Three Point Acid Test: Is Your Practice Ripe For A Subscription Model?

Brian Beck and Daniel Friedman

The case for subscription-based financial services is so voluminous, it’s a wonder why the entire wealth management industry wasn’t built on it, and that just now, because we are never satisfied with the status quo, wondering if an AUM model might not work better. But for advisors who want better client relationships, get paid for what they actually know and have a bulletproof plan for attracting new clients, the question they might be asking is “Can I transition my business toward a subscription model?”

The answer is maybe. Take this little acid test, and we suspect, you will know if a subscription model could work for your practice.

What is the age of your client base? The great divide here is 60. If most of your clients are under 60, your practice is ripe for subscription services. If most are older than 60, the answer is likely not.

The reason is simple. Clients over 60 have already tackled the difficult questions related to estate planning, income generation and asset allocation. Perversely, these clients might consider why they need any financial planning assistance.

The clients under 60 have a lot of planning and needs still ahead of them. They might want to convert their IRA to a Roth IRA, or they may have 401(k) they will soon need to tap. If they are even younger, how to finance college, or without children, how they can afford to buy a house. Providing these services for a fee makes sense, not just for the clients, but for your practice as well because there are enough services needed to generate the level of fees that keep your practice viable.

It's worth mentioning that the younger your client base, the more likely subscription services are going to be embraced. First, many in this cohort were raised on subscription services. Second, having been through extreme volatility in the markets and economy these investors are somewhat distrustful of the financial services industry as is and are ready to embrace a new paradigm. Third and finally, the transfer of wealth that is and will continue to occur means a younger clientele will require a variety of services and when the time comes, are less likely to question the need to pay for them.

Do you offer non-traditional financial services? A subscription service allows you to get paid for what you do, not for the assets you accumulate. With this comes the willingness to help clients with items outside of the traditional basket of services associated with financial planning. Absent those, a subscription revenue model may not offer the opportunity to keep your practice healthy.

Some non-traditional services that clients often need help with include:

· Social Security elections

· Business lines of credit

· Buying and selling investment properties

· Buying and selling cars

· Securing mortgages, lines of credit and HELOCs

· 401(k) contributions

· Paycheck withholding strategies

Offering non-traditional services is outside of the comfort zone for many wealth managers. If an advisor is unwilling to offer them, it doesn’t mean a subscription model won’t work for them. But it does mean they will need to work harder at pricing and deploying traditional servicing such as financial planning. The good news is, a separate and exclusive fee for financial planning, which typically is given away as a loss leader or as a client retention tool, becomes more important and more useful to the planner as well as the client.

Do you offer tax preparation services? Every financial advisor will say tax planning is baked into their service offering. And this is largely true. They might recommend tax loss harvesting opportunities. They might interact with a client’s accountant to effect tax-deferred contributions.

This is tax assistance. This is not tax service. The latter, within the context of a subscription-based model, means preparing and filing returns as a core service within the overall menu of financial planning services.

First, and most importantly, tax preparation services within the context of financial planning offer the possibility of a better result for clients: paying the least amount of taxes in a way that is in harmony with their entire financial profile.

For your practice, tax preparation is important because the tax return is the Rosetta stone to understanding your client. By participating in its preparation, financial advisors can gain insights into the services a client actually needs. Some things that can be gleaned from a tax return that otherwise might not be known include heretofore unknown business income, assets warehoused outside of their primary accounts, and charities that are meaningful to them.

The difference that tax return preparation can make in your practice is immeasurable. Under an AUM model, advisors offer services that are likely to be helpful. Under a subscription model with tax preparation at its core, advisors are offering services that they know will be helpful.

Fee compression, regulation, and competition are all chipping away at the AUM model. For advisors trying to navigate an evolving landscape, the key may not be working harder, but utilizing a subscription model and working smarter.

Daniel J. Friedman is a Founding Partner and CEO of WMGNA, LLC a Tax-Out Financial Solutions firm that specializes in tax optimization strategies with on-going financial planning to maximize their clients’ wealth. His financial blog “Don’t Know Don’t Care” has been featured on NerdWallet’s “Advisor Voices” and has been nationally syndicated by over a dozen different media outlets. Mr. Friedman received a Bachelor of Arts in History from Denison University in Granville, Ohio in 1986

Brian P. Beck is a Founding Partner, President and CFO of WMGNA, LLC, a Tax-Out Financial Solutions firm specializing in tax optimization strategies with on-going financial planning to maximize their clients’ wealth. Mr. Beck is a Certified Private Wealth Advisor®(CPWA) and has won the Hartford Business Journal's prestigious CFO of the Year Award for the Small Private Company category in 2010. Mr. Beck attended Emory University, where he graduated with a Bachelor of Business Administration, with a focus in marketing and finance.