Michel Kitces and Alan Moore helped change the industry with AdvicePay, their billing platform for advisors who wanted to charge fees for advice instead of the usual compensation tied to investment products. Now the Bozeman, Mont.-based fee management fintech has added a new feature that helps show regulators what advice is actually being given.
In other words, the feature directly ties the client billing to a firm’s compliance effort at a time when regulators are looking for a clear demonstration of how fee billing represents value to clients.
The new service is called AdvicePay Deliverables, and it ties the pay service to a firm’s compliance effort by more directly linking the advisor’s fee—and showing how it’s related to the delivery of a plan—in a way that satisfies regulators.
Advisors can submit all business via the AdvicePay platform, and oversight is facilitated by making plans easy to track, manage and report upon.
“Advisors have had software where they can make a plan, but nothing to manage their engagements, and that’s what AdvicePay has been building out,” Kitces told Financial Advisor. “Advisors want to give advice, and the industry is moving in the direction of charging fees for advice, but they needed a way to manage advice and handle the payments, agreements and the compliance review process.”
This new functionality will help financial firms eliminate the fear that has arisen of a “fee-for-no-service” issue, said Kitces. Regulators are demanding that firms produce evidence that clients are getting value for the fees they are charging within subscription, hourly and retainer fee models and expect firms to document advice activities.
Kitces likens the problem to “reverse churning,” where advisors charged clients a fee for managed accounts but didn’t actually manage the assets, behavior that U.S. regulators have tried to crack down on. He’s recognized that regulators in Australia have scrutinized advisors charging fees for advice that isn’t actually given, and he expects the SEC to follow suit.
But until now, there was no easy, demonstrable way to link fees with actual planning activity, he said.
Kitces framed the new function on the AdvicePay site as another step in the financial industry’s shift away from products and toward fee-oriented business.
“This solves a problem that didn’t exist when the advice business was really about products,” said Kitces. “You didn’t need the same level of oversight because revenue didn’t tie into an advice fee—and though advice and fees have been growing for 20 years in the RIA channel, that’s largely been a function of independent RIAs. And most large independent RIAs are still fairly small businesses with dozens of advisors. Small broker-dealers have hundreds and large broker-dealers have thousands or tens of thousands of advisors. Being able to do this at that level of scale not only didn’t exist until recently, it didn’t even register as a problem until relatively recently.”