Why Subscription-Based Financial Planning Works

Everyone over 50 needs a financial plan, even if they don’t have $250,000 in investable assets.

By James Brewer
James Brewer
James Brewer

Advisors, and to some extent the finance media, assume that young people are good candidates for a subscription model of financial planning. And they are. But so are individuals over 50 who don’t have much in investable assets.

A financial planner who focuses on financial advice as opposed to investment advice/sales can provide great value through a subscription model of planning. More people over 50, even those with limited investable assets, are thinking ahead to retirement and will feel a greater urgency than younger prospects to plan. Surveys show that technology use is not tied as much to age as it is to wealth level. If you can show people 50-plus how they’ll benefit from your subscription plan, they’ll want to use it.

Subscription-based planning also can be a good model for the many women and people of color who historically have been overlooked by the industry. The assumption is they did not have investable assets unless there was an inheritance. But many of them are looking for an advisor who can provide education and advice on all things financial, not just investing.

From an investment advisor’s perspective, all prospects with $500,000 are not the same. One may have all their money invested in their 401(k) plan and have 15 years of work left. The other may have $50,000 in an IRA. If the advisor only makes money from investable assets, the $50,000 IRA is what’s available for investing.

Advisors who require a minimum $500,000 in investable assets lose a lot of business by not having an alternative for people who have income but do not meet their AUM minimum. With my agency, there is a fee for managing assets if someone requires that; however, that is separate from our subscription-based financial planning model.

Many investment professionals focus on the value they bring from investing a client’s assets. Some even “throw in” a plan to increase their perceived value to their prospects and clients. In that case, should the client value investment returns, or the value of the plan? Could the financial plan stand on its own in terms of return on investment? And what if you’d like to offer a plan to prospects that don’t have enough investable assets to meet your minimum AUM but have a need for comprehensive financial advice?

“Subscription-based planning can help eradicate what I call ‘money shaming.'”

Subscription-based planning can help eradicate what I call “money shaming.” This is when someone who does not have a certain level of investable assets is made to feel inadequate and unprepared for the future. It’s pretty common, especially when people get to be middle aged. However, the reality is, many people 50 and older do not have $250,000 in investable assets, especially outside of a 401(k).

If they have a government pension, they might well be prepared for the future. But maximizing the pension requires making a series of irrevocable decisions. Would the 50+ prospect not benefit from better guidance?

Planning and Education

What if you could give the client $100,000 or more in value by providing them with advice on how to claim their pension or Social Security? Is that value any different than making them $100,000 on their investments? Moreover, what if you could provide savings and investing advice through planning that doubles or quadruples their balance in their 401(k) or 403(b) from age 50 to 70?

Many older workers with little investable assets also suffer from a lack of advanced financial education. Some may have recently started earning good incomes and have be able to start saving aggressively, but they may not know how to save tax-efficiently in tax-deferred 401(k)s, IRAs, Roth IRAs and HSAs. What trade-offs should they be making regarding their own retirement date, savings, targeted investment returns, taxes and long-term care? The ability to ask and answer these questions is why subscription based-planning works well for people 50-plus.

Those over 50 may also need help with cash flow management, saving for college and managing student loan debt for their children and/or themselves. They may also be financially caring for their parents. Getting a handle on that debt can give clients better control of their financial lives, which can then move them past their feelings of being “money shamed” for not saving enough for retirement.

In addition, many people become “suddenly single” from divorce or death of a spouse in their 50s and 60s. Some might also suddenly inherit wealth — but it has been well documented that, without a financial plan and a competent guide, that wealth won’t last through retirement. Often it is a combination of issues such as bad investments and unsustainable spending.

When you move the focus of advice to retirement planning, tax planning, estate planning, etc., it requires a more intimate approach and getting to know the client’s values, passions, and goals. This is a different skill set for the advisor. First, it requires planning credentials. Those could be designations like the Chartered Retirement Planning Counselor, Chartered Financial Consultant and Certified Financial Planner designation.

I speak in depth with clients about what is important to them, and it can take a few conversations before we are able to focus on what that is — before we figure out what path is right for them. An important part of the equation for me is to help clients decide what really matters to them. I start by asking new clients about their values, which I then try to integrate into their financial plans. A growing number of people are interested in integrating their social and environmental passions into their investing for retirement. While many argue whether it reduces returns, I have found it helps clients stick to their investment plan, increasing realized returns.

I recently met with a couple in their 60s who did not know the difference between a qualified plan and a Roth IRA. For some people, the issue is lack of exposure to financial planning and lack of education. Not everyone knows the difference between stocks and bonds. How can they then be expected to evaluate complex products that may also require irrevocable decisions like an annuity?

I work in a way that shows clients that subscription based financial planning is worth the cost. I show them the return on their investment — how much additional money they make because a professional is doing their financial planning. We call what we do “Envisioneering,” where we use financial planning to help people envision what is possible. Like the client who did not realize how much he would save in taxes by doing a Roth conversion. Often the Roth conversion means reducing the advisor’s compensation if the monies used for the conversion come from assets the advisor manages. The subscription model better aligns interests and requires an advisor to act in a fiduciary capacity.

During the year, the AUM fee may fluctuate due to the market. However, the subscription-based fee would stay constant, as it focuses on delivering value in non-assets under management. Many clients these days are defaulted into a target date mutual fund in their 401(k). Clients in their fifties who have not saved much and have a longer time frame for retirement could be better served by a higher stock allocation than what many target date funds would have them in.

My firm charges roughly 2% of your annual income for financial planning. We do that using a monthly subscription fee model that we think is ideal for 50+ clients. So, if you are earning $100,000, the cost would $2,000 a year, $200,000 a year would be $4,000, and so on. Having this billed monthly gives clients a greater sense of control and increased peace of mind knowing that an expert is at the helm of their financial planning.

James Brewer, MBA, CFP®, AIF®, CRPC®, PPC®, CDFA®, CFSLA, is CEO of Envision Wealth Planning Inc. based in Chicago. Envision delivers subscription-based financial planning and investment advice to clients across the U.S. He co-authored chapter 19 on biases in retirement planning in the book “Financial Behavior Players, Services, Products, and Markets.” He is a Forbes.com contributor, has been quoted in various national media and has spoken nationally on making financial planning accessible to the masses. He can be reached at jb@envisionwealth.us. James’ opinions are his and not necessarily those of Envision Wealth Planning Inc.


Latest news

Study Reveals Insight into Affluent American Investors’ Mindsets

Key findings of the study include a noticeable decrease in financial security among affluent Americans.

Did ETF Investors Profit from Hamas Attack?

A U.S. professor stands by his research showing there was a spike in short selling of an Israel ETF leading up to the attacks. The Tel Aviv exchange says the research is inaccurate.

Ex-Wells Fargo CEO Sues Bank For $34 Million In Withheld Pay, Stock

The former CEO says the bank canceled stock awards and withheld a bonus he had earned before stepping down.

Black Swan Fears Drive Caution, Plus 60/40 Three-Decade Performance

VIX sees record trading as looming economic and geopolitical risks keep investors cautious about a potential return of volatility.

Carson Group: Still Too Few Women in Wealth Management

Its latest report confirms the industry has made little progress in gender diversity despite a lot of talk.

Supreme Court Seems Wary of SEC’s In-House Tribunals Without Juries

The Supreme Court discussed a case involving a hedge fund manager in which the SEC brought a civil enforcement proceeding that charged he mislead investors.