The Netflix-like pricing model is expected to spread throughout the industry over the next five years
In March, Charles Schwab made a splash in the US financial-services scene with an unorthodox pricing model for financial advice. Taking a cue from service providers like Netflix and Spotify, the firm announced a subscription-priced premium digital financial advisor service that would have clients pay an ongoing fee for investment portfolio management, access to financial planners, and online tools to define and set key financial goals.
Schwab isn’t the first firm to offer subscription-based planning, though the current players in the space regard it as a deep blue ocean. And according to EY’s latest NextWave Consumer Financial Services report, the industry should expect many more to dive in over the coming years.
“The overall consumer economy has shifted dramatically away from owning and buying to renting and using. The financial services sector has largely avoided this evolution until now,” the report said.
The report is based on a survey of 1,500 US consumers spanning a variety of wealth, age, and other demographic segments, as well as dozens of interviews with senior business, digital, product and technology leaders from the banking, wealth management, insurance, and technology industries.
The EY report anticipates that in the next five years, the financial-services industry will adopt a subscription-based model. For an annual fee, clients can avail of a bundle of products and services that would address specific life events such as a home purchase, new parenthood, or sending a child to college.
“Consumer finance will become the next subscription model, unbundling products and re-bundling personalized and holistic value propositions based on life events,” the report said.
Technology plays a major part in that predicted future, as the report foresees an AI-driven “financial well-being platform” to underpin the model. Starting with “all available data about consumers’ financial lives, goals, social styles and personal preferences,” the system can “produce insight and promote daily decisions” to spur behavioural change and improvements in people’s financial health and situation.
Another beneficial feature would be “pre-curated access” to services from related professions, such as accounting and legal advice. Non-financial services such as home improvement and nursing would also be offered.
Some advisors may hope to find a well of wealthy clients that would still prefer traditional fee models. But EY’s findings suggest that the subscription model’s appeal is “more age-based than wealth-based,” with respondents from the 25-34 and 35-49 age groups being most interested. Among those age groups, more than half of consumers expressed interest in the model.
The study found that the life events prompting the greatest interest in subscription models were getting married, having a child, and starting one’s first job. And while customers of financial institutions preferred getting subscriptions with their current financial providers rather than with tech firms, EY warned that “large technology firms can enter the competitive landscape and capture material market share.
“In short, the industry will become the new subscription-based model, and in doing so, we will witness the disintermediation of the financial service from the financial product,” the report said. “Wait-and-see approaches will be riskier in the next five years, as first-movers stand to gain significant advantage.”
