Sidestepping venture capital and leveraging his blog as a proof-of-concept feedback mechanism, Michael Kitces, along with co-founder Alan Moore, closed a $2 million crowdfunded seed extension for the duo’s AdvicePay startup. The capital went into the building and launching of a new enterprise version of the fee-payment-processing platform for advisors at hybrid broker/dealers and large RIAs.
AdvicePay Enterprise's expanded features balance advisor-level flexibility with a dedicated home office portal enabling firms to centrally manage and control billing and payment processing. The original version connected individual advisors with bank accounts allowing advisors to start sending invoices to clients. In an enterprise scenario, the firm is collecting fees from clients and distributing them to its advisors, so AdvicePay had to build the flexibility of centralizing or decentralizing billing and payments, as well as invoicing, to account for the different methods in which firms invoice, bill, collect and provide compliance oversight of fees. Developing and supporting those new features meant doubling the company’s employees from six to twelve, said Kitces. The company, which is separate from XY Planning Network, which Moore and Kitces also co-founded, does share office space with XYPN.
When Kitces and Moore directed their attention to enterprise-level, advisor and end-client workflows, they found that "off-the-shelf payment systems are too flexible,” said Kitces. Stripe is the payment service that undergirds AdvicePay.
Without the safeguards AdvicePay puts in place, payment systems could get an advisor in trouble with the SEC because of custody rules advisors have to adhere to. To ensure AdvicePay is not going to run advisors into audit and compliance issues, advisors can charge recurring fees, but can’t change fees without client approval, said Kitces. Clients also have direct access to terminate fees at any point, without needing approval from advisors. “As with any model, you can administer it in good ways and you can administer it bad ways,” he explained. “We didn't even want to make it possible to administer in a bad way.”
The company’s exclusive focus on financial advisors has brought it business from competitors. “A lot of payment processors just don't even want to be in this space,” said Kitces. Advisors who use QuickBooks for billing of financial planning fees are prime examples, he said, because the company’s merchant account terms of service specifically prohibit financial advice fees from being administered through the tool. “As financial planning fees grow, we’re now getting users who are coming to us because QuickBooks caught them doing financial planning fees,” he said. “QuickBooks shut them down and now they can't bill their fee.”
Looking ahead, AdvicePay will be working on integrating with financial planning software providers that already have their own portal, said Kitces. “For all the different software that we use, no one wants to give their clients an eighth portal on top of the first seven,” he said. The firm is also aiming to integrate with a CRM so advisors can have financial planning fees included in their revenue dashboards on a system like Salesforce, he added.