A recent webinar, “The Future Of Charging For Financial Plans,” hosted by Envestnet | MoneyGuide and featuring guest speaker and well-known industry thought leader, Michael Kitces, discussed the appeal—and even potential necessity—of shifting from an AUM model to a recurring planning fee or retainer fee.

As Kitces pointed out, advisors largely compete for the same target clients, baby boomers, but this client base is growing increasingly small. For advisors looking to scale and grow their business, the AUM model may be limiting their growth. Kitces explained that a recurring planning fee or retainer fee may be better suited for attracting a wider range of clients.

Making the switch can lead to a number of benefits. We’ve invited Daniel J. Friedman, an Envestnet user and a Founding Partner and the CEO of WMGNA, LLC, a Tax-Out Financial Solutions advisory firm, to share his firm’s 25-year experience using a subscription model.

Thank you for your insights, Daniel!

The Value of a Subscription Fee Model

Our firm has used a subscription model for 25 years, and we don’t see that changing anytime soon. I hope sharing my firm’s experience sheds some light on the benefits that the model can provide.

1. A subscription model is flexible—for advisors and investors.

Our subscription model was very simple at its inception, back in 1995. We would analyze a prospect’s taxes and finances for free. If they liked what we had to say, they could become a member of our firm for just $45/month, and we would provide financial advice and do their taxes. Now, the membership fees start at $200 per month and vary based on the services they select for their unique subscription. Our clients feel like they have ownership over the process because they’re an active part of building their subscription, and they understand exactly what they’re being charged for each month.

But, the flexibility of the model is also a key component of how we structure our business. Our clients pay a subscription fee, often alongside a separate fee for AUM. This hybrid model works well for us because we have recurring revenue based on defined services, and then we have a revenue stream that varies based on AUM.

This also gives us a more comprehensive picture of our clients’ financial situations because we’re doing everything from their taxes, to their estate plan, to managing their investments. And, with everything in one place, our clients are more likely to continue to retain our services.

2. A subscription model enables you to grow selectively.

We know how many members we can successfully manage and how many we need to sustain our growth. And, we focus on those prospects who are “raising their hands.” We’re not trying to find thousands of clients. Instead, we’re focusing on around 200 and selectively growing from there.

The hybrid model enables us to leverage at least two streams of income and plan our resources accordingly. And, as baby boomers age and we diversify our client base, we’re looking forward to future generations and hiring younger advisors who can better understand their needs and how they want to communicate.

3. Today’s clients really understand it.

A monthly subscription fee that suits our clients’ needs has been well received. Our clients pay only for what they need, and they like that. They also understand the model, can budget for it, and aren’t surprised by it. In fact, many of them prefer it because they’re used to it.

What’s more is that today’s clients are adept at using technology. They see the value that it can bring and often feel more confident knowing that our services include innovative, powerful technologies.

Envestnet is a key part of that for us. We’ve been using the Envestnet platform since the early 2000s. It’s the back-office operation that we couldn’t otherwise access. It has really leveled the playing field for small- and medium-sized RIAs, who couldn’t previously leverage the breadth of powerful tools and resources they provide—even just five years ago.

On the whole, the subscription model gives us more touchpoints with our clients. They appreciate that we have the time and resources to be proactive and ask the right questions to get them where they want to go. Candid and frequent communication is the cornerstone of the advisor-investor relationship.

The subscription model has served our firm well, and I think we’re in a good position to adapt as the industry and investor expectations evolve.

Download the webinar recording of “The Future Of Charging For Financial Plans,” for more on payment models and the role of the advisor.

Daniel J. Friedman, Founding Partner and CEO, WMGNA, LLC

Daniel J. Friedman is a Founding Partner and the CEO of WMGNA, LLC, a Tax-Out Financial Solutions advisory firm headquartered in Farmington, CT. Since 1995, they have been offering membership-based tax optimization strategies with ongoing financial planning to maximize their clients’ wealth.

 Daniel and his firm have used the Envestnet platform for more than 20 years.

The information, analysis and opinions expressed herein are for informational purposes only and do not necessarily reflect the views of Envestnet. These views reflect the judgment of the author as of the date of writing and are subject to change at any time without notice. Nothing contained in this piece is intended to constitute legal, tax, accounting, securities, or investment advice, nor an opinion regarding the appropriateness of any investment, nor a solicitation of any type.

WMGNA, LLC and Envestnet are separate and unaffiliated firms, and are not responsible for each other’s services or policies. This case study does not constitute an endorsement of any firm or individual nor does it indicate that the subject in question has attained a particular level of skill or ability.

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