Company Profile

COMPANY:FormulaFolio Investments

2018 INC. 5000 RANK: 385

HEADQUARTERS: Grand Rapids, MI

YEAR FOUNDED: 2011

2017 REVENUE: $29.3 million

3-YEAR GROWTH: 1,275%

Every morning, Jason Wenk wakes up at 5 in his Laguna Beach, California, house. He reaches to his nightstand for a Clif Bar, a bottle of water, and his iPad. He tracks how the Asian markets closed, checks on the European markets, and reads the news as he prepares for the U.S. markets to open. In another time zone, some of his close to 60 employees are heading into work at his company, FormulaFolio Investments, which maintains its headquarters in Grand Rapids, Michigan, and an outpost in San Juan Capistrano, California.

Most days, Wenk doesn't shave, shower, or commute. But he's not lazy. He says cutting out the monotonous, everyday time-sucking things helped him grow FormulaFolio Investments, an algorithm-based money manager and software platform for financial advisers that landed at No. 10 on this year's Inc. 5000, an annual tally of the fastest-growing private companies in the U.S. Wenk's company, which he founded in 2011 to help financial advisers manage both their business and their clients' investments, grew more than 13,000 percent in the past three years, bringing in $17.2 million in 2016 revenue.

"The problem with people"

The 37-year-old founder has come a long way. In 1999, the then-sophomore at Grand Valley State University, where he studied computer science before dropping out, found out his girlfriend was pregnant. After seeing a job listing for Morgan Stanley at school, he applied at the Grand Rapids office. Wenk trained in New York City, passed his exams, and became a licensed financial adviser. Within a year, he went back to Grand Rapids to be closer to his girlfriend and child.

After working in financial services for a time, Wenk saw what he called a major weakness in the industry: People were managing money. He didn't think advisers and managers could generate more profits for investors than computer models.

"The problem with people is that people get sick, people have family problems, people retire, people are late, or people get greedy," says Wenk. "There isn't a good way to manage 100 clients' portfolios by hand, and there is a lot of possibility for error."

Wenk got to work building computer models that could incorporate historical and market data to shift an investor's holdings into safer or more aggressive investments, depending on a client's risk tolerance.

He incorporated some of what he built into his first company, Retirement Wealth Advisors, a wealth investment management firm, which he founded in 2005. It would be years before Wenk's vision was truly realized, however. After talking about his algorithms during a seminar for financial advisers in 2013, he says some conference goers asked if they could use his formula-based system and client-management platform for their own clients. That's when FormulaFolios started to take off.

A Robo adviser for advisers

"Think of us as a robo adviser for advisers," says Wenk, referring to a class of financial adviser that aims to take the human component out of financial advising and portfolio management.

Today, Wenk's algorithms use what's called tactical asset allocation, which means the system shifts assets automatically within a portfolio among money market accounts (or cash equivalents), stocks, exchange traded funds, and bonds, depending on a client's appetite for risk. The research is all automated--Wenk's algorithms decide what people should own, as well as when to buy and sell. Wenk and his employees conduct the actual trades, he says. The platform also helps its adviser clients manage investments, conduct trades, and help with marketing, billing, and paperwork.

Approved advisers can use FormulaFolios for free if they manage more than $3 million. Otherwise, the service costs $200 a month. Plus, an adviser's clients pay between 0.25 percent and 0.75 percent a year. (Customers typically pay a total of less than 1 percent to 1.55 percent.) The average investment adviser fee was 0.99 percent a year in 2016, according to the Registered Investment Adviser Industry Overview Report.

Wenk says 250 advisers across the country use FormulaFolios to manage roughly 10,000 clients. The company boasts a total of $2.1 billion in assets under management.

Finding a niche

It's a smart strategy, says Will Trout, a senior analyst at Celent, an international financial services consulting firm, who studies robo advisers. There's nothing all that technically impressive with FormulaFolios' platform, he says. But the business model, which caters to advisers directly, is notable.

"This is a plug-and-play model," he says. "It's great for the adviser, especially small independent ones, who have no bandwidth to manage portfolios." He adds that almost 50 percent of advisers don't manage their clients' investments.

It's also taken the company away from the overheated competition wrought by direct-to-consumer robo advisers like Betterment, says Trout. These companies typically offer a direct-to-consumer platform, which can charge close to zero percent.

"We're the personal investment vehicle you'll never hear about, and that's what we want," says Wenk. "Our job is to make the adviser the star."

Correction: An earlier version of this article stated incorrectly that Jason Wenk works from his bed until noon.

Published on: Aug 16, 2017