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.

Kitces points out that Schwab’s model, though better suited for younger people, isn’t for clients without assets—thus the service does not pose a threat to most of the advisors in his XY Planning Network. His network’s clients may not have assets to manage, but they still need financial planning help and are willing to pay for it.

Schwab is not alone in pursuing alternative fee models: Cetera Financial Group recently announced it would support advisors who want to charge planning fees independent of or in lieu of AUM fees, and Merrill Lynch is reportedly considering moving some or all of its digital advice platform to a flat subscription fee.

Though Moore is enthusiastic about all the entries into the space, he argues that there are so many potential clients among mass affluent and high-income, low-asset Americans that the growth of human financial planners employing a subscription fee model will continue unchecked. There are approximately 115 million households in the U.S., which means 55 to 60 million households are earning a median income or above—fertile ground for subscription-based planners.

While both Moore and Kitces believe the AUM model will survive, they also believe subscriptions eventually could eclipse AUM fees. The AUM and commission-based models of financial advice are really targeting the 5% to 7% of American households that can afford the fees and meet the minimums and are willing to delegate responsibility for financial decision making to a professional, says Moore.

And the ability of a subscription-based model to provide advice to underserved—or unserved—markets can help advisors radically expand their client base, as well as serve the clients of their choice at nearly any stage in their adult lives in ways that a more traditional AUM model cannot, says Philip Palaveev, founder and CEO of the Ensemble Practice. “The general public needs financial advice,” says Palaveev. “Unfortunately, we come to some pesky issues. Many people don’t have the resources, the income, the wealth and the money to access financial advice, which is more of a social issue.”

Palaveev also notes that subscription-based services are proliferating in our everyday lives in all the ways we do business. consumers can now pay for office software, clothes, food and toiletries via subscriptions.

And much of middle America is capable of paying for financial advice if the right model is offered to them at a palatable price, says Kitces. “I wrote an article in 2013 arguing that it is not difficult to serve young people with planning; you just have to charge them for it and not make it contingent on selling them a product or charging them on money that they don’t have,” says Kitces. “You have to send them a bill and make them pay for it.”

Essentially, Schwab has merged two different movements bringing financial services to a broader population: robo-advisors and flat-fee planning.

Kitces argues that the growth of human subscription-based financial planners presents a bigger story than Schwab’s success. Six years into the XY Planning Network’s existence, there’s evidence that advisors are enjoying successful careers using a subscription model.

“When starting from scratch, after three years, the average XY Planning Network advisor has $180,000 in annual revenue,” Kitces maintains. “The average LPL advisor does $220,000 of revenue after three years, and those LPL advisors come into their jobs with an average of 10-plus years of experience. So using a subscription model, crossing into year four, an XY Planning Network advisor will have the average revenue of an LPL rep.”

If anything could serve as a greater catalyst for change than Schwab’s robo-advisor, then it might be Moore and Kitces’s AdvicePay. Subscription-based planning was previously difficult to bill for and scale.

Most payment processors avoid the financial services industry because of the strict regulatory burdens surrounding custody and compliance. In fact, until the advent of AdvicePay, many subscription advisors were billing directly, accepting personal checks or payments through online applications.

“We’re finding that there were a lot of advisors who hadn’t even thought about launching a monthly subscription service before because it was so burdensome,” says Kitces. “There were a good number of advisors who were doing something similar with retainers or quarterly subscription payments, or just periodically charging their clients a stand-alone planning fee, but there wasn’t a lot of monthly subscription model happening, it was just too administratively burdensome.”

Being able to bill clients monthly may really be a game-changer—billing quarterly or annually can lead to payments large enough to trigger custody regulations, something that many subscription advisors would like to avoid. Now organizations like Cetera are signing on to the AdvicePay platform to make it easier for their advisors to offer subscription-based planning services.

According to Kitces, Schwab isn’t “even close” to being the largest adoptee of the subscription model. “We’ve discovered in rolling out and building out AdvicePay that a lot of large firms had a segment of advisors who were doing some sort of subscription or retainer already,” says Kitces. “Maybe 10% to 20% of the advisors out there. That was creating a lot of pain for the large firms who were trying to charge fees at scale with no technology.”

XY Planning Network advisors don’t require clients to have minimums to invest, and they offer some sort of subscription or blended fee service for these low-asset clients.

Some advisors are using subscriptions and flat-fee models to serve the ultra-wealthy. For example, Carolyn McClanahan’s Life Planning Partners charges clients a recurring flat fee, doing away with AUM fees altogether, but requires a minimum fee of $10,000, whose components vary according to their complexity. If a prospective client’s assets and financial situation are not well-suited to the minimum fee, they are referred out.

Moore notes that high-net-worth clients may have a sizable portion of their assets in investments where charging an AUM fee would be difficult or impossible—for example, clients with heavy allocations to precious metals. Real estate developers may also have a sizable portion of their net worth tied up in their projects yet still need high-quality, personalized financial advice.

“To some degree, even my clients with significant assets appreciate the subscription fee model,” says Ian Bloom, founder of Raleigh, N.C.-based Open World Financial Life Planning. “I have a $1 million client who pays me $3,000 a year for financial planning and advice. The reason he does that is that I help him to manage his money, which he now does on his own. I do have a side convenience AUM service for investment management, but he specifically doesn’t want to use something like that, and he doesn’t want someone to bill directly from his investment accounts.”

Bloom’s subscription services start at $2,400 per year. He applies a flat start-up fee of $1,200 to create a client’s initial plan, then charges $100 per month through the first year. In a client’s second year of service, the monthly fee increases to $200.

Small business owners and entrepreneurs may be better served with a subscription service, because not only are much of their assets invested in their businesses, but they also prefer the clarity that a flat fee provides and often require ongoing advice.

Many clients enjoy the predictability of the model, since a fixed amount comes out of their cash flow every month to cover the cost of planning services. Subscription-based services also seem to fit in with the evolution of the industry. Since the shift from commissions to AUM, financial planning has evolved to a more relationship-focused, advice-centric business that often has little to do with the products and strategies deployed within a portfolio—yet most clients are served with a revenue model based upon the assets they’ve accumulated.

Clients and advisors alike have come to recognize that an AUM fee has inherent conflicts of interest associated with it. An advisor charging AUM has little incentive to make recommendations to clients that might reduce their AUM, says Erik Goodge, president of Newburgh, Ind.-based uVest Advisory Group.

“What if I have a client that gets a $100,000 windfall from their rich uncle or something like that?” asks Goodge. “If they had a bunch of outstanding debt and that client comes to me as an AUM advisor, though I would have the same fiduciary obligations, a conflict would exist. I might want to say that they should just invest with me—because that is how I get paid—though it might be better for them to pay off their debt.”

Goodge’s minimum subscription fee comes to $125 per month, or $1,500 per year. He also offers hourly, project-based planning as well as an AUM-based investment management service. Since launching his subscription service earlier this year, almost all of his new clients have selected that fee model.

With flat-fee models, the costs of planning and other add-on services are no longer obscured by all-in-one AUM fees. Financial planning, which is often seen as advisors’ greatest value-add, is no longer being “given away” to clients as an add-on service, but becomes central to the relationships.

But not every flat-fee advisor is sold on the subscription model. Sheryl Garrett believes Middle America is better served with an hourly planning model, where an advisor sets hourly rates like an attorney or an accountant.

“If I went to an attorney, I might pay a flat fee for whatever work they’re doing for me,” says Garrett. “They might be putting together my estate planning documents for $2,000, or handling adoption paperwork for $400. I just pay for whatever services I need, and that makes a lot of sense.”

Garrett founded her Garrett Planning Network two decades ago to support advisors engaging with clients through the hourly model.

But Palaveev argues that the hourly model structures the advisor-client relationship along transactional lines rather than social ones. Transactional relationships can suffer from a deficit in trust. In a similar argument, some advisors complain that using an hourly model leads to clients watching the clock during meetings, or refusing to call their advisors at all when a need arises because they are conscious of the cost of the advisor’s time.

Advisors offering subscription-based services may also enjoy greater stability of revenue and income and the ability to more strategically plan for their business. “The subscription model business tends to be more stable,” says Kitces. “There are more opportunities to reinvest in staff and services. It’s scary to hire staff under the hourly model when you wake up on January 1 and your income is zero. In the subscription model, you wake up and have enough to pay an office staff member to deliver great planning to your clients.”

Yet most devotees of the subscription model do not hold their fee structure out as absolutely better than the others, and many are open to tiering, blending or otherwise combining different fee structures.

Ryan Firth, founder of Bellaire, Texas-based Mercer Street Co., came up with his $250 subscription fee by calculating the minimum income of his ideal client, $150,000, so that his clients would not pay more than 2% of their income each year. Because subscriptions focus the relationship on financial planning, most adoptees have warmed to it more than other options, says Firth.

“So far, it seems like a lot of our clients see value in an ongoing relationship,” he says. “That’s the most popular offering, and it’s how I would prefer to work with clients as opposed to a transactional hourly or work project.”