Michael Kitces and Alan Moore knew that if they built a tool for advisors wishing to charge financial planning fees, many fee-only advisors would flock to use it. But would advisors also fund AdvicePay Enterprise, an expansion designed for enterprise firms and hybrid advisors?

With the launch of AdvicePay last year, the two XY Planning Network founders, Kitces and Moore, had created a simple solution for charging planning fees. Yet larger enterprise firms and hybrid advisors also expressed a desire for tools that would allow them to charge clients hourly, retainer and subscription fees—but they needed a higher level of technical and compliance support than the one available on AdvicePay’s payment processing platform.

“As soon as we launched, we got inquiries from large enterprises, broker-dealers and RIAs, who told us that they needed software like AdvicePay but they had additional needs,” said Kitces.

Rather than go the traditional route of raising private capital to fund an expansion of AdvicePay’s staff and capability, Moore and Kitces appealed to their fellow financial advisors to crowdfund a more robust version of the platform for hybrids and larger enterprises.

Advisors answered the call to the tune of $2 million in less than two months.

Now, AdvicePay is announcing the launch of AdvicePay Enterprise after four months of development.

“We needed to raise capital to build the additional features on top of the original AdvicePay system,” said Kitces. “With a larger enterprise, fees don’t typically go to the advisor because the advisor works for the enterprise.

“We also needed a dedicated staff; we already had a support team working with solo advisors, but with the added complexity of enterprises and the additional advisors, we needed more relationship managers. We also needed more sales and marketing for AdvicePay Enterprise. Now that we have an enterprise solution, we want more enterprises to start using it.”

The original AdvicePay has its roots in the XY Planning Network, a group of advisors committed to serving clients from Generation X and Generation Y (also referred to as millennials) with financial planning while charging hourly, retainer or subscription fees.

AdvicePay was originally designed to eliminate the need for paper checks and the slow “analogue” processing of payments by solving the custody problem for the network’s planners.

“They didn’t have a way to bill it,” Kitces said. “Advisors were charging planning fees and collecting hundreds of physical paper checks.

"Small advisors needed a part-time staff person to keep up with the work, while larger enterprises might have needed an entire department, and broker-dealers weren’t doing it because they didn’t have a way to do it.”

While several digital hourly fee payment processing systems exist, AdvicePay was the first to comply with the SEC. Regulations prevent advisors from drawing hourly or retainer fees directly out of client bank or credit card accounts without accepting custody of the clients’ assets.

AdvicePay creates a buffer between the advisor and the information within client accounts, and allows the client discretion to refuse or discontinue the payment of fees.

“We made it impossible for advisors to just jack money out of their clients’ accounts without approval,” said Kitces. “We also made it easy for clients to go in and immediately terminate their payments on their own. I think we’re all familiar with things like gym-membership-style deals where it’s easy to sign up but impossible to leave. We wanted to make sure the consumers were protected.”

After the tool’s launch in 2018, larger enterprises, including some broker-dealers, requested a version of AdvicePay that they could use, putting Kitces and Moore on the path to building AdvicePay Enterprise.

According to Kitces, the pair decided to crowdfund their software’s expansion because they were skeptical about using venture capital.

“While we believe the opportunity is very good, we didn’t set out to make the next PayPal. We just wanted to make a good solution by advisors, for advisors,” said Kitces. “We didn’t think that venture capital investors really cared about the advisor marketplace at the end of the day, and that wasn’t a comfortable fit for us,” so Kitces made an appeal to the advisor visitors on his “Nerd’s Eye View” blog.

“When we started the conversation with advisors, they were immediately able to understand the opportunity. Venture capital would have made it difficult to remain focused on advisors, so we decided to raise capital directly with advisors.”

AdvicePay Enterprise includes expanded features, tools and functionality designed for firms with large numbers of advisors and more complex compliance needs, including a dedicated home office portal to allow firms to centrally manage billing and payment processing while retaining the flexibility for greater levels of local control at the advisor level.

Kitces took note of broker-dealer interest in AdvicePay.

“We built this software originally with RIAs in mind, particularly the ones who had been charging financial planning fees,” he said. “We’ve been surprised about how many hybrid RIAs and broker-dealers have been charging planning fees as well. Not only are a lot of broker-dealers becoming hybrids and shifting to AUM fees, but they’re also shifting from AUM fees to financial planning fees, and that really hasn’t been talked about in the industry.”