When Subscription Fees Work

At age 25, Alan Moore set out as an independent advisor in 2012 with a goal of serving clients in his own age group—but realized that the dominant service model for fee-based financial planners didn’t work for younger Americans.

Moore would go on to adopt a subscription-based model to serve clients through his firm, Serenity Financial Consulting. Yet he found that peer support for subscription-based advisors was scant, and no advisor-facing technology was being built with flat-fee services in mind.

In response, he teamed up with Pinnacle Advisors’ Michael Kitces to found the XY Planning Network and support advisors adopting a subscription fee model to serve members of Generation X and millennials (Gen Y). Kitces and Moore would go on to launch AdvicePay, a payments platform designed for subscription advisors.

Today, the XY Planning Network has grown to nearly 1,000 advisors, AdvicePay has 20,000 advisors signed on to use its platform—and other companies are taking notice of the growing influence and success of the subscription model for financial advice.

If any other validation were needed, Charles Schwab seems to be giving a measure to this payment model. Schwab launched computer-powered discount brokerage services 50 years ago. Thirty years ago, it helped advisors launch independent practices when it rolled out its Schwab Advisor Services platform. Now the company is moving toward flat, monthly fees for its Schwab Intelligent Portfolios Premium, a hybrid robo-advisor service. That move could also accelerate the industry’s adoption of subscription-based planning fees.

“To see the model finally going more mainstream after we’ve been doing it so long is cool to see,” says Kitces. “We’ve pounded the table for a long time, and this is a way to open up and expand access to financial planning. Now more people are agreeing with us.”

A 2018 Kitces Research study from a sample of more than 1,000 planners found that approximately 43% of advisors charge only fees for assets under management, while almost 28% charge only a flat fee for service. More than a quarter of advisors, 27%, were using some sort of blended fee model.

Subscription-based planning is hardly rare—but Schwab’s move may make it more common. Previously, the Intelligent Portfolios Premium service charged clients a 0.28% advisory and investment management fee against assets under management.

Then, in March, the company announced that the robo-advisor’s clients would pay a flat, up-front fee of $300 for an initial plan, and then $30 a month for the automated investment management, as well as access to credentialed advisors. The service requires users to have at least $25,000 in their Intelligent Portfolios Premium accounts to access the service. In July, Schwab announced that the revamped robo platform had added $1 billion more in assets in the three months since adopting the new model.