Next Generation Planner: January 2022
Subscription fees are intended to make financial planning more accessible to clients while creating more predictable and scalable income for a firm. But how do they play out in real life? To find out, Hannah Moore, CFP®, sat down with three planners from around the country who provide different types of subscription services through their firms.
Subscription Models and Pricing
Daria Victorov, CFP®, is a San Francisco-based financial adviser at Abacus Wealth Management, where they offer minimum subscription fees to serve clients who are just starting to build their 401(k). Maddi Napier, CFP®, FSRI, QKA, is the founder of Minerva Wealth Planning in Columbus, Ohio. She uses subscription fees to help young professionals stay focused on their finances and get stuff done on their financial plans. Greg Young, CFP®, ChFC, EA, founded Ahead Full Wealth Management in Rhode Island, using subscriptions to test and optimize how he structures his services. These three shared how subscriptions work at their firms, the pros and cons of the model, and solid tips to avoid the pitfalls for anyone looking to implement them.
Compared to other fee structures like hourly rates or large, up-front flat fees, a monthly subscription makes it easier for clients with less cash flow or lowered investment capacity to benefit from financial advising. The first challenge for firms is to set a price that anticipates the amount of work the account will require over the year without overwhelming what is often an inexperienced client.
For Daria, joining a large firm with an accessible subscription model felt refreshing. She said, “The first company I worked at had a high retainer. I think it was $10,000 a year. And then I came to Abacus, and we have a minimum planning retainer. It’s cool because we can take on clients who are just starting out investing. They might have no assets and pay a minimum of $200 per month to start building their Roth.”
Greg jumped into the subscription model right when he launched his firm, but figuring out his pricing was a process. “I was super idealist,” he said. “I spent the first six months of my firm horribly underpriced, and I realized I needed to make changes. So then I A/B tested net worth plus assets and complexity. I’ve evolved it further, and now it’s an AUM fee with a minimum complexity-based subscription.”
At Minerva, Maddi’s subscription cost also went through some iterations to settle on a sweet spot. She said, “I actually started with a percentage of AGI or just gross income. In my mind, it was simple. I could just look at a tax form and tell them a quote. But because acronyms are confusing, and it seemed kind of arbitrary, it’s evolved over time. Now it’s based on complexity. It ends up being an estimate of hours for the year, broken down monthly.”
Roadmaps: The Key to Productive Subscription Offerings
Although breaking down the year’s fees into equal monthly payments can make things easier for clients, the convenience comes at a price. Many end up expecting that their monthly payments will entitle them to an equal amount of work every month. Given how front-loaded a client’s first year tends to be, that expectation isn’t realistic. So how do firms communicate the value of even fees for uneven work?
Maddi said the majority of her clients are high-earning-potential young professionals. They like the way she thinks, and they want to get things done. They’re paying monthly, but they don’t meet monthly with her, and she believes they feel the need to get more done when they do meet. Maddi said that the financial weight of those months without meeting lights a fire under her and her clients. They seem to get more done between meetings.
Daria manages the expectations in the way she presents the fee structure. In the first meeting, when they talk about fees, Daria quotes it as an annual number, and then she explains that it’s billed monthly. She also doesn’t say they’re going to charge clients $300 per month because in her experience, it sounds to the client like any other subscription, like Netflix, that they can turn off.
Greg said he tried scheduling monthly meetings to go along with his monthly invoices and was surprised at how his clients responded. “One particular household said, ‘You know, maybe we want to dial this back.’ I didn’t know how to set expectations, and it was definitely something that we have to iron out with a subscription.”
Daria points out that, just like in other fee models, your subscription services have to be grounded in what the client truly needs. You have to figure out what needs to be addressed first with each client. Maybe you do need to meet monthly for the first three months, but then you take a break and you meet quarterly from there on out. It just depends on the client.
To help with this, she creates a roadmap for each client and tries to pace each meeting and assign a different subject to each one. At the end of each meeting, she schedules the next meeting so she can control the process and not have to worry about hunting clients down later.
Maddi said, “I put together an engagement proposal that covers every single area, so when I’m quoting to a client, I can show them the hours I think it’s going to take and the areas we’re going to cover.” It makes her clients feel like they’re getting a packaged service, and they don’t worry about whether they’re meeting every month.
Maddi’s proposal pacing also helps her retain clients beyond their first year of the subscription. She recognizes that some clients get overwhelmed when she gives them too many things to do at once. Some are a little bit more motivated to get through everything, but others end up pushing the plan out into a second year. “Either way,” she said, “I feel like clients appreciate having it spaced out somewhat, so they don’t feel like they need to complete every single task within the first three months or four months.”
Scope Creep: The Hidden Pitfall
Just when you’ve perfected your pricing, managed expectations, and scheduled the perfect year of financial goals, something pops up that’s beyond the scope of your agreement.
Greg shared another piece of hard-won wisdom about subscription traps. He found that a lot of his entrepreneurial clients were overwhelmed with the administrative side of their business and often came to him for help. He didn’t know how to say no. So now, in some client instances, he’s doing their bookkeeping. Instead of teaching them bookkeeping, or helping them hire a bookkeeper, he’s helping them file S corporation returns. Greg admits that he just kept saying, “Yeah, I can do that!” But then he quickly got away from the scope of the subscription and realized he was massively overdelivering for the price per month.
Daria warns that planners will always find clients to be more complicated than we’d perceive them to be initially. Depending on the type of planner you are, you might just really want to go out of the scope and give them so much. She’s found herself reviewing people’s pet insurance options and talking them through how they’re going to combine their finances when they get married. Her big takeaway is that, whatever you think you’re going to charge, it’s probably not enough for the work you’re going to do. Always consider how you’ll go the extra mile and charge accordingly.
How to Express the Value of a Subscription
Quoting a Kitces and Carl podcast, Daria put the subscription model into perspective. “Carl said once, ‘Every three years, you’re going to have some decision point that I’m going to help you through, and the value is far going to surpass my fee. I don’t know what that will be. It might be refinancing a house or telling you to sell your stock options at a specific price.’”
So when you’re pitching a subscription to a prospective client, remember your value. Give them examples and educate them about how much impact you can make by being in their corner all year long, no matter how many meetings you have with them.