What Is Subscription-Based Financial Planning?
As the active generations shift, financial advisors and planners are constantly on the lookout for ways to attract clients from younger generations.
There’s a lot of discussion about ‘the hows’. But in short, there’s a focus on business viability and ways to address the advice gap.
One of the solutions proposed is to offer a subscription-based service model.
While this emerging fee structure is created with millennials and younger generations in mind, it doesn’t mean that they’ll be the only individuals who can and will take advantage of it.
In this article, we will cover why it can benefit financial planners as service providers, especially if you’re feeling iffy about the current pricing structure. We’ll also discuss how this shift can help you reach people who have been on the fence about signing up because of the current fee system.
What Is Subscription-Based Financial Planning?
As the name suggests, subscription-based financial planning is an arrangement where a certified financial planner (CFP) creates a financial plan for an upfront one-time fee, then charges the client an ongoing monthly retainer fee.
With this service model, clients only pay for advisory services—not asset or wealth investment management—and they don’t have to fulfill the minimum asset requirement to be eligible for financial advice.
However, this does not lock you out of the possibility should clients choose to collaborate further with their financial advisor on other matters outside of their subscription plan.
When combined with an affordable subscription fee, this model allows more people to discover financial planning services and help with overall financial literacy, as well as broadening the reach of professional financial advice to groups usually ineligible for conventional models.
While the subscription model is still fairly new to the financial services industry, the subscription-based model should be familiar to most people at this point—especially with the prevalence of subscription services in people’s lives, such as Netflix and Spotify.
More than that, this model also allows you to be more transparent with your clients as you’re not paid through commissions or assets under management (AUM) fees. You can avoid conflicts of interest that may arise between your clients and your position.
Who Benefits From Subscription-Based Financial Planning?
As we briefly explained, subscription-based financial planning can have broad applications.
There are people who couldn’t get financial advice because of the AUM structure—where registered investment advisors get their fee from the number of assets you’ve entrusted them to invest with. As a result, most advisors enforce a minimum amount of assets that not everyone can fulfill.
It’s not uncommon for people starting retirement planning, or even those who are already retired, to be stumped on what they need to do to keep living comfortably. Some of them can turn to financial advisor firms, but in many cases, firms have to turn them down because they can’t meet the minimum asset requirement.
People who have been overlooked by the industry, such as women and people of color, also lose out from this structure.
The lack of diversity in the industry—both on the advisor’s side and the client’s side—leads to an unconscious bias against the underrepresented. Oftentimes, this bias manifests in the assumption that they don’t have enough assets and are therefore turned down by financial firms. The lack of guidance here leads to a financial literacy gap that needs to be bridged.
In both of these cases, clients look for advisors who can provide advice and education on foundational financial knowledge first and foremost, such as budgeting, managing cash flows, and planning their finances while paying back their student loans. Things like investment advisory and management are usually less important and of lesser urgency than foundational finance topics.
This is also how the subscription model can help address the advice gap.
The industry often focuses on the wealthy, which means financial professionals often exclusively provide advisory services to this group. This results in lower overall financial knowledge among people who have yet to gain enough assets to qualify.
In other words, people who actually need the advice.
With subscription-based planning, financial planners can set the minimum asset required significantly lower, thus making more people eligible for their services.
What Are The Benefits Of Subscription-Based Financial Planning?
Now that we’ve covered who can benefit from this emerging fee structure, let’s find out the benefits you can take advantage of when using this pricing model.
Customizable Services
As with most subscription-based services, commonly there are several tiers that clients can pick from, depending on what they need and what they’re comfortable with. While this means that clients can decide that they would rather have fewer financial services, this also means that the barrier of entry for newer clients is significantly lowered.
Typically, a lot of people new to seeking professional financial advice may feel uncomfortable with how much information and access they must give away to use your services.
A subscription-based approach can help them get used to financial advisory. As clients become more comfortable with your services, they can choose to move into a higher tier of service when they feel ready.
Advisors can even offer them to shift towards a more mixed model, such as with assets they already have under management.
This fee structure helps clients get the value that they’re seeking while still allowing financial advisors to get the compensation that shows their time commitment—instead of an attached product or investment.
Establishes Client-Advisor Trust
Aside from being uncomfortable with disclosing financial matters to a stranger, clients often hesitate to hire a financial planner because they aren’t aware of their costs and what they’re receiving in return.
If you want to be more involved in your client’s financial life, you need to build trust with them first. A subscription-based structure helps you cultivate that relationship without them having to take a big leap of faith.
The ongoing monthly fee of subscription-based financial planning can help alleviate these concerns. This means no surprises for clients when they need to pay their bills. Being transparent about what they get, the value of your financial advice, and continually meeting their expectations will help build trust between you and your client.
Flexible For All Budgets
As we mentioned above, a feature commonly observed in subscription-based services is a multi-tier structure that gives clients various options for levels of service.
A similar system is also present in financial planning.
Your clients can choose what they’re comfortable paying for according to their budget, keeping them from missing out on the guidance they need to build their net worth.
Meanwhile, as a financial advisor, this means you can minimize losing business as you can cater to different kinds of clients with different budgets and needs.
Provides Short-Term Solutions
A lot of new clients may be hesitant or unsure to commit to a full-service financial advisory.
People usually seek financial advice when they’re stuck or in the middle of undergoing changes in their life.
More often than not, they need guidance on short-term decisions so they can navigate their current financial situation better, instead of committing to long-term plans. At least until they feel more confident.
In some cases, the urgency and pain they’re feeling from their problem aren’t enough for them to let someone else manage their finances for them—especially someone they don’t have a rapport with.
A subscription-based plan helps them build this trust without needing to give you access to their money. Once they’ve solved their problem, they can just as easily pull out of the commitment. This protects them from being locked into the advisor’s service—one of the hesitations they might have overlooked to professionals instead of doing it on their own.
Seamlessly Track Financial Planning Efforts With Asset-Map
Having a subscription-based model can help you reach more people. By getting paid only for your time and expertise, you’re lowering the barrier to entry for most of your prospects.
This method can be excellent, if you want to focus on providing financial advice and have a heavy focus on bridging the financial knowledge gap.
On the other hand, your time with clients with this fee structure is limited. Make the most out of your client meetings by ensuring that you’re having productive discussions about their financial goals instead of just recapping all the facts.
Asset-Map provides you and your clients with an intuitive way to get the big picture at a glance. You can outline the big, hairy things through a map. Focus your client meetings on tackling other struggles or questions they have about the plan instead of recapping what they can see from the reports.
See how other financial advisors use Asset-Map to make client conversations simpler and more productive.