First Ascent now has $ 1.1 billion in RIA assets under management and has taken a milestone: its founder has a take-home pay and apparent sustainability.

Note from Brooke: First Ascent may be Scott MacKillop’s first startup, and it’s had its fair share of growing pains and moments of truth. But it wasn’t the career fund manager’s first rodeo. When he had to decide if he was risking more of other people’s money, he made the right choice. But he might not have expected 1000% growth in 35 months.

First Ascent Asset Management nearly died in the air, but $ 1.5 million has breathed life into its veins and the sky is the limit for its next ascent.

The Denver firm launched the first lump sum TAMP, and the good deed was quickly punished with little interest from the RIAs it sought to serve. But the cash CPR he received in 2018 holds him up.

“It looks like this lump-sum TAMP idea has legs after all,” said founder and CEO Scott MacKillop, putting it mildly.

First Ascent’s asset collection rate averages $ 27.7 million per month, and it topped $ 1.1 billion in assets under management (AUM) RIA this month – a jump from the $ 100 million in July 2018, generating a 1,000% increase in net inflows of assets over the past 35 months.

Natalie Dilley is the first of three new hires First Ascent will be making by September 1.

“The rise to $ 1 billion in assets under management has certainly been difficult, but I think every time you do something new and different it takes a while for it to catch on,” MacKillop continues, in an email.

The changes to the SMA model were small but bold: sell separately managed accounts for an annual subscription fee of $ 1,400 per household, regardless of portfolio size. With great research help, it was sold as a discounted rate but not at a discounted rate.

First Ascent broke even at 2,500 managed accounts. The company now manages 3,225, according to its ADV Form. His company’s income is approximately $ 1.6 million.

MacKillop also recently started earning a salary. He received his first salary in 2019 after three years of fasting in cash. The company employs 9 people.

His salary should keep coming now that he’s exceeded, said Scott Smith, director of consulting relations at Boston consulting firm Cerulli Associates, via email.

“With over 300,000 advisors in the market, it’s unlikely that there will be a truly dominant platform, but the services it offers, along with its unique pricing model… should allow it to thrive for the long haul. term, “he adds.

Double

Still, it could easily have gone wrong if MacKillop hadn’t made the most of the time he spent buying his business by successfully raising $ 1.5 million in December 2018. The raise gave the business the trail she needed to survive. See: Freed (in part) by a deal with Envestnet, Scott MacKillop isn’t buzzing a $ 1.5 million second-round injection.

Scott Smith
Scott Smith: the services he offers, as well as his unique pricing model … should allow him to prosper in the long term

“We always believed there was a market… and I think we’ve established it now,” he says.

At the time of the increase, First Ascent was managing $ 160 million on behalf of 80 RIA. Since then, he has grossed $ 940 million, which he manages on behalf of just over RIA 100, according to the firm.

“We keep adding new RIAs, so that number changes every week,” says MacKillop.

The company became profitable without fine-tuning its simple strategy of selling the outsourced portfolio management to RIAs without weighing them down on prices. See: Scott MacKillop applies shock and impressive pricing to the SMA market with success after simply lower fees left RIAs stable.

In fact, First Ascent doubled its low-cost model in January, cutting its fees by 50 basis points (bps) for the first $ 100,000 it manages to 35 bps.

That said, he has lowered his per-account fee cap below his household cap, from $ 1,000 to $ 1,400 per year.

Tempting discount

An RIA managing, say, $ 250 million through 355 accounts would pay First Ascent an estimated maximum of $ 497,000 to manage its clients’ assets.

This is equivalent to a fivefold discount to eight times, compared to the average SMA outsourcing fee of $ 250 million. They vary between $ 2.75 million and $ 4 million.

Although they can differ widely, SMA fees often hover around 1.1% to 1.6% of assets under management, according to the Money Management Institute in New York.

In addition to its direct selling business to RIA, First Ascent sells its portfolios through contractors, such as Investnet, Vestmark and SMArtX.

First Ascent also charges a five basis point fee separately for 401 (k) assets.

Growth mode

Today, instead of countering threats to its very survival, First Ascent is adding products and personnel to ensure it can keep its ducks online as it expands.

Zohar swaine
Zohar Swaine: [I’m] anticipating commensurate growth as more advisors recognize First Ascent’s differentiators and competitive pricing.

She appointed Natalie Dilley, former partner at UBS, as investment operations partner in June. An investment research analyst will join on August 1 and First Ascent will add a chief technology officer on September 1, bringing the company’s workforce to 11.

“First Ascent continues to develop well [so] we are hiring a few new team members to help us keep pace. [These additions] should provide more options for advisors who work with us, ”says MacKillop.

The subcontractor will also shortly deploy portfolios that meet environmental, social and governance (ESG) standards.

Unlike many asset managers, First Ascent will not charge additional AIR for using its ESG portfolios.

It will also soon make a deal with an undisclosed direct indexing software company so that it can customize RIA accounts, adding and subtracting individual stocks and bonds. This decision will increase tax efficiency and allow clients to accept or decline the holding of particular assets.

Inventory

Currently, First Ascent sells four portfolios to RIAs managed by an internal investment committee.

Rick patterson
Rick Patterson was reassembled in First Ascent in December 2018.

Its portfolios include a passive index-tracker, a portfolio that mixes passive and active management, a factor-based portfolio and one with funds managed only by Dimensional Fund Advisors, a fund provider with a large fan base among RIAs.

First Ascent also provides RIAs with access to its internal research, an online customer portal, account opening, billing, asset transfer and performance reporting services, and marketing advice. He also serves as a fiduciary advisor for 401 (k) accounts in partnership with the Fiduciary Shield pension market.

Most RIAs using First Ascent as TAMP have “little input” in the management of the assets they outsource, beyond the choice of portfolios they wish to use. Orion Advisor Solutions provides First Ascent with the software it uses to run its back office.

That said, some of First Ascent’s larger clients exercise direct control, employing the company as an outsourced investment manager, according to MacKillop.

When First Ascent changed its pricing model, it grandfathered all current RIA accounts under its old royalty system.

One-third of First Ascent’s portfolios are actively managed, one-third are factor-based strategies, and a third are purely passive, according to the company.

Existential threat

In July 2018, MacKillop saw failure in the face.

Emmett Daly
Emmett Daly: They just needed fuel in their tank.

While he remained confident he wouldn’t have to sell the business, fundraising took much longer than expected, he told RIABiz at the time.

Just to cover costs, First Ascent had to quintuple the 558 accounts it had on its books.

In short, he faced an account in his attempt to prove that a discounted TAMP could compete with much better capitalized asset managers.

In the company’s first three years, First Ascent generated just 100 million accounts receivable, at a rate of approximately $ 2.7 million per month.

The future of the company was in limbo, even though its fixed fee structure generated around $ 280,000 in revenue, based on its July 2018 account numbers.

At the time, MacKillop described himself as living in a “state of perpetual uncertainty”.

It was also under increasing pressure from its early funders to prove that First Ascent’s business model was more than just a whiteboard.

“[They] continued to fund the business while I was looking for big funding. We never had to sell the business. The pressure came from the fact that the fundraising was taking longer than expected, ”he told RIABiz.

Fuel in the tank

Yet when the pressure arrived, First Ascent’s top six backers – a mix of family and friends – were renewed, including Emmet Daly, managing director of the financial services investment bank at Minneapolis investment bank Piper Sandler; and private equity investor Rick Patterson.

Four new investors also built up cash, including Zohar Swaine, chairman of RIA Mink Hollow Advisors, and an undisclosed family office.

“They just needed fuel in their tank,” Daly told RIAbiz at the time.

In total, First Ascent has raised just under $ 4.4 million over two rounds of funding since its inception in 2015.

Daly also says he’s not surprised MacKillop has repaid his investor confidence.

“I have been an investor from the very beginning and have great faith in Scott and his team. They have always exceeded expectations,” he said via LinkedIn correspondence.

This pattern of outperformance will continue, adds Swaine. “[First Ascent] proves its worth with an ever-expanding base of advisors [and I’m] anticipating commensurate growth as more and more advisors recognize First Ascent’s differentiators and competitive pricing, ”he said.

Bigger and better

Today, First Ascent has its sights set on a bigger game as the inflows and the size of the companies that First Ascent does business with continue to grow, MacKillop said.

“We’re hiring bigger advisers now and… these days a ‘normal’ month brings in around $ 20 million with peaks upwards when we hire new advisers,” he explains.

Kudos to First Ascent for spotting a niche, says Smith.

“First Ascent facilitates [RIAs] implement impartial models at a reasonable price. He recognized that there is no marginal cost for more assets in each [SMA] model and established what he thought was a reasonable price, ”he explains.



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