Journal of Financial Planning: August 2023
Jen Hollers, CFP®
Head of Planning, Kestra Financial www.linkedin.com/in/jennifer-hollers-cfp-467a9a10/
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Leading with planning is the future of the industry, and the most responsible, ethical competency we can practice in wealth management. Financial planning requires time and a distinctive skill set beyond the classic investment management that most financial professionals saw as the core deliverable decades ago. Consumers are indicating that they want more than investment guidance—and financial planners must rise to the occasion to expand or even remain relevant.
As the next generation of financial professionals build their businesses, they need to consider ways to attract and retain Generation X, millennials, Generation Z, and beyond. With this imperative comes the conversation on how to structure financial planning offerings and associated fees. One growing model is subscription-based planning, which gives advisers and clients more options for engagement. With subscription-based fees popping up everywhere from grocery shopping to clothing purchases, consumers are growing accustomed to this pricing model, and some are adopting it as a strong preference. Firms should consider participating in this current industry shift.
But this conversation goes deeper than just attracting the next generation of clients. It’s also about creating a sustainable business for years to come. Firms that have seasoned wealth management professionals looking to onboard, train, and retain the next generation of talent should also consider this fee structure. In turn, it could lead to a new wave of clients and thoughtful firm growth. Professionals also need to familiarize themselves with how the planning agreement works and identify a logistical solution for charging that doesn’t create unsustainable labor and time consumption. A key factor in adding monthly or quarterly fee options is the perception that the end client is receiving ongoing value for the way they’ve chosen to engage with their financial professional. Monthly or quarterly touchpoints, beyond the annual plan, mirroring this fee structure can be a powerful way to maintain an ongoing, proactive planning relationship with these clients.
Emphasizing an Organized, Methodical Approach
Identify which current and prospective clients would benefit from subscription-based planning and conduct an initial meeting to set expectations for the offering. Start by creating a seasonal planning calendar with annual financial plan construction and delivery. From there, schedule consistent monthly or quarterly planning touchpoints focused on different aspects of planning, education, estate, tax, or retirement needs stemming from each client’s unique situation.
The touchpoints will develop organically as conversations mature and should be scheduled based on prioritization of timing and importance. For example, if the client has no estate plan, that should be the first focus after building out the foundational plan. Tax-planning meetings are often conducted in the fourth quarter for end-of-year planning and in the first quarter prior to the tax-filing deadline for most clients.
Selecting the Right Fee Structure for Your Business
Once the structure and methodology are developed, financial professionals need to determine the fee aspect of subscription-based planning. This can take many forms, with the most basic being monthly or quarterly charges.
However, some firms choose to incorporate a combination of flat and subscription fees, with the flat fee being assessed after the foundational financial plan is complete. Financial professionals who charge each client differently, with little to no repeatable structure, might struggle with incorporating this as a new practice. There are two key factors to consider when building a fee strategy:
- Client demographics: Consider tiered pricing for certain client segments based on income, net worth, or assets under management.
- Firm charges: Contemplate charging based on planning deliverables, which could escalate according to scope—basic, comprehensive, or complex.
Once you’ve developed a sense of how much time and effort each segment takes, you can fine-tune your pricing.
Beyond the physical fees, the mechanics behind charging them should be as simple as possible, since adding manual or cumbersome logistics can impede your ability to deliver the additional touchpoints. Consider using “easy button” technology with the mechanics already in place.
The following examples outline the need for ongoing planning and would be ideal situations for subscription-based planning fees.
- High Earners, Not Rich Yet—HENRYs: Asher and Olivia, ages 34 and 28 respectively, are vice presidents in the technology industry and new prospective clients. Asher has been at his company for three years and started as employee number three. The company raised its Series B six months ago, and Asher has a mixture of incentive stock options and restricted stock units currently valued at approximately $750,000. He would like to take some chips off the table within the next two years as a part of a secondary offering or a sale, and he believes his current value of company ownership can double or triple in the next 18 months.
Asher earns a salary of $150,000 and Olivia earns a base salary of $100,000 with an additional average of $210,000 in variable cash compensation annually. She also has an employee stock ownership plan (ESOP) and an employee stock purchase plan (ESPP) but doesn’t understand them. They spend everything they earn, have school loans of $150,000 collectively, credit card debt of $35,000 spread out over 10 cards, and 401(k)s at their current employer, holding $75,000 and $25,000 respectively. They currently rent to the tune of $7,500 a month and lease luxury cars. They have no savings and plan to buy a house and start a family within the next year.
Asher and Olivia will have no prospective AUM for at least two years or more but would benefit from a subscription-model financial plan and proactive ongoing guidance that could include:
• Management of cash flow
• Elimination of credit card debt
• School loan repayment plan
• Saving for short-term and long-term goals
• IRC Sections 1202 exclusion or 1045 deferral for qualified small business stock
• House purchase readiness
• Education savings for future children
| - Civil and Military Service Oriented Family: Ben and Claudia, 36 and 41 respectively, have a 4-year-old and a baby on the way. Claudia has repeatedly asked Ben to look into life insurance beyond the military benefit. Ben promised before his last deployment that he would investigate private life insurance but never got around to it. Claudia called a financial professional to ask about life insurance coverage for Ben. She currently hit pause on her career as a first responder due to pregnancy complications but plans to return after the baby is born. Both have considerable pensions, and Ben is planning on retiring from the military in 12 months. He will likely transition to a career with Boeing and will see a significant increase in his income at that time, in addition to his military pension beginning. Claudia has dreams of attending law school. They rent, live well under their income, and have saved in a cash account. They have no investments and want to learn about how to invest.
Ben has already lost his father, and his mother is not well. As an only child, he thinks he will inherit close to $1 million in the next few years from his mother. Claudia’s father gifts them $30,000 annually, and they have $160,000 in a savings account that has built up over a few years. She also knows she is the beneficiary of a trust but isn’t sure how much money is in the trust currently.
Ben and Claudia would benefit greatly from a financial plan and proactive ongoing guidance in a subscription-model format that could include:
• Insurance coverage
• Pension lifetime selection options
• Education savings for Claudia and the two children
• Future house purchase
• Accumulation and distribution for retirement
• Navigation of inheritance
• Investment management
- Retired Teachers: David and Joann, 67 and 70 respectively, are both retired teachers receiving a pension, and have $80,000 in taxable assets invested that David self-directs. David reached out to a financial professional because he lost a considerable amount of money in the last 12 months and Joann no longer wants him to manage their nest egg. Joann’s mother is still living and independent at 97, but Joann knows some inheritance will come in the next five years.
They have lived in the same home for 38 years on the West Coast, and the mortgage was paid off years ago. It has appreciated to a $3 million value, and they want to downsize in a few years and move closer to their grandchildren in North Carolina. They’ve found a few townhomes for less than $500,000. They have a rental home they purchased 10 years ago in cash valued at $1 million with a cost basis of $250,000 that they plan to sell when they relocate.
They want to start helping their children financially once the houses are sold but also don’t want to run out of money.
David and Joann would be ideal customers for a subscription-model financial plan and proactive ongoing guidance that could include:
• Retirement distribution strategies
• Investment management
• Gifting during life
• 1031 rollover rules education
• Longevity planning
• Legacy planning
Planning is the most ethical and responsible practice we can implement, and so many more families would benefit from this practice that aren’t getting the guidance they need. As the industry evolves, leading with planning and adopting innovative fee structures like subscriptions could represent the difference between remaining relevant and becoming obsolete.
LEARN MORE
Learn more about serving next-gen clients at FPA Annual Conference 2023! “Millennial Maintenance,” Sept. 28, 2024
