schweiss, whose firm provides custody services to the asset manager. “Most investing firms start small, but Scott has hired eight or nine people — meaning he’s making a real push and doesn’t intend to start small.”

For Schweiss, these factors — low fees, clear product focus and an apparent commitment to sales — are signs First Ascent “will be getting a lot of attention.”

Advisor and business consultant Deborah Fox agrees – and she plans work with the upstart manager.

“I expect them to get a great response,” San Diego-based Fox says of First Ascent. “They’re turning the asset management pricing model on its head, and I couldn’t be more excited about the disruption.”

Fox plans to do business with First Ascent for several reasons. First, the startup’s approach to managing money matches what Fox has been doing, more laboriously, on her own. Second, she’s impressed by the manager’s ability to work on her terms. “I charge most of my clients a flat retainer fee, so they’re looking at my whole book of business and coming up with a single fee,” she explains.

Adds Fox: “They’re smart people Scott has working for him, and I like to be a disruptor when that makes sense.”

But for MacKillop disruption takes a backseat to client service — as shown, he says, in First Ascent’s commitment to investor education.

The firm offers plain-English online text and video courses that tackle investing fundamentals, provide context for making investment decisions and share insights on behavioral finance — all with the goal of promoting tranquility and confidence among investors.

“It’s the course we all should have had in school,” says MacKillop.