Northwestern Mutual's impending acquisition of LearnVest, an online advice platform that also provides one-on-one financial counseling through advisers, has raised discussion about the long-term viability of using low-cost, subscription-based pay models to serve middle-class investors.
Northwestern Mutual two weeks ago announced plans to acquire LearnVest, which was founded by its chief executive Alexa von Tobel in 2009. It offers planning to the masses by charging a $299 upfront fee plus a $19 monthly subscription.
With the acquisition, Northwestern Mutual will gain 1.5 million users of LearnVest's services, 10,000 premium clients, and 25,000 clients from LearnVest at Work, a workplace financial wellness program.
The deal also places a spotlight on the subscription-based fee model as a way to pay for planning services. Whether firms and advisers can make a successful go at that, however, will depend on the execution.
Using any subscription model for
financial planning has its obstacles because prospective clients expect a great deal of hand holding — not just budgeting and recommendations for the immediate term — to go along with their
financial planning. Those clients often find it unappealing to pay monthly for services they use once in a while.
“I see the value in creating a customized and individual financial plan, but the issue comes with $19 per month: How much value is there?” asked Matthew Eschmann, an analyst at Corporate Insight, outlining what customers may think. “There's great advice out there for free. Reddit has a financial forum where you can ask questions.”
DUELING PRIORITIES
The problem is that while budget-conscious clients demand a greater degree of service for their fees — even if those fees are low — advisers and planners still need to remain solvent.
“How can you provide unlimited access to a certified financial planner by phone or email?” asked Sheryl Garrett, founder of the Garrett Planning Network. “One email can easily cause the adviser to invest one or more hours for the client, so there goes the idea that you can serve people and be there on an unlimited basis to coach them.”
Subscription-based services typically work well for young clients. Those clients may not have a lot of assets, but they often need financial advice to navigate such life events as getting married, having children and buying a home.
Sophia Bera, founder of Gen Y Planning and a former LearnVest adviser, has built her practice by using a subscription-based model — but one that is significantly more expensive than what she charged at LearnVest.
By setting the bar at an upfront fee of $999 to $1,999, plus a monthly subscription fee of $99 to $199, Ms. Bera screens out clients who aren't serious about financial planning. “People didn't value [cheap financial planning],” she said. “They wouldn't get us the information on time; they'd miss their client phone calls. It wasn't a big deal to them because they paid $100.”
ILLUSTRATE VALUE
Given new clients' frugal tendencies and their misinformed beliefs that budgeting only requires calculators, advisers need to remind them of the true value of financial planning. A lot of heavy lifting occurs during the first six months in a new client relationship — both in person and behind the scenes, Ms. Garrett said. Going forward, the adviser will have to monitor the plan and implement recommendations, so the work remains ongoing.
Advisers need to make clients aware of the fact that they're not just paying for a cash-flow analysis and investment expertise. Rather, those tasks are part of the ongoing work that will help those clients meet long-term planning goals.
Ms. Garrett suggests breaking out financial planning fees and keeping them separate from investment management fees. “I'm an advocate of keeping those fees separate so that people recognize that you're paying for financial planning advice, time and services,” she said.
In Ms. Bera's case, planning involves more than just asking about income and assets; it's helping clients pin down long-term goals, offering to do a deep dive into employee benefits, maximizing 401(k) contributions and optimizing clients' health savings accounts. It takes time to provide that level of financial planning service, but Ms. Bera sees it as an investment in her clients and in her practice.
“When I start talking with clients, they make good choices, and when they inherit wealth they won't blow the money because they've learned good habits,” she said. “If they have a windfall, they're more likely to say, 'Hey Sophia, what should we do with this? We want to set aside some for our kids' education, but we're not sure what else we should do.'”
