Long ReadAug 11 2022

Are subscription-style fees the future of advice?

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Are subscription-style fees the future of advice?
(Chris J Ratcliffe/Bloomberg)

In discussions about how to attract the next generation of clients, there is often focus on the viability of a business, as well as addressing the advice gap.

Indeed, it is not uncommon for clients to be at a stage where they are approaching retirement, if not already retired, or for a business to specify a minimum level of assets in the interests of profitability.

But rather than having large sums to invest, or complex pension planning to implement, it is more likely that younger clients are accumulating their wealth, getting on the property ladder or managing debts such as hefty student loans, notes Panoramic Wealth financial planner Ross Jefferies, who is responsible for looking after the firm’s younger clients.

“This in itself is closer to coaching,” says Jefferies. “So it may be that the model of charging for what funds are under management is, as one side of the debate argues, outdated. This is likely to lead to a subscription or retainer-based fee, which is potentially more aligned to the Netflix generation.”

Financial planning from £50 a month

One example of a financial planning service that is charging subscription-based fees is Future Plan.

The service, which was launched in April by New World Financial Group, began with an "intro" offering at £50 a month, targeting basic rate taxpayers with liquid assets of under £50,000.

With the stated aim of reducing the barriers to entry for financial planning, the group likens the charging model to a gym membership or entertainment subscription.

By July two further tiers to the subscription model followed, at a monthly cost of £65 and £80, again based on a client’s earnings up to £100,000 and liquid assets up to £200,000.

Future Plan’s pricing model:

Service

Monthly cost

Aimed at

Intro

£50 (£80 couple)

Basic rate taxpayers

Liquid assets: <£50,000

Plan

£65 (£100 couple)

Earnings £50,271 to £100,000

Liquid assets: <£50,000

Plus

£80 (£120 couple)

Earnings up to £100,000

Liquid assets: £50,000 to £200,000

For couples, the monthly cost reduces to the single person charge after 12 months. A reduced service is also available after 12 months, starting at £30 a month.

“While advisers continue to focus on charging by way of a percentage of assets, it keeps the focus on investment performance, it de-incentivises advisers from focusing on a bigger picture approach and it keeps the barriers to entry high,” says Sam Tate, director of strategy and growth at New World Financial Group.

“Those young people who haven’t yet had a chance to build up assets will continue to struggle to receive the early guidance they need and the advice gap will never be closed.”

A draw for wealthy clients too

Subscription-based approaches to fees have also attracted clients at the higher end of the wealth scale.

Another firm that has adopted this model is Fyfe Financial, which charges on a monthly basis that can range from £216 to £540 based on the complexity of a client’s circumstances.

Richard Fyfe, director and chartered financial planner, says his firm’s fees can be less competitive for people new to financial planning who tend to be at the start of wealth accumulation.

Fyfe Financial’s service tiers:

Tier

Complexity

Monthly subscription fee

1

Moderate

£216

2

Moderate

£324

3

Significant

£432

4

High

£540

5

Very high

Agreed individually

New clients are also charged a one-off fee to cover the additional work of onboarding.

“Assuming we’ve got our pricing and segmentation right, we’re now able to say that every client is profitable and no client is paying over the odds or subsidising another client,” says Fyfe.

Before adopting a subscription-based approach, the firm charged clients on a percentage basis, with the “odd client” still charged in this way. “They haven’t got enough money with us that it would be worthwhile them paying us our flat fee, so effectively we, the shareholders of the business, subsidise some of those clients we’ve had for years,” Fyfe adds.

Emily Turgoose, managing director and financial planner at Life Matters, also notes that her firm’s approach of charging an annual subscription fee attracts people with “considerable wealth”.

The firm tailors fees to clients based on circumstances such as the number of plans they have and how many people there are in the client relationship, with the fee reviewed on an annual basis.

But does this approach to fees simply convert a traditional percentage-based fee into pounds and pence?

“In our firm, that’s certainly not the case,” says Turgoose. “And if ever needed, I could easily demonstrate that [with] our clients, if you were to equate what they pay to a percentage, it varies enormously.”

Subscription versus percentage-based models

While Future Plan, Fyfe Financial and Life Matters have each adopted a subscription style differently, all three firms fix their fees as opposed to using the customary percentage-based approach.

“It’s fairness for clients and it’s fairness for us as a business,” says Turgoose. “I don’t think it’s right that we should be doing lots of work for people who have complex circumstances and not being paid an appropriate fee for it.

“Also, I don’t think it’s right that during periods of market decline, when we’re doing lots more work usually, that we effectively get a pay cut.

“And I don’t think it would be fair if we were to be earning lots of fees that we didn’t necessarily need, based on the work involved for a client, just because they have more money.”

Fyfe similarly says the primary motivation for switching to flat fees was wanting to be able to “look every client in the eye” and tell them that their fees are fair and justifiable. “We didn’t think that was possible in every single case with a percentage model,” he says.

Chloe Cheung is a senior features writer at FTAdviser