September 27, 2022
In the last 20-years, robo-advisors have seen steady growth and many have reached significant scale. By using algorithms to build diversified portfolios based on investor goals and periodically rebalancing in a cost-effective and tax-efficient fashion, wealth management entrepreneurs have been able to serve a larger swath of the investing public.
Some incumbent firms — notably, Schwab and Vanguard — responded admirably to the challenges and leveraged their resources and installed bases of clients to build their own massive robo-advisory businesses. But less agile wealth managers continue to face the threat of losing market share to startups with stronger digital capabilities. Wealth management continues to offer good growth prospects and attractive margins. Demographic shifts, generational wealth transfers, and changing customer desires and expectations open the door to new entrants.
Founded in 2019, Farther is a hybrid wealth management firm integrating live financial advisors and a sophisticated digital platform. Farther is for high-net-worth professionals entering their peak earning years, who are building wealth and require a holistic approach to managing their increasingly complex financial lives.
Farther offers an online investment management service and discretionary advice through a wrap fee program. Farther also wants each client’s entire financial life on the platform — banking, insurance, brokerage accounts, real estate investments, stock options, etc. — so it has a comprehensive view and can provide continual monitoring. In addition to managing money, Farther facilitates access to insurance agents, CPAs, estate attorneys, and others. The minimum to open an account is $100,000 and fees start at 1% of assets.
Unlike RIAs, the advisors who work for Farther are W-2 employees. But they can earn payouts of up to 75% of revenue with optional salary support, plus benefits and equity. In addition, they have unlimited flexibility to customize client portfolios and access to alternative investments.
Farther announced a $15 million Series A in May, led by Bessemer Venture Partners with participation from Khosla Ventures, MassMutual Ventures, Moneta Venture Capital, Context Ventures. and Cota Capital. Farther has raised a total of $22 million since inception in 2019. The firm currently has more than $250 million in assets under management and approximately 65 employees.
Taylor Matthews is Farther’s co-founder and CEO.
Q. Taylor, where are your clients moving assets from? Banks? Brokerage firms? Are they working with traditional wealth managers but looking for a better digital experience, or are they DIY investors who find they now need specialized advice?
A. Usually, when advisors come over, they bring their clients with them to the platform. We get a good number of clients like that. Then we also get clients organically who seek out Farther. They’re raising their hands to say, ”I’m interested in your wealth management services. Tell me more.”
That means we end up with a pretty broad customer base. Our youngest client is a 19 year old YouTube star and our oldest is an 80 year old retiree who is very much in the decumulation phase. We see all types.
If I look at where folks who come in organically are coming from, as advisors build their businesses on our platform we see folks coming in from big banks, we see folks who are graduating from some of the robo-advisor type of shops. Some have been self-directed for quite a while on the custodian platform of their choice and are just seeking out a little bit more help. It’s a massive range. Pretty much any financial institution you can think of, we’ve probably seen some sort of asset flows from them.
Q. What is your approach to acquiring clients who aren’t coming with an existing advisor relationship?
A. The short story is that we’ve done very little marketing so far. We wanted to make sure that the experience was exceptionally tight before we started to raise our voice to let folks in the marketplace know what we were all about. That meant that there were some product features we wanted to make sure were part of our offering. It also meant we wanted the right brand in place, one that would feel comfortable to someone coming over with significant wealth to join our platform.
We’ll start doing more marketing in the future aimed at awareness. But most of our organic growth has been word-of-mouth, client referrals, and of course our advisors are out in their communities building their books of business, too.
Q. Tell me about the investment portfolios Farther recommends for clients. What building blocks are you using? Do they consist of individual securities? Are you using mutual funds? ETFs?
A. This varies a lot, client by client. We are very much a custom shop. We have fantastic tools at our disposal and can provide a really good baseline for just about anybody. But every client is different, and we try to reflect that in the portfolios we build.
As for what the building blocks are, it depends on which model we choose to work with. Some models are composed of ETFs that are trying to drive smart beta to our clients – who are leaning toward overexposure to one sector of the economy, or underexposure to one factor or another. That’s one set of model portfolios. We can, of course, create something based on individual securities as well. That direct indexing idea is very much part and parcel of what we do.
In addition to the public market side, we also have access to a pretty broad array of alternatives. For the right client, if it’s appropriate for them, we’ll make sure they get exposure to that through some of our partner asset managers.
Q. So they’ve brought sufficient assets or have sufficient income to qualify as investors?
A. Different funds have different restrictions, but for all of them you must be an accredited investor. There are two other levels. One is called “qualified client” and the other is called “qualified purchaser”. Clients may or may not qualify for each one of these levels.
The minimums on some of these investments can be challenging to navigate. For instance, if the minimum is $1 million, and you have a $1 million portfolio, putting you entirely into one fund doesn’t make a lot of sense.
We work very closely with our clients to identify when the right time is and which way to go about it to get that sort of exposure. We have relationships that have enabled us to offer some private exposure with minimums as low as $25,000. It’s a nice way to get your foot in the door as you’re on your way up.
Q. If I come to you with $1 million in Exxon stock, can I keep it? Or the opposite: can you accommodate a preference for socially responsible investing? For example, say I don’t want any Exxon in my portfolios at all.
A. The answer to both is “yes”. Concentrated positions are something we deal with every day. One of the most common client profiles we have is a professional who has been paid in stock, and ends up with a concentrated position. There may be restrictions on how much they can diversify away, or there might be significant tax implications for diversifying away.
We create a tailored strategy for each of these clients, with a plan for how and when to diversify from that position. Usually that means we hold that concentrated asset, and the odds are they’ll continue to add to that position if they continue to work at that company.
There’s no cookie-cutter way to approach it. It really is dependent on the client and the company.
Q. Can clients make trades in their accounts on their own, independent of their advisor?
A. All of our clients work really closely with their financial advisors to develop a strategy. If they want to trade in something in particular, that’s a conversation they would have. But yes, as long as it’s in line with the fiduciary constraints we have as a financial advisor. Those tools are available.
Q. What can you tell me about Farther’s cash waterfall feature?
A. It’s a fancy way or a different way of saying cash management. One of the nice things about building our own technology and having control over that asset is that we’re able to connect to lots of different institutions. We call it “executable finance”. These are pre-made decisions around your financial plan that you’ve developed with your advisor.
What that means in practice is that we can connect to your bank account. Let’s say you always want a floor of $20,000 in that bank account, and we see that there’s $40,000 there when we ping the bank account that month. We can take that extra $20,000 and cascade it across the accounts that our clients have set up on our platform. That might mean that the first bit goes into a highly liquid cash account and then flows into an IRA so you can top that off, and then to a goal account you’ve set up to buy a next house. So that’s a waterfall that fills up each bucket along the way.
The alternative way of doing that, especially if you’re not so much in the accumulation phase (so there aren’t explicit goals that you’re saving for) might be to fund trusts for your children on an equal basis with extra cash that you’re generating each month. We can funnel that cash into those accounts so it’s always invested and not sitting in your bank account being eaten away by inflation.
Q. Will Farther work for me if I only bring a portion of my assets to your platform?
A. We work best when we have that trust that’s inherent in a financial advisor relationship, and so we work best when it’s all under one roof. That being said, we totally understand that’s not always the way things start out. It’s not the most common, but we can manage a sleeve of a client’s portfolio – and that might be a way we get started.
But for the most part — and I would say this is true for close to 90% of our investor base — if you’re going to work with us, you’re kind of all in.
Q. Do you recommend an allocation to cryptocurrencies in client accounts?
A. It very much depends on risk tolerance and on the familiarity that a client has with it. Crypto is another asset class, and if you think about modern portfolio theory, adding an asset class that doesn’t move directly in tandem with the other asset classes that you have available to you, there’s an opportunity to reduce your overall risk for a given level of return expectation. It can be useful, but it’s definitely not for everybody.
Q. Do all your advisors understand digital assets, or is it an advisor-by-advisor situation?
A. It’s very much advisor by advisor, and it’s client by client, as well. What we do as an institution is make available training materials to ensure our advisors really understand the products available to them and to their clients before they recommend something. All our advisors are fiduciaries, they come from this space, and more than anything else they want to understand it before they recommend anything.
Q. How do you help entrepreneurs and other folks manage their option packages?
A. It’s very much the same story as with that concentrated asset situation we talked about a little bit earlier. When you have a large number of options it’s effectively a concentrated position whether you’ve exercised them or not.
Developing a plan is step one. Figuring out how you want to exercise and when is the most important thing. We have some partners available to us if exercising alone creates an undue financial burden on a client. You can imagine that having a giant tax bill suddenly, just for exercising your options, isn’t the most pleasant thing in the world. It’s a tailored situation for every client but we have the tools at our disposal to handle that concentrated position. And sometimes even if it’s a private company, to help diversify that away or even lend against it.
Q. How are you preparing clients for rising interest rates? A lot of people have never experienced this before.
A. It’s a tricky environment right now. I think we’ll continue to see rising interest rates for a little while, and inflation is challenging. Between the two, they take away (or at least minimize the effectiveness of) two nice tools that you generally have. Bonds are less attractive because new bonds that are issued will be more valuable than existing bonds. Any bonds that you’re invested in right now are going to lose a little bit of value. On the cash side, you don’t want your cash to be eaten away by inflation.
Where else can we look? We can look at equities. We’ve seen a shift to that side. A portfolio that might have been 70%/30% is probably going to look a little bit closer to 80%/20%. The other aspects we can look at, because we work very closely with our clients, are their exposure to real estate and other assets that might be hedges against inflation. We build portfolios around those conversations.
Q. The fundraising environment has changed a lot in the last nine months. Founders who read this interview will want to know about your recent fundraise. How did you manage the process? How long did it take?
A. No fundraising is easy. It’s always a challenge whether it’s your first or your fourth (this is our fourth fundraise, effectively). We were in a position where we had checked off all the milestones we had meant to hit to raise that next round of funding. We had exciting growth at our back that was pretty attractive when we went to market. We also had a team of great investors who all wanted to double down, so to speak. As we went to market, it was really comfortable having that team behind us. We ended up with a term sheet in the first week and ended up being a bit over subscribed.
We were very lucky to be in that position. The work that went into preparing ourselves for that, and being heads down and focused on growth beforehand, made the storytelling a lot easier. We also had the metrics to back it up.
Q. Where are you investing the new capital?
A. We’re trying to grow, not surprisingly. That means a portion of the funds raised is going into bringing more advisors to our platform and broadening the number of end clients that we ultimately serve. That’s very much a focus.
Then we want to continue investing in the product itself — continuing to invest in our alternatives marketplace, continuing to broaden the scope of partners that we work with, continuing to invest in the infrastructure to ensure we’re providing the absolute best execution from both the client and the advisor perspective.
Q. How is Farther regulated?
A. We’re primarily regulated by the SEC. We’re organized as an RIA. We are not a broker-dealer at the moment.
Q. Are all your advisors fiduciaries?
A. Yes, all of our advisors are fiduciaries. The industry term for it is “fee only fiduciary.” There are no commissions or extraneous fees attached to any of our accounts. It’s extremely transparent.
Q. You say on your website that advisors have the “freedom to work with the types of clients you want to.” Sounds like shade. Am I reading too much into it?
A. If you put yourself in a financial advisor’s shoes, often there are minimum client assets that you’re required to bring on either to work with a client or to be paid on a client. For instance, if your organization had a $10 million minimum, you would not be able to bring on someone who is very promising and entering their peak earning years but maybe only had $4 million or $5 million available to them at the time. Or maybe there’s an entrepreneur you’d love to work with who has raised some money and is absolutely killing it, but doesn’t meet your minimum immediate requirements to bring them onto the platform.
This is a pretty common situation. We think those minimums are more reflective of an organization’s operational limitations, and as we built our platform from the ground up on modern, 2020s rails, we don’t have the same sorts of operational limitations. We can work with clients at an earlier stage of their lives. We don’t put any unnatural limitations on our advisors. It opens up a lot more possibilities, not only to our advisors, but also to our clients.
The other thing I’ll mention: a lot of advisors are constrained regarding the geography they’re allowed to operate in. They’re not supposed to, maybe, go after clients in a colleague’s hometown. We’re geographically agnostic. We’re a remote-first organization and we’re comfortable working with our clients wherever they happen to be, and with our advisors wherever they happen to be, as well.
Q. Scaling a platform with financial advisors is certainly different than scaling a platform direct to consumer. How does that impact your ability to scale rapidly?
A. One of the biggest challenges in scaling a direct-to-consumer business is that the cost of customer acquisition often looks really attractive at the get-go and then becomes less and less attractive over time.
In this industry, about 70% of new client relationships start from word of mouth — either a referral from an existing client or, say, from a service provider, or from someone in an organization you’re a part of. We thought that rather than fighting against that by going with a direct to consumer go-to-market, we could lean in and work with advisors who are very much in the mix of things and who are generating a lot of their own clients and who are able to take advantage of those resources. That’s ultimately why we thought this was a better opportunity.
Quite frankly, there are a lot of real advantages that an advisor has working with us, from the tools that we provide, to the efficiencies we create, to the economics we create. It’s just a better deal all around. The value proposition was just very obvious.
Q. What have you gleaned from what LearnVest did and what Personal Capital is doing? They both created an automated investment platform and offered access to live financial planners.
A. We looked at all the folks who came before us, everything from robo-advisors to Personal Capital. I don’t think there’s another good example of folks who really started a tech-enabled or wealthtech platform taking on specifically the high-net-worth space, which we saw as a greenfield opportunity.
There was a lot to learn from some of the folks who came before us. One learning is that trust is still an extremely important aspect of a wealth management relationship. If you look at a robo-advisor platform, usually the average client account size is roughly $40,000 – $50,000. It implies that clients are looking for something else when they graduate. So having that advisor in place, that trusted contact, was critical to us from the get go. We wanted that as part of our offering.
There are also some really fantastic things that folks like LearnVest and Personal Capital have done. They increased the visibility into what is going on in your financial life. Everybody likes that! Everybody likes more transparency and control, and we want to have at least the same level of transparency, control, and access that a client who is more self-directed might have on one of those platforms.
We certainly tried to learn our lessons, but also to provide a little more customization, a little more of the features that are important to folks as they continue to grow in their careers and accumulate more.
Q. When you hire experienced financial advisors, do they bring their books of business with them? When they leave will they take their clients with them? You’re relatively new so you may not have had that happen yet.
A. We hope they never leave! We do a lot to be the best and obvious choice for a financial advisor who wants to build their business, run their business, and monetize their business should they ever decide to retire. All of those are core aspects of our offering to a financial advisor. At the same time, that trust element that we talked about is critical, and should an advisor leave I’m sure they would take many of their clients with them.
If you look at averages for transferring a book of business from one institution to another, it ranges from 60% – 80%. So we would very much expect to lose some clients. The flipside of that is we provide a really compelling client platform. We offer our clients more control, transparency, and access to products and services all under one roof in a holistic way that I think is very challenging to recreate elsewhere. There’s a stickiness factor on that side, too, where even with a strong, trusted relationship those clients might find a home with another advisor here.
Q. You mentioned that you do have clients who are retired and are drawing down their assets. Do you have services to offer to people in the distribution phase who have, perhaps, even more complex needs than those in the accumulation phase?
A. That’s a core part of what we provide to clients. We have a pretty broad appeal and need a pretty broad appeal because our client base covers a lot of different demographics, from Millennials who are just getting going to folks who have exited large companies and have significant assets that they are looking to pass on to the next generation. We certainly have those tools available for folks who are in that decumulation phase or who are in the phase where they’re passing down assets to their children and grandchildren.
Q. At the heart of Farther is the technology platform. Are you willing to white label the technology to other firms?
A. It’s a great question. One of the things that’s unique about our business because we started with technology and infrastructure is that, at our core, we have this fantastic technology asset that is kind of separate from the revenue generation side of the business, at least right now.
So there are certainly opportunities for us to extend that platform to others, whether that be other RIAs or maybe banks, credit unions, things like that. There are lots of opportunities there. At the moment, we’re really focused on the business as it is. But I won’t say never.
Q. What will we see next from Farther?
A. There are a couple things that we’re looking forward to rolling out soon. We’re making a big upgrade to the performance and analytics that our advisors and clients can access and expect. We’re super excited that we’ll be rolling that out in the relatively near term.
We’re going to be continuing to invest in the alternatives side. There’s a lot of opportunity to bring exposure from an alts perspective to a much greater community. It doesn’t have to be this terribly esoteric thing, we just need to make sure it’s the right fit for the right client. We’ll be incorporating some other harder-to-access types of securities — for instance, shares in private or venture-backed companies. There’s a pretty interesting partnership we’ll be rolling out. We’re working with a company called Linqto to do that.
I think there are lots of opportunities like that, to work with other industry players to create fantastic access or products that we can offer to our client base and ultimately deliver the best of the best of any financial product available to them. We’ll look forward to continuing to further that mission.
Q. Are you currently hiring?
A. Absolutely. We are hiring on a number of fronts, but the biggest focus right now is on financial advisors. We’re very much looking forward to bringing on a hundred more of those and continuing to provide better services to many more clients and advisors alike. (Interested advisors can go to farther.com/for-advisors.)
We’ve recently expanded our corporate team. We’ve hired Ching Tao, who joined as our Head of People. She’s an extraordinarily impressive woman. We also recently hired a number of director-level folks on the product and engineering side, so super excited to keep pushing on that front.
Q. Is there anything else you’d like us to know about Farther?
A. One thing we didn’t mention is ESG. We very much understand that our clients have values that are important to them. One of the really fantastic parts about the ability to customize model portfolios is that we can take all of that into consideration and deliver portfolios that are very much aligned with the values of the individual client. We also are exploring social impact funds as well. They’re a little bit different and tend to be on the other side of the public/private line.
Q. Are you providing advisors with tools they can use to analyze funds and individual securities from an ESG standpoint so they can share this information with clients?
A. Of course. And we work really closely with our asset manager partners to build standard approaches to that process, as well.
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