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Subscription Pricing for Advisors: Transformative or More of a Tweak?

Schwab shook up the advisory industry when it launched a subscription pricing model earlier this year. Now others are jumping in.

With subscription pricing models increasingly a part of the investment advisory landscape, advisors are wrestling with whether these businesses will turn out more like Netflix or MoviePass.

Charles Schwab has led the way, racking up more than $1 billion in assets from its new subscription pricing model. This month, Schwab said that average household assets for new enrollees in the Schwab Intelligent Portfolios Premium hybrid robo service rose 40% since the service's March launch. Schwab's service requires a one-time $300 fee followed by monthly $30 payments. 

Additionally, a recent Ernst & Young study on investment advisory subscription models suggests that age more than wealth will drive growth. According to the study, the greatest growth among subscription models comes from the 25-to-34 and 35-to-49 age groups – the same demographics that have already embraced subscription pricing from big corporate brands like Netflix, Amazon and Costco.

With early returns showing promise, industry insiders expect more big players to roll out new subscription models. 

“You’re already seeing Schwab, Merrill Lynch, and likely others moving towards wealth planning subscription model,” says Shad Besikof, president and chief operating officer at TruClarity, an investment advisory services firm based in Tampa, Fla.

Larger wealth management firms are embracing the subscription model partly because it is scalable and attracts recurring revenue.  

“Instead of paying advisors salary and commissions, these firms are hiring younger advisors with lower salary and bonus plans to provide such services,” Besikof says. “Since everything is done online, there is no need to pay advisors for travel and entertainment, which further reduces costs.”

Subscription pricing is also a good way for firms to build relationships with smaller clients in terms of assets that don’t fit into the old AUM model. 

“Many of these clients interested in the subscription model are already using subscriptions models in other areas of their lives including shopping and entertainment,” says Scott Pederson, a financial advisor with Chesterfield, U.K.-based Harmony Wealth Management LLC. “These clients may not have a lot of assets now but they are high income earners who will need financial planning help and will have more assets in the future.”

“They’ll also be inheriting assets from parents and grandparents in the future,” Pederson adds.

Pederson describes the ideal subscription pricing customer as someone between 25 and 45, with income between $50,000-and-$100,000. “These are financial consumers comfortable with technology and using subscription models in other areas of their lives, but they don’t have a lot of other detailed financial planning and investment needs,” he says.

While the actual financial services offered can be somewhat rudimentary, larger money management firms also see subscriptions as a way to attract millennials, who don’t like paying annual fees and are skeptical of the traditional assets under management pricing model.

“The subscription models offered by Schwab and others are being compared to Netflix or Apple, with subscriptions at $30 per month,” says Chris Wentzien, president-elect of the Alliance of Comprehensive Planners in Santa Cruz, Cal. “At this price, I can’t believe that the corporate financial planning firms are going to dive down much further than model portfolios and a retirement plan generated from a few inputs.” 

Wentzien does believe that a subscription model potentially could be “quite lucrative” for the big players, who have trouble attracting clients with lower asset levels, and especially with younger clients. 

“The key for the bigger firms will be technology, scalability and efficiency, which results in a cookie cutter approach for a huge number of smaller clients,” he says. “Companies like Schwab and Fidelity are in a great position to offer subscription pricing with their enormous retail client bases. That said, this is a much different client than the typical ACP firm is targeting.” 

Subscription pricing models aren’t just for larger firms. Smaller investment advisory firms believe they’re in a good position to attract younger investors, the cash cow client base when it comes to Netflix-like pricing.

“We have a subscription model for our tax clients as well as a limited financial planning clients only,” says Adriel Tam, chief executive officer at Viridian Advisors, a Seattle-based RIA firm. “The newer generations lean toward a subscription model as most of their online services and products utilize something along a monthly payment form.”

“Consequently, we like to provide both the traditional fee only model as well as a subscription model to facilitate multiple generations of interaction with us.”


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