Issue link: https://resources.envestnet.com/i/1528389
The industry warms up to subscription pricing Subscription-based pricing has existed for decades but was only available in financial services at scale within the past several years 7 . Charles Schwab was the first major firm to do so in 2019. Instead of a 0.28% AUM fee, customers pay a $300 set-up fee and $30 per month 8 . Schwab's service includes portfolio management, planning, and unlimited advice. Within three months, Schwab already had $1 billion in AUM 9 , and its success spurred others to experiment. Merrill Lynch and others have followed suit, each with varying degrees of AI (robo-advisors) versus human involvement. So how can smaller firms offer similar packages to their clients? While they can't compete on price with the big firms of the world, the convenience of a subscription with personalized service may be a better fit for clients who want to be more involved in planning and investment decisions. This is especially true for firms focusing on a particular asset category or client type, as the big-name subscription services are designed to appeal to the broader market. Potential advantages of subscription billing Subscription billing eliminates the guesswork around budgeting, giving firms a steady and dependable monthly revenue stream. Firms that depend on commission or fee-based pricing structures are affected more by external factors, including market movements, significant withdrawals of assets prior to the end of a period, other adverse changes in AUM, etc., than those that use a subscription-based model. Flexibility is another possible benefit. Advisors can offer service tiers with progressively more services or cater packages to specific client types. As needs change, service packages can, too. Clients don't get charged more simply because their investments performed well when the advisor didn't do substantially more work. There's also the overall trend toward subscription-based pricing to consider. A 2021 study for Zuora by the Harris Poll10 found that eight in ten households subscribed to at least one service, and nearly three-quarters want to pay for what they use rather than a flat fee. Harris also found that consumers often cited convenience and cost savings as reasons to subscribe to a service. With a subscription, clients have a convenient way to maintain it, and have clear expectations on what services to expect, and depending on the package, more cost-effective for lower-income clients. 4 FOR HOME OFFICE AND ADVISOR USE ONLY. NOT FOR DISTRIBUTION TO THE PUBLIC.