Auto-Payment Option

Want to start charging monthly or quarterly flat fees that are different for each client?  Here’s the way to go.

Alan Moore, co-founder of the XY Planning Network, had just finished introducing a new revenue model for XYPN members: monthly “subscription” advisory fees that middle-income or younger clients would pay out of a credit card or bank account, the way they were paying their cable or phone bills.  The members were encouraged to bill 1% of client income out of cash flow, rather than 1% of the (often nonexistent) investment account.

There was just one problem.

“We provide compliance services to our members, and that includes helping them get registered,” Moore explains.  “I think we’ve done 350 registrations in the last 36 months or so, and had a lot of conversations with the regulators in 45 states.  We basically got to know all the regulators.  And,” he says, “they were starting to ask a lot of questions about, hey, tell me how your guys are getting paid.

Moore’s team would helpfully answer that there are two options: either manually collecting checks—which is extremely inconvenient for clients who are paying for services on a monthly basis—or an automated debit system through a variety of auto-pay services.

“They had followup questions,” says Moore. 

“Could you, as an advisor, bill your client without their permission?”

“Well, yes.  Most payment processors, once payment information is stored in their systems, allow you to go in and invoice your client and deduct money from their bank account.  It’s a feature that provides convenience.”

“Uh, huh.  So if they have an active subscription for, say, $200 a month, can you change that without your clients’ permission?”

“Yes, for most payment processors.”

“That,” says Moore, “was interpreted to mean that our members had custody.  We ran into that over and over, and they said that we’d have to go through a custody audit.  But we all know that nobody wants to do a custody audit, especially not as a small firm.”

Billing Solution

What to do?  The (rather complicated) question was: how can the advisor get paid in an automated way, where the client is willingly paying the advisor an agreed-upon amount every month, where everybody is happy with the arrangement, but clients don’t have to go in and click “pay” every month, nor would advisors be able to put their hands on a larger part of client accounts?

“Back in March of 2016, Michael [Kitces] and I begged some of the payment processors to build a custom solution for advisors,” says Moore.  “But they just weren’t interested.  We’re not a big enough industry, and they didn’t see the potential.  So in March of 2016, we started a new company called AdvicePay, and started building our own tech.”

Today, AdvicePay is basically a technology overlay on the Stripe bill payment system, with an added connection with the Plaid account integration engine.   It was created for XYPN members, but is now available to any planning firm that wants to bill 50, 100 or 1,000 clients out of their checking or credit card accounts.  Each client can be paying a different amount—and often they actually ARE in the XYPN system, and the system is flexible enough to accommodate virtually any billing method, be it a percentage of income, a flat monthly or quarterly fee, or hourly or one-off planning fees. 

“As we were developing it,” says Moore, “we learned the amazing intricacies and variability in the way firms are structured, in terms of who does what in the firm and how their workflows work, and the different ways there are to bill clients.”  For instance, one category of AdvicePay customers is a firm that bills its traditional clients via AUM through the custodian, often through the portfolio management software—something AdvicePay does NOT do.  “That firm may have several younger advisors who want to build out their own service model for Millennials and middle-market clients,” says Moore.  “AdvicePay lets them bill for project-based fees, and then get paid on a monthly basis, without disrupting the firm’s other relationships and operations.”

Let’s say, for example, that you’re working with a younger client, and you propose to charge $3,000 up-front for the initial planning work and $100 a month starting October 15.  You have the client use Plaid to link up AdvicePay with his/her checking account or credit card.  You, meanwhile, insert the $3,000 one-off payment as an AdvicePay invoice, and the $100 monthly ongoing fee into AdvicePay.  The client can approve both the one-time payment and the ongoing payments with a single click—and would not have to approve each monthly payment.  The payments happen automatically.

The client WOULD have the ability to go in and cancel the arrangement, at which time AdvicePay would notify the planner, who might want to give the canceling client a phone call.

Advisors who are billing on an hourly basis would create one-off invoices in AdvicePay whenever work is performed.  “We have advisors who only see some of their clients once a year, and do a couple of hours of work,” says Moore.  “This allows them to get paid for that.”

Getting Started

Of course, each advisor and each client has to have a user name and password to access AdvicePay.  To get the client started, you just send an email inviting them to click on a link, create a password (the email address is the user name) and link up the checking account or credit card.  They will see the open invoices, click “make payment,” hit “activate” and the payment has been made.  If they’ve clicked on the monthly or quarterly payments, they can go in at any time and see the paid invoices, and the payment arrangements.  And every time a payment happens, the client receives an email notification of the amount that will be deducted, and then a payment receipt.  “We built that in so that it happens automatically, to satisfy some of the state regulators,” says Moore.  And most importantly, advisors can’t raise their fees without getting client approval, or otherwise touch client assets in the checking account or through a credit card.

To Moore, one of the interesting aspects of this whole exercise is the fact that the requirement not to be able to take money directly from a client account, and the requirement to undergo an audit if they can, is nowhere found in the state regulations.  It is something the regulators have identified that they want to see. 

“For instance, they tell us, we want clients to be able to cancel subscriptions without calling their advisor,” he says.  “We want them to be able to cut off payment.  That’s definitely not in the code anywhere.  But they are fearful of monthly financial planning turning into a gym membership model: easy to sign up, impossible to cancel.  We’re complying because we don’t want them to feel like they have to go back and create additional rules.”

Some of the questions Moore encounters: AdvicePay will bill out of a brokerage account if it has an account routing number on it, and can accept ACH payments.  No, it does not do AUM billing.  “There are so many systems that deduct fees directly from client retirement accounts; we didn’t feel like we had to get into that business,” says Moore. 

Use Cases

Interestingly, AdvicePay has attracted the attention of very large firms that are interested in billing flat fees quarterly, who can make sure there is money in a sweep or money market account for their 1,000 clients who are each paying different amounts for planning services.  Other advisory firms are using AdvicePay because they have a few clients who have very high incomes, but all their money is in a 401(k) or IRA account, which most advisors want to allow to keep accumulating tax-free.  They want to bill their fees directly from the checking accounts in these unusual client situations.   “The great thing about AdvicePay is that it’s very scalable, and built to accommodate the workflows of planning firms,” says Moore.

A new feature is the new e-signature integration, which will allow planners to, as they send clients their invoices, also send their financial planning agreement and other initial paperwork—and get it signed and stored away as quickly as the payment happens.  “We’re finding that most firms would like to have those initial agreements handled electronically,” says Moore, “and a surprising number feel like they have to get a planning agreement signed every 12 months, which—they tell us—can be a nightmare.  So we’ve built out a renewal module where they can go in and say, okay, these are the clients that need to receive financial planning agreements.  The clients can go in and sign it, and it queues up payment for the next year or next quarter, depending on how the firm is set up.”

How many firms are using it?  Currently, 570 advisory firms are subscribed to AdvicePay, 375 of them XYPN members.

Cost?  AdvicePay’s primary version costs $50 a month for a solo firm, while enterprise prices are assessed on a per-advisor basis.  Moore notes that the transaction fees start at 3.5% for credit cards, and 1.5% for ACH (banking payments) for professional users.  “Those are the industry standard,” he says.

Moore says that the value proposition is to help advisors become more efficient.  “If I can save an advisor 15 minutes a month, it is worth the money to them,” he says.  “I actually think we can save them a couple of hours—and clients aren’t paying advisors for the time they spend to bill them.  They need to be out there working with clients.”

Looking at AdvicePay and the planning landscape, I think the value proposition may be greater than Moore realizes.  The program suddenly opens up, for many traditional planning firms, a new way to get paid by a new type of client: the middle market, often younger champion saver or high-cash-flow-but-buried-in-student-loan-debt individual who has a high need for planning advice, and who the younger planners in the firm would love to be able to work with—profitably. 

XYPN members are proving that the monthly flat fee model is acceptable to this market segment, so having something like AdvicePay greatly simplifies the challenge of allowing younger advisors to pioneer the firm’s services to their peers—and, over time, grow them to greater profitability. 

If you’re interested, AdvicePay can be found here: