Like Netflix, but for Financial Planning

Mar 19, 2019 / By Kayse Kress
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What’s Working Now: This advisor shares how she expanded her business by creating a subscription service for young, high-earning professionals who cannot access help under the traditional financial advising model. And how she does it 100% online.
Editor’s note: In this edition of What’s Working Now, an AdvisorRADIO feature in which Horsesmouth members tell us about recent success they have had running and growing their businesses, we hear from advisor Kayse Kress, who works with new physicians for a flat monthly fee.

The following article includes edited excerpts of Kayse’s story and advice. Or you can listen to the full interview by clicking the audio file below.

Quick Overview

Advisor: Kayse Kress
Avon, CT

Years in business: 12

Firm: Physician Wealth Services

What’s working now: Offering services on a subscription model for young, high income/low-net-worth physicians.

I’ve had an interesting path to get where I am now, as I think everybody in the financial services industry has. Mine started when I was still in college. I started working at a financial services firm that was part of an accounting firm at the time. I was an intern there and really liked the work that I saw advisors doing with clients and how they really helped them. I was lucky to have the opportunity to become a full-time employee after I graduated. Even though I had gotten my undergraduate degree in marketing, they opened the door to a career path I didn’t know much about, and I was eager to learn more.

I quickly went back to school and got my CFP underway. I just took the bull by the horns and realized the career path I wanted to take. I was lucky to figure that out pretty early on in life. I stayed at the same firm as I earned my CFP, and eventually we broke away from the accounting firm and became an independent registered investment advisor. I learned the ropes from all sides of the business—operations, managing my clients, and then advising them.

Demand for advice

I’ve worked in the industry for about 12 years. About two years ago I realized that there was a huge demographic that wanted advice but wasn’t being served by my firm. Not a lot of advisors were serving the younger demographic, millennials and Gen Xers who are just starting to get their lives underway. So I left that firm, which was bittersweet because they were a great team. But I saw an opportunity to provide service to people who didn’t have it.

There’s really a demand out there for the younger generations to get advice. As I started out as a solo advisor I didn’t really have much of a niche. I was working with people who had high income but lower net worth. They have a lot of competing priorities—paying down debt, starting a family, buying a house, saving for retirement. They are trying to figure out, “If I have an extra dollar, where do I put it?”

I was part of a study group of other solo advisors, and I met a couple of others who realized that we could partner up and be able to scale better for compliance, operations, and other reasons. I have two partners now, one who focuses on marketing and business development, and the other who focuses on operations and all of the back office stuff. Then I head up our financial planning department and making sure we have a client meeting structure, that we have planned deliverables, and that clients really understand what action plan we’re putting in place for them. All of us are equity partners in the firm so that’s an easy way to structure payment. We’re starting to talk about how we can structure ourselves for growth as we move into 2019 and the growth we’re already seeing.

Initially I had a broad approach, going after that high-income, high-debt profile that usually ended up being attorneys and doctors, who take on a lot of debt for education and maybe to buy into a practice but are also earning six figures right off the bat. But then I partnered with Ryan, who is married to a physician, and that became our natural niche market. He and his wife have literally lived the life and are able to share their experiences with our clients. It’s usually the spouse who is reaching out to us and not the physician, since the spouse is usually managing the household finances. Ryan’s story resonates with them.

Our fee structure

Because of our younger demographic we charge differently from most industry models. Most advisors look at account sizes, and you have to have an account minimum in order to allow the advisor to make margins and profits. They are compensated for managing a portfolio and charge a percentage of that account. Nothing wrong with that. But it’s difficult when people haven’t had the ability to save in an investment account, or their savings are locked up in 401(k)s or 529 plans.

At my previous firm the account minimum was a million dollars. That’s a pretty significant amount. As a young advisor who had already been working for over a decade, I thought I was ready to manage my own clients and do some business development, but it was difficult to break into the field with my peers having nowhere near the ability to save even a few hundred thousand, let alone a million. Charging based on assets under management becomes difficult if the client doesn’t yet have assets to manage. Yet they still want advice on the bigger picture of their financial life.

Other advisors get compensated by taking commissions on investment products. I think that this is a tricky way to give advice, because you’re not going to get paid unless the client buys one of those products. There are just too many conflicts of interest in that approach. That’s not how I prefer to do business.

On the other hand, we’re here to make a living. So we came up with the monthly subscription as a way to provide access to financial advice. The question was this: “How do we make sure we’re compensated accordingly for our time and services—but clients can also pay in a way where they don’t have to question our advice because they’re buying a product?”

They don’t have this pool of assets saved that we can charge a fee for. But the key is they have income. They’re able to pay cash on a monthly basis for things like Costco and Netflix, right? We have all kinds of subscriptions in our lives, so we thought it was a natural way for people to think about paying for the advice we’re giving. It smooths out the cash flow so they’re not getting a bill once a year that they have to scramble to pay for. It’s really an annual charge that we bill monthly so there’s no surprise.

We charge a $999 fee upfront to cover the initial planning, which is a lot of work. Then we do base our monthly subscription somewhat on assets, just to draw a line in the sand. If you have under $300,000 in assets, we charge $300 a month, and that includes all of our services. Asset management is included in that, if you have an account you want us to manage or just advise on. Then if you have more than $300,000 you pay $500 a month, which goes up by 3% a year. There’s no future conversation about having to raise fees down the road. We have the cost-of-living adjustment built in. Clients are completely aware of it from the get-go. They know that if they start as a $300 client and their assets grow, they will transfer to $500. Everything is very transparent, upfront, and no questions asked.

Our niche: Physicians with high debt and high salaries

Our physicians are some of the most highly educated people in the country. They have put their time into that expertise to take care of us, and they don’t get any financial training. They take on six figures of debt and come out the other side with great compensation but no idea how to plan for competing priorities. They want to buy a house. They’ve been training for 10 years and haven’t ever gone on a vacation as an adult.

At the same time, if they don’t watch things like housing and transportation costs you get what we call “lifestyle creep.” There’s a certain “keeping up with the Joneses,” because the older doctors they’re working with have a different lifestyle that these younger physicians are trying to get to.

We’re able to provide a service unique to them because of student loan analysis that we do a deep dive on. My partner has actually developed a software specifically to help us with that analysis. I think other, older advisors have never experienced this before. Older generations haven’t had the same complications as the current student loan debt crisis.

Marketing by providing free content

Our marketing theory is to provide as much free content as we can. We’re working with smart people, so if they’re willing to learn and stay on top of it, we think that’s something we want to empower them to do. At the end of the day, though, we know that they’re super busy. So the hope and goal is that people aren’t do-it-yourselfers, but people who end up hiring us.

We have a podcast called Financial Residency that is separate from our advisory business but helps us promote the educational content that we want to get out there. That’s how a lot of people find us and book a free, introductory call. My partner Ryan is in charge of the podcast. He gets a lot of good guests to come on the show, and really loves the marketing piece. He’s not a CFP, though he does have a Masters in Accounting and Finance, so he knows what he’s doing. For me, I don’t love that part of the business. I’m a true technician, the planner. I love meeting clients and building out their stuff, which Ryan found he wasn’t having the time to do. That’s why this partnership works well.

We also try to get quoted in as many articles as possible. We’re part of the XY Planning Network, the Financial Planning Association, and the National Association of Personal Financial Advisors. All of these organizations send out media requests from reporters looking to write articles on financial topics. We try to stay away from more retirement-related topics like Medicare or reverse mortgages, but we try to answer questions on topics applicable to our target market like cash flow or insurance. People come to us and say, “I saw you quoted in an article,” usually in something like Medical Economics.

We also have an advertisement on The White Coat Investor, a finance blog written by a doctor. That’s how people come to us asking for a second opinion. We’re trying to get people primarily through digital marketing channels, because we want to get in front of the right people. We’re trying to figure out where they hang out online.

Anyway, most people find us through Financial Residency, the podcast, and by the time they book the free consultation they’re ready to hire an advisor. We want to make sure we’re all on the same page, but our fees are really transparent, and everything is on our website, which prospects have always looked at. They already know what they’re going to be paying for.

Onboarding: Life planning and financial planning

Our meeting structure is also different from most traditional advisory firms. My partner is also a registered life planner, using George Kinder’s model of mapping financial planning with that of just life and figuring out what’s most important to you, your values, and how you’re going to use your money to achieve those goals. That’s opposed to just letting life happen and not really understanding where our money’s going or why we’re not getting to where we want to be.

Our first two meetings are life planning meetings. We spend time talking with clients about what their ideal schedule is. That’s really important when you’re a doctor and you maybe don’t even sleep regular hours! We talk through life plans, goals, schedules. No finances at all. By meeting three, clients usually are saying, “Wait, we hired you to be our financial planner. You keep asking us about our life.” At meeting three we start getting everything mapped out, using a mind map template that we have. They put everything onto one piece of paper. From there we go to a cash-flow meeting and understand what their income and expenses are.

We’re working on a robust cash-flow service that will give people weekly snapshots of what their spending actually looks like. That will be really cool and hopefully a good resource for clients to get real-time data on what they’re doing, as opposed to looking back at a budget and saying, “Oh, shoot, last month didn’t work out for us.” For now we do the best we can to project forward expenses.

Then, at the fifth meeting, we deliver the plan. We go through and give them our recommendations regarding the student loan analysis, insurances, budgeting, and whether or not they need estate documents. These are the items that we’re going to work on together on a quarterly basis. At that point, they’re ongoing clients. We meet quarterly and start to tackle the items outlined in the plan. This is why we have that $999 upfront fee—it’s a lot of work just to do the plan.

And nothing’s perfect, so I’m sure we’re going to make some tweaks along the way. We’ve talked about the cash-flow service being a separate charge, because some people don’t need it. It’s still to-be-determined how we structure things in the long run, though. What I do know is that we’re going to continue to make sure that we align the service we’re providing with the fee that’s being charged. If you add a service to your plan, then we will charge you for it. If not, then we won’t. Clients always understand what they’re getting and how we’re going to charge them for it. I think we might see more of a menu of services or packages.

We also have an hourly rate, but we try not to encourage that. As life planners and fiduciaries, we think that helping people implement the plan is most important. Some people might take several years to have even zero net worth, let alone a positive net worth, so it’s critical for us to continue to work with them. If we let them drop off and they don’t stick to the plan, it won’t work well for either of us. Ideally, we’re making lifelong clients out of people who need our services. If they don’t need us, of course, we don’t want them paying for something they don’t need.

That said, we do charge $150 an hour if someone wants a second opinion or something like that. Those are exceptions. We’re also talking about a resident program that would have a different fee structure, since they are still in training and don’t need as much planning, just the student loan analysis and disability insurance. That would probably be a one-time charge, a set fee for the package.

Challenges to setting up a subscription service

One of the major barriers to starting a subscription service like this is how to actually get the payment from clients. It’s hard to be compliant in charging an automatic monthly fee, because it violates the rule of custody, or taking your client’s banking information. It means that you have to have an annual outside audit done by a CPA firm. That may be fine for larger firms, but when you only have 50 clients, it’s not really something you want to do.

The great news is, Michael Kitces and Alan Moore developed a compliant payment processor which members of the XY Planning Network get for a discount. It’s called AdvicePay. Clients get a link inviting them to input their own banking information, and then it automates their invoicing on a monthly basis. That’s taken away a huge hurdle for us.

Growing by leaps and bounds

After a year and a half, roughly, we have just over 50 clients. We projected to grow by two a month but we got seven new clients in December, so that’s awesome. We’re not sure if that’s people getting ahead of their New Year’s resolutions and if it’ll be a slow January, but we’ll have to see.

We started 2018 with 15 or 20 clients and we’ve doubled that in a year. If we do that again by the end of 2019 we’ll have over 100 clients, which feels pretty overwhelming. We’ll have to see how the year progresses, and as we plan for 2019 we’re talking about hiring someone else.

I should mention that we’re 100% virtual, which cuts down on our overhead considerably. We don’t have an office building. I work from Connecticut and Ryan is in San Diego. We’ve met several times in person, but we only see each other day to day on the computer, and that’s how we meet with all of our clients as well. Our target market enjoys that because they don’t have to find the time to drive to an office or deal with traffic. And we can meet at odd times of the day, like 9 p.m. at night or whatever the case may be.

For others thinking of going into the subscription model, I really encourage them to check out the XY Planning Network. It’s really a great resource because there are a lot of advisors already doing this and you can ask questions. What services should I offer? How should I charge for them? What niche should I target? When somebody becomes a member they set up a bunch of coaching calls, so that you have a structure and aren’t just trying to figure it out completely on your own.

I think the most critical piece when I was getting started was figuring out where I was going to find my next client. There’s a big demand, but you want to be careful about not just providing that hourly rate because then you’re churning business, and you have to keep finding new clients. You need to have an ongoing service that creates a recurring revenue model for yourself.

If anybody has questions, I’m happy to answer them. You can get in touch with me at kayse@physicianwealthservices.com.

Comments

Fascinating!

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