Beyond AUM: Getting Paid for Your Advice

Historically, advisors charging a percentage of assets under their management have benefited from significant operational efficiencies, with the ability to directly calculate and deduct fees from client accounts, and without having to wait on action from clients to pay invoices or follow up on delayed payments. However, these efficiencies require one particularly key element: assets to manage. How, then, can an advisor offering investment and financial services get paid for their advice if a client's investment assets can't be neatly consolidated at the advisor's custodian, or if the client has no assets that actually require ongoing management?

With an ever-increasing number of advisors realizing that it's essential to provide comprehensive advice and additional value beyond portfolio management, many are exploring new and/or complimentary fee models that aren't dependent on AUM. Further, and in an increasingly competitive landscape, many advisors are trying to determine how to serve younger generations that don't yet have assets to manage, without turning to product sales or having to work for free in hopes of a future liquidity event. Perhaps the best example of these trends is the rise of the "retainer" model as a means to provide ongoing advice, typically for a prorated annual fee. One-time billing for fee-for-service financial advice can be challenging enough compared to AUM, but ongoing or retainer billing introduces a myriad of complexities, including invoice management and tracking, client payment methods, and compliance concerns.

Thankfully, there are a number of technology tools available to help automate this fee structure, enabling advisors to reduce dependency on the AUM model and reach new, historically underserved markets that are willing and able to pay for ongoing advice.

AdvicePay Any search for a fee-for-service financial advice billing solution has to include AdvicePay. Originally created for members of the XY Planning Network and launched to the entire financial services industry nearly a year ago, AdvicePay is the creation of XYPN co-founders Michael Kitces and Alan Moore, and is currently the only payment processing service designed specifically for financial advisors. AdvicePay was born out of frustration with existing billing solutions on the market that either provided too little flexibility in setting up an ongoing fee, or so much flexibility that some regulators could potentially deem an advisor to have custody of client assets.

With AdvicePay, advisors can set up one-time and/or recurring fees, with clients able to pay via ACH or credit card. Clients receive access to a portal where they can view previous payments, enter their bank or credit card information without advisors being able to see card or account numbers, and cancel a recurring charge if desired. In addition, clients receive a notification if any change is made to their recurring fees and have to approve the change for it to go into effect. Because of these features, AdvicePay's founders claim it is the first and only compliant billing software and is specifically designed based on regulator concerns.

Since its original launch, the AdvicePay team has added several features, including eSignature functionality for simultaneous client agreement and payment authorization. However, it is somewhat expensive relative to other solutions on the market and is currently lacking key integrations with other automation tools such as Zapier, or accounting software like QuickBooks, though there is a laundry list of new features and integrations on the road map.

It should also be mentioned that regulation of this type of billing is a gray area, and while AdvicePay may be fully compliant with the strictest interpretation of RIA custody rules and designed to alleviate the concerns of some regulators, it would be foolish to assume that the SEC, states, and every associated regulator thereof have agreed on a unified view of what is an acceptable billing practice under this new fee model. You should conduct your own due diligence to determine if the compliance features are truly necessary based on your regulatory jurisdiction, but those looking for a solid and ever-improving solution that is least likely to trigger potential custody rules or compliance concerns may want to look no further than AdvicePay.

Pricing: $50/month for a professional account, or $100 + $40/per advisor/month for an enterprise account. All plans have additional per transaction charges of 3.5% + $0.30 for credit cards and 1.5% for ACH.

Invoice Ninja Launched in 2014, Invoice Ninja is a completely open-source developed platform with more than 60,000 users. Unlike many other payment processing solutions, Invoice Ninja doesn't just rely on a single or a few payment gateways. Instead, users can choose from over 40 supported gateways depending on their preference, needs, and pricing, with options such as Stripe, PayPal, and Authroize.net, to name a few.

Users can create fully customized invoice formats, quotes, or proposals, and easily set up one-time, recurring and/or auto-billing. Available payment methods are determined by your payment gateway, though most major gateways support both credit card and ACH payments. Advisors can provide clients with access to a payment portal where they can view payment history, create a customized statement, enter or update their payment method, or remove their payment information. If using a major, PCI compliant payment gateway, all client card or bank information is processed and stored securely by the gateway itself, without advisors having access to card or bank numbers. Advisors can also optionally add checkbox authorizations or signatures to invoices so that clients can agree to billing terms electronically when paying.

While Invoice Ninja provides a great deal of functionality, it isn't built specifically for financial advisors and requires you to set up your own payment gateway. As a result, it can require more time to configure to your business and compliance needs.

Pricing: The Forever Free plan provides access to most features, while the pro and enterprise plans offer additional customization and features for $8 or $12 per month. Additional per transaction charges are determined by your chosen payment gateway. (Stripe: 2.9% + $0.30 for credit cards, $0.80 for ACH capped at $5.)

QuickBooks (or other accounting software) For many advisors, the simplest solution may be a tool you're already using. QuickBooks and many other accounting platforms like it have built-in features that allow you to invoice and accept payments from clients. Advisors can create and manage different service offerings, and add them to one-time or recurring invoices. With a QuickBooks Payment Account, clients can then pay them via credit card or ACH, with payments automatically matched up to your QuickBooks sales receipts specific to each client.

While automatic and recurring invoicing is a breeze, recurring automatic payments is where most run into trouble with QuickBooks, as it requires a signed authorization form from the client. This form includes the client's complete credit card information, which you must manually enter into QuickBooks as the payment method (a problem when it comes to PCI compliance, not to mention business automation). QuickBooks competitors such as FreshBooks, Xero and Wave Accounting all offer similar features but a more streamlined payments process, with FreshBooks and Xero providing the option to use third-party gateways such as PayPal and Stripe.

Pricing: Variable + transaction fees based on payment gateway.

As with any technology solution, advisors should carefully determine their specific business and compliance requirements before committing to a specific tool. With the right platform, fee-for-service billing doesn't have to take a back seat to AUM, or prevent advisors from serving the next generation of clients.

Access Ben's article archive here. Ben Brown is a certified financial planner and an IRS-enrolled agent. He is the founder of Entelechy, a fee-only financial planning and investment management firm based in Bethesda, Maryland, serving clients in the Washington, D.C., area and nationally.

The author is a freelance contributor to Morningstar.com. The views expressed in this article may or may not reflect the views of Morningstar.