The new tool may help advisors who use the monthly retainer model, but there’s a more fundamental question about how well the model really works: Talk to the youngish crowd at the conference (average age in the network is 37) and you hear doubts about whether a monthly retainer is a viable business model.
“We do hear pushback” on the monthly retainer model, Kitces acknowledged, but part of the issue is what young advisors expect to earn out of the gate. Retainers, which might run $100 to $200 a month, won’t replicate the average $500,000 earnings of an established AUM practice.
Kitces counts 140 million people in the Generation X and Y cohorts, with millenials (Generation Ys) now “the largest generation in history.” That’s a pretty sizeable market, and it’s underserved.
He also expects the DOL rule to help drive more interest in hard-dollar fees by making more transparent the fees and commissions investors are paying their brokers.
In reality, many XY advisors combine the monthly retainer model with a standard AUM fee, diversifying their income stream and opening up a new channel to handle younger clients, Kitces said.
How many actually use the monthly retainer? Kitces and network co-founder Alan Moore don’t know exactly, but next year they plan to complete a benchmarking analysis to find out.
Developing the tools and overcoming the challenges is all part of any start-up enterprise.
As Kitces says, “we’re birthing a new business model.”
So it’s notable that the XY Planning Network has attracted 309 members since its founding in early 2014. Most have several years of experience and own their own firms.
To encourage start-ups, XYPN started an RIA registration service in early 2015. The registration process was “a huge impediment” to people forming new firms, Kitces said.