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The case for subscription-based financial services is so voluminous, it’s a wonder why the entire wealth management profession wasn’t built on it.
For advisors who want better client relationships, to get paid for what they know and to have a bulletproof plan for attracting new clients, the question they should ask is “Can I transition my business toward a subscription model?”
The answer is maybe. Take this little “acid” test, and 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 even need financial planning assistance.
The clients under 60 have a lot of planning needs ahead of them. They might want to convert their IRA to a Roth IRA, or they may have a 401(k) they will soon need to tap. If they are even younger, they need to know how to finance college, or without children, how they can afford to buy a house. Providing a subscription model 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.
The younger your client base, the more likely subscription services are going to be embraced. Many in this cohort were raised on subscription services. Having lived through extreme volatility in the markets and economy, these investors are somewhat distrustful of the financial services industry – and in some ways blame it for their financial challenges – 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 will be 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 services 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 make tax-deferred contributions.
This is tax assistance, 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.
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.
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 needs. Some things that can be gleaned from a tax return that otherwise might not be known include 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 eroding the AUM model. To navigate an evolving landscape, the key is not working harder, but utilizing a subscription model and working smarter.
Daniel J. Friedman is a founding partner and CEO of WMGNA, LLC Tax-Out Financial Solutions™, a firm that specializes in tax optimization strategies with on-going financial planning to maximize their clients’ wealth. He is a frequent guest on the local major TV outlets and characteristically delivers his opinions in an interesting and humorous manner and always has a fun and unique take. If you ask him, you will find out. He has been featured in several prominent industry magazines as well. Mr. Friedman is on the advisory board for The Miracle League of Connecticut. Served on the Connecticut State Insurance and Risk Management Board from 2013-2019. Mr. Friedman received a Bachelor of Arts in History from Denison University in Granville.
Brian P. Beck is a founding partner, president and CFO of WMGNA, LLC, Tax-Out Financial Solutions™, a 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.
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Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.