In recent years, the rise of the robo-advisor has driven a realization amongst most financial advisors that it’s absolutely essential to provide value beyond “just” portfolio management itself to attract and retain clients. This surge of interest in delivering financial planning is driving the growth of CFP certification to record levels (now more than 80,000!), but is also causing many financial advisors to question the entire AUM business model altogether; after all, if the future is all about getting paid for financial planning and not investment management, then will consumers eventually compel advisors to move away from the AUM model and towards fee-for-service financial planning?
Yet the caveat of this transition is that there’s an incredible operational efficiency to charging AUM fees. They’re straightforward to calculate, the infrastructure already exists to sweep fees from investment accounts and remit them to advisors, and the AUM fee is psychologically easier for clients because it happens automatically on their behalf. By contrast, charging directly for financial planning requires managing invoices, collecting and cashing physical checks, and a process to collect for late/missed payments. And from the client’s perspective, writing lots of checks for fees often just makes clients more fee-sensitive.
To address this challenge, we’re excited to announce the launch of AdvicePay, a new payment processing platform for financial advisors specifically created to facilitate fee-for-service financial planning fees (both one-time and especially recurring retainers). Because the reality is that while there are already a lot of other payment processing platforms out there, from PayPal to PaySimple, to the Quickbooks Merchant account, most don’t even meet the compliance requirements of state regulators to avoid custody and provide proper notifications to clients, some prohibit financial advisors from using them at all, and none are built to integrate with the existing systems of financial planners (nor do they appear to have any intention to ever do so!)!
Yet after registering a few hundred independent RIAs with state regulators in just the past 2 years alone at XY Planning Network, we’ve learned exactly what regulators really expect and are looking for to ensure consumers are appropriately protected, especially when it comes to charging ongoing recurring retainer fees. And while we originally built AdvicePay simply to solve this problem just for XY Planning Network, we’ve realized that with the entire advisory industry shifting towards financial planning – leading to a growing demand for a payment processing system to handle all those fee-for-service payments – there is an opportunity to help even more financial planners, and more consumers who want to work with them. Especially given how many people might need financial planning, and would be willing to pay for it, but don’t even have liquid investment assets to manage – and need a way to pay for financial planning directly from a bank account or credit card.
As a result, we’ve spent the past several months expanding the capabilities of AdvicePay to handle the wider needs of the financial advisor community, raised $500,000 of venture capital funds to support further development, and are excited today to be rolling out AdvicePay to the entire financial services industry… so anyone who wants to build a fee-for-service financial planning business will now have the tools to do so (in a compliant manner!).
In the long run, we’re not certain if financial planning fees will simply become a supplement to the AUM model, replace it entirely (where advisors charge for financial planning, and give away asset management for free!), or branch out further into its own path as a means of serving new consumer segments who can’t be served by AUM fees alone. But we’re excited to see what AdvicePay can do to help support the ongoing growth of the financial planning profession!
source https://www.kitces.com/blog/advicepay-review-sec-custody-compliant-fee-for-service-financial-planning-payment-processor/?utm_source=rss&utm_medium=rss&utm_campaign=advicepay-review-sec-custody-compliant-fee-for-service-financial-planning-payment-processor
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