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First Ascent Is Betting Big on $500 Flat-Fee Portfolios


By Jane Wollman Rusoff | April 3, 2018

Industry Press| Flat-Fee, Robos

CEO Scott MacKillop tells ThinkAdvisor how he took a page from robos to try and beat them at their own game.

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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.

Anything else letting you do that besides the right technology?

We’ve been able to outsource back-office activity to another firm. So we don’t have all the overhead that traditional firms have. It’s really difficult for competitors to reinvent their back offices overnight.

What’s the second reason for being the only one?

Competitors are waiting to see what happens with us: Do we prove this concept is viable or not? Can you charge $500 an account and have a profitable company? I think the answer is yes, as we look at the growth rate of our firm so far.

Your business isn’t affected by market swings and volatility, correct?

Right. I think we have what most asset managers have but rarely acknowledge, and that is a portfolio management assembly line. You can think of us as a factory manufacturing and processing portfolios. We can do that very efficiently with the technology we have and manage tens of thousands of accounts using very few people.

You’ve said that it doesn’t matter whether it’s a $100,000 portfolio or a $1 million portfolio — the amount of work is the same. Please explain.

We have five different risk levels, from very aggressive to very conservative. The portfolios are built in the abstract; that is, there are no particular individuals’ portfolios involved at all. We’re just looking at the perfect portfolio for each of those risk levels. Then we open an account at TD Ameritrade and use technology to trade that account. The technology doesn’t care if it’s a $100,000 portfolio or a $1 million portfolio. It doesn’t work any differently.

How does the Labor Department’s fiduciary standard rule for advisors square with what you’re offering?

Because our fee is both a flat fee and a low fee, it’s very appealing in an environment where there’s a great deal of scrutiny of fees and pricing. We’re seeing a lot of people who would be affected by the DOL rule or a new SEC take on the fiduciary standard that are very happy to be working with a firm that provides a low flat fee. When advisors are able to offer services on a flat-fee basis and create a pricing advantage for themselves and for a 401(k) plan too, it gives them an edge in the fiduciary world we’re in these days.

Why does XY Planning Network, for example, like your portfolios?

We’re very compatible with their advisors because they use flat-fee pricing in their practices. If the advisor were to introduce an asset manager to their clients that charges on a percentage-of- assets basis, it would be inconsistent with the message the advisor is giving about the benefits of flat-fee planning.

How did going to a $500 flat-fee structure help your firm?

It’s very clear what our fee schedule is. It’s a real simple equation versus an AUM-based fee, which is a mouthful. Clarity has really helped in conversations with the financial advisors we’re talking to. And the price is very compelling. For most high-net-worth clients, it’s a significant reduction from the fees they’re paying our competitors.

What’s the future of flat-fee financial planning?

It think it will become more of a mainstream approach, but it won’t take over. Assets-under-management won’t go away. It depends on the practice. I understand that some firms are using both AUM and flat-fee planning, depending on the nature of their service and client preferences.

You practiced law for 15 years in Washington. Why did you switch to working in the financial services industry?

My financial services clients were having a lot more fun than I was! There was a certain creativity they had in their work that I didn’t get to experience as much in the legal world. First Ascent is the first time that I could start with a blank slate and take all the ideas I’d come up with over the years and try to put them into practice to see if I could create something new and, hopefully, better than what existed before. That was the fun of it.