Subscription-based models charge investors an upfront fee for the creation of an initial financial plan, followed by a monthly fee for ongoing advice.hyejin kang/iStockPhoto / Getty Images
Some financial advisors are adopting a new, innovative subscription-based model for Canadians to pay for financial advice that could be especially attractive to middle-class and young, professional investors.
The new model sees investors pay a regular monthly or quarterly fee for services such as financial planning. Advisors who have embraced this model say it’s gaining traction as clients seek out advisors who can meet their budgets and accommodate a flexible billing cycle – especially at a time when investors are increasingly scrutinizing the ways they pay for financial advice.
“The landscape is changing. To be able to go to the market and say that we charge this way is a differentiator right now,” says David O’Leary, founder and principal at Toronto-based Kind Wealth, a fee-for-service financial planning firm that offers a subscription-based model in the form of a monthly retainer fee. “And now [the client] knows that we’re objective, independent and motivated to stick with you to ensure you achieve your goals. And that’s a big part of why people touch base with us in the first place.”
Many Canadians pay for financial advice through trailer fees, or commissions, included in the mutual funds advisors sell to their clients. In recent years, many advisors have increasingly embraced a fee- or asset-based model in which they charge investors a percentage of the assets advisors manage as payment for their services. (As such, many advisors who offer one of these two methods enforce a minimum account size to take clients on.) A smaller segment offers a fee-for-service approach in which clients pay a lump-sum amount for a specified service, such as financial planning.
“The percentage-of-assets model ensures that advisors will work with only the wealthiest 3 to 5 per cent of Canadians,” Mr. O’Leary says. “If you take a percentage of investments, then you can’t make money from the average Canadian who has only $10,000 or $50,000 to invest.”
Mr. O’Leary launched Kind Wealth in 2017 with the subscription model to attract investors who don’t pass the threshold for traditional investment services and who are searching for financial planning options tailored to meet their specific needs, such as retiring, starting a business and travelling.
The clients who seek out his firm typically don’t know how much they were paying their previous advisor and want to know how much they’re paying for financial planning, he says. And clients who previously did business with a fee-based advisor complained that they heard from the service provider a few times a year – at most.
Instead, subscription-based models charge investors an upfront fee for the creation of an initial financial plan, followed by a monthly fee for ongoing advice. That regular fee is similar to how consumers pay for utilities, such as electricity, or streaming services, like Netflix or Spotify.
While this approach is still in its early days in Canada, it has grown significantly in the United States as even large financial services institutions have come to embrace it.
In April, San Franscisco-based Charles Schwab Corp. announced it was adopting a subscription service. For a one-time fee of US$300 up front (for new clients) and a flat US$30 a month thereafter, clients receive an in-depth financial plan, automated investing and unlimited guidance from a financial planner. Previously, the service charged clients an annual fee of 0.28 per cent of assets.
Seun Adeyemi, president, senior financial planner and mortgage specialist at Toronto-based SA Capital Advisors Inc., began offering the subscription option after noticing the increased interest in the model among investors south of the border.
He says subscriptions are especially attractive to middle-class and young, professional Canadians who need financial advice, but don’t have significant assets to invest or are unable to pay the high fees associated with traditional financial services.
“It’s easier for clients who don’t have a lot in assets,” Mr. Adeyemi says. “Canadians have more debt than they have income. They’re looking to cut down their bills. ... The same trend is going to happen in the financial [services] industry. It’s just a matter of time.”
He expects the subscription model to catch on with larger financial institutions over the next five to 10 years as investors turn to more affordable options such as discount brokerages and robo-advisors. In turn, advisors at bigger financial services firms will then start to encourage their employers to introduce new ways for Canadians to pay for financial advice, Mr. Adeyemi says.
“Once advisors start pushing for that, dealers will have no choice but to adapt their business models,” he says. “If consumers leave the big dealers because they want transparency and for advisors to demonstrate their value, then advisors will also leave and take their assets under management elsewhere.”
But while Sandi Martin, partner, chief operating officer and financial planner at Spring Planning Inc., says the subscription model is a good option for investors who are looking for flexible, periodic advice, it may not suit all clients.
Rather, she says her firm’s fee-for-service approach suits her clients best because they tend to require long-term advice for a wide range of life milestones. Financial planners at Spring establish a financial plan for clients at the outset of the relationship and then conduct annual reviews to discuss performance and assess any required adjustments.
“The subscription model may not work because our clients tend to come to us at a moment in time when they ask a big question, such as if they’re ready to retire or if they’re using their corporation correctly,” Ms. Martin says. “The way we charge clients right now is based on working with us for a year. This way works [because] we’re not charging our clients frequently.”