Advisors, take a cue from Netflix
When pricing for your subscription services, take a cue from Netflix.
The online streaming giant gives its customers the option to watch unlimited shows for a fixed monthly price. How much the consumer streams the service is solely determined by them and the seemingly limitless content makes the platform that much more attractive.
It’s no surprise that the financial advice industry has begun to adopt subscriptions, given the pathways already paved by tech giants like Amazon and Netflix, with Schwab being among the most recent firms to make the switch. But there are a few important lessons advisors can take away from these industries — and, on the flip side, differentiators to consider that are unique to our industry — that will make or break the success of an advisor’s subscription-based business.
It may seem obvious, but as in any business, transaction or purchase, value comes first. For example, if customers feel they receive a $12.99 value from a $12.99 monthly Amazon Prime subscription, they would simply cancel. But feeling that there is access to services well beyond the price is what makes the subscription worth it.
The key is to avoid structuring the subscriptions in a way that diminishes this value. The first is the danger of considering a subscription revenue model as simply a payment plan. For example, an advisor who charges a fixed rate for one-time financial planning might just divide that fee by 12 to extend it over a year-long period and call it a subscription. That doesn’t provide added value to clients.
Another way advisors reduce value is by locking clients into a predetermined number of consultations or a certain amount of planning hours. These might be better off considered payments for services rendered, as opposed to subscriptions, where unlimited access or, at the least, multiplied value should be present.
In both of these situations, consider how to up the ante to keep a subscriber engaged and renewing. As business owners, advisors need to challenge themselves to meet the high expectations of today’s consumer — in particular, the younger mass-affluent or emerging-affluent subscription target. And to remember that the client wants to set the terms.
The tendency for customers to cancel a subscription makes the model fragile and even more critical for advisors to maintain value beyond the initial point of sale. This is different than the classic gym membership approach: bring in as many people as you can in January for a set fee, no matter how many people cancel their memberships come June.
Advisors who are interested in expanding or adjusting their fee-based financial planning services to a subscription model should ask themselves what their ultimate objective is. Are you simply trying to get new clients in the door, and the subscription is the gateway? Or are you looking to maintain and develop long-term relationships through the subscription service?
If you’re truly adopting a subscription model to support long-term client relationships in your practice, you need to be realistic with client expectations and participation, and provide ongoing services that will deliver value — to keep these clients renewing month after month, year over year.
In a world of consumer-driven, unlimited-access subscriptions, advisors face a challenge that Netflix or Amazon don’t. How can you keep up with the demand of the unlimited when the service you are selling — your time — is limited?
Advisors should consider how to allocate their resources differently than the ways they have done so traditionally. This is where other financial technology trends, like digital advice solutions and online billing/payment systems, can be leveraged to scale and support the subscription demand, in complement to the advisor’s own time, knowledge and experience.
There’s no doubt that the subscription service is a disruptor to the financial advice industry. But if Amazon and Netflix are any indication, this business model is only gaining in momentum. The success of subscriptions in other industries is driven by a customer-centric approach. It boils down to being flexible and putting the needs and expectations of the client first. In this light, the approach doesn’t have to feel entirely new to advisors, who put the interests of their client first on a daily basis. So whether subscriptions are considered a threat or an opportunity to your practice? That decision is yours.