March of 2020 “was not a great month,” said Andres Garcia-Amaya, the founder and CEO of Zoe Financial, a company that matches select RIAs with prospective clients and doesn’t collect a fee unless they work together.
The Covid-19 pandemic had reached the U.S. and was spreading at an alarming rate. The virus threw stocks into the fastest-ever bear market, as businesses closed, and the world adjusted to working remotely. Few investors were searching for a new financial advisor and wealth managers were busy tending to their existing clients and their own businesses.
April was better. But when summer finally came, Zoe Financial had a new problem. “We started to look at the numbers and thought, holy smokes,” Garcia-Amaya told RIA Intel.
Suddenly, investors returned to searching for professional financial advice in droves, and not just ones in their 30s and 40s who already proved to be open to Zoe’s matchmaking process. A new comfort level with technology — and presumably fear of Covid-19 — caused a surge in prospective clients in their 50s and 60s to take to the internet like never before in search of a wealth manager, according to Garcia-Amaya.
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Meanwhile, RIAs working from home, unable to meet prospective clients in person and grow their business like they historically have, were in need of a way to do that. Zoe was there to help them.
In 2020, Zoe’s network of RIAs grew to more than 2,000 independent advisors, managing an aggregate of $320 billion, up 790% from 2019. RIA interest in the network last year “validates how important we became to the RIA community,” Garcia-Amaya said.
Zoe, founded in 2018, has added RIAs already managing billions of dollars (most recently Buckingham Strategic Wealth, a firm managing $22 billion for approximately 10,000 clients). But the startup has added many small ones, too, Garcia-Amaya said. Some clients that use Zoe to be matched with and interview potential advisors want them to be part of a small RIA, he added.
Regardless of what they are seeking, Zoe is having “immense” success sending prospects to Buckingham and others that ultimately become clients. In 2019, new assets under management by its advisors were growing between 15% and 20% month-over-month.
In return, RIAs share a slice of their fees with Zoe in one of two ways. Advisors who charge clients a flat annual fee pay Zoe a flat annual fee for five years. RIAs who charge clients a fee based on a percentage of their assets pay Zoe a slice of that revenue for as long as the investor is a client. The company does not disclose the portion of revenue it takes in either scenario.
Investors can use the service for free. About half of investors who use Zoe already have an advisor, most working at independent broker-dealers and the largest traditional wealth managers, according to user questionnaires.
Zoe attracts investors using targeted online ads. But word of mouth has finally created a flywheel effect; more investors and advisors are referring others to the service, Garcia-Amaya said.
Garcia-Amaya did not share the current number of investors using the service, or their total amount of investable assets. But he said Zoe's investors are bringing an aggregate of more than $1 billion in investable assets to the service each month, and the number of investors hiring an advisor through Zoe is still growing 10% to 15% month-over-month.
Even siphoning just a few basis points of advisors’ fees could add up, making for a lucrative business. For example, if an RIA paid the lead generator a 10-basis-point fee on a $1 million account, that would equate to $1,000 every year. Multiply that by a few new households each year and a couple thousand advisors and the math starts to look attractive.
Although, to maintain its level of service — including vetting independent RIAs which it proudly denies 95% of — Zoe raised an additional $1.2 million last year from previous investors to double its workforce to 25 employees.
Recently added employees include additional software developers working on new products. Investors can already be paired with and schedule phone calls with advisors within Zoe. Later this year, it plans to create a dashboard where investors can see all and manage the advisors they are considering hiring. It’s also building tools so that investors can share information with Zoe, which then passes it on to advisors before they meet a client, saving both parties time.
Zoe has raised a total of $6 million from venture capital firm ThirdStream Partners and other high-powered investors. Christopher Jones, a principal with CMVJ Capital, and previously a co-head of Active Equities at BlackRock; and Robert Deutsch, the chairman of JPMorgan’s ETF board; and Marie Chandoha, Charles Schwab Investment Management's Former President and CEO, are all investors.
Others include Stephanie DiMarco, the founder of software company Advent and the chair of the board of directors at SS&C Advent; and Matt Brinker, a managing partner at private investment firm Merchant who joined Zoe’s board earlier this month.
“The incredible traction that Zoe’s team and product have shown in the last 3 years is just the beginning. Zoe has set the foundation to be an industry defining leader in the decade to come,” Jones said in a statement.
Vaccinations have begun and the number of Covid-19 cases is falling in many countries but the pandemic is far from over. When life returns to a version similar to early last year, Garcia-Amaya believes investors and advisors will stick with digital solutions. The convenience and efficiency are undeniable and client roadshows to wealth management offices in search of an advisor won’t return, he says.
“I can’t wait to go to a restaurant,” Garcia-Amaya said. “But who wants to go to a branch?”
Michael Thrasher (@Mike_Thrasher) is a reporter at RIA Intel based in New York City.