Goldman Sachs has long been public about its desire to be the Google of Wall Street, while JPMorgan Chase CEO Jamie Dimon has lauded Amazon Prime's structure. And by experimenting with subscription pricing, Charles Schwab seems like it's angling to be the Netflix of asset management.
The discount brokerage and manager of hundreds of billions of dollars of mutual fund and ETF assets said its robo-adviser's premium service, which also includes human advice, saw assets jump by 25%, or $1 billion, after switching to Silicon Valley-style subscription pricing from a traditional fee on assets.
Flat subscription pricing has long been common for companies like Netflix, Spotify, and Hulu, but is uncharted territory for many financial services companies.
Goldman has begun to hire for a subscription service for analytics and data around risk, and BlackRock has long licensed its Aladdin risk platform. But giving up asset-based pricing means wealth managers will earn less from their wealthiest customers, so some are skeptical about how widely the model can be deployed.
The premium Intelligent Portfolios service, which charges a one-time $300 initial planning fee and a quarterly $90 subscription fee, also had a 37% increase in new households, meaning it attracted people who had never used Schwab before.
"The move to subscription-based financial planning came as a direct result of client feedback about the appeal of this pricing approach, and it's clear from these early results that we've struck a chord," said Cynthia Loh, Charles Schwab's VP of digital advice and innovation, in a recent statement. "Today's consumers expect simplicity, transparency and value – and how they invest should be no different."
The most basic version of the robo-adviser, which does not give clients access to any personalized advice, still charges a fee of 0.30% of assets invested. Comparable hybrid robos, which automate the portfolio but provide some kind of financial planning or advice, charge between 0.30% and 0.40% of assets and have a required minimum investment.
Moving beyond 'old white people'
David Goldstone, a research analyst at BookenD Benchmark and an author on a report on robo-advisers, said "pretty much anyone with over $200,000 is going to reduce the amount they're paying for financial planning" with Schwab's new premium pricing. "People will always be interested in a way to reduce the fees they're paying for financial services," he said.
The switch to subscription pricing may have indeed lured a wealthier clientele, since Schwab said there was a 40% increase in the average household income for customers using the robo-adviser since the change.
"We've seen many new clients sign up who knew they needed help with financial planning but hadn't found an advisory model that fit them – either because they prefer a more digital approach, are cost-conscious, or find traditional planning services overly complex," Loh said in the release.
This subscription-type service may also be easier to shop and help lure in new customers without advisers having to go out and recruit them.
Alan Moore, co-founder of XY Planning that helps connects advisers with customers, said that subscriptions can help broaden the community of those offering and using financial advice beyond "old white people."
"The subscription model has actually allowed us to work with non-white clients, which is therefore attracting non-white advisers, which is exciting because it allows us to bring financial planning to everyone," Moore said at the InVest conference in New York Wednesday.
But a flat-fee pricing revolution for robo-advisers may not spread overnight, Goldstone said. Too many wealth management companies rely on the higher fees generated by their wealthiest clients to "subsidize" their other accounts.
"Flat-fee pricing forces companies to prove they're efficient and can provide good service across all types of clients," he said.
Schwab's robo platform manages $41 billion as of the end of June across the premium and standard options. Despite the growth in robo-adviser assets, analysts from Bank of America and Keefe, Bruyette and Woods recently downgraded Schwab's stock on concerns about margin pressures.
Schwab shares rose on Tuesday, though, on the news that it is purchasing USAA's brokerage and wealth management divisions for $2 billion. It is expected to hold a call on its second-quarter earnings on Friday.
