Subscription models are starting to take root in the investment world as well. Now clients can subscribe and save not only on movies and dinner, but also their investment portfolio.
Subscriptions are nothing new; newspaper and magazine subscriptions date back to the 17th century. However, subscription services have markedly expanded in recent years, and the realm of products available on a monthly basis range from streaming music, movies, and television shows to stickers, meals, and boxes of dog toys shipped to your door. The digital marketplace is growing ever more intertwined with subscription-based services, both in terms of tangible goods delivered direct to consumer, à la BarkBox, Blue Apron, and Dollar Shave Club, and digital goods and streaming services, like Netflix, Hulu, or Spotify.
Subscription models are another part of the noncommittal gig economy, a model “based on flexible, temporary, or freelance jobs, often involving connecting with clients or customers through an online platform” according to Investopedia.[1] And like the gig economy, subscription-based businesses are booming. A 2018 McKinsey report estimated that the “total market size for subscription e-commerce services is about $12 billion to $15 billion.”[2]
Not only that, but the study also found that 46% of those surveyed subscribe to a media streaming service, and 15% have subscribed to e-commerce offerings within the last year. Based on this information, it’s no wonder that subscription models are starting to take root in the investment world as well. Now clients can subscribe and save not only on movies and dinner, but also their investment portfolio. Ellevest recently announced their new monthly investment subscription starting at $1/month (and no minimum investment).
Their tiered membership-based financial advising services are offered at $1, $5, and $9 per month. Every level includes a personalized investment portfolio, access to online learning (including online workshops and videos), Ellevest banking, and coaching discounts starting at 20%, while the $5/month plan adds retirement planning and the $9/month plan includes everything mentioned plus multi-goal investing, with “up to six customized investment accounts for each of your money goals.”[3]
This model is most reminiscent of Patreon, a tiered membership platform founded in 2013 that is popular with YouTube personalities, webcomic artists, writers, podcasters, and other creative entrepreneurs.[4] It allows subscribers to directly support artists and content creators with small monthly donations in exchange for member-exclusive content. Patreon subscribers can expect early access to publicly available content, as well as Patreon-only merchandise and bonus features in exchange for a monthly subscription as low as $1/month. Some creators interact with their patrons through livestreams, video chats, Q&As, and more, allowing fans to get more personalized content and interaction with their favorite artists. Patreon creators can be wildly successful earning up to $95,000/month, and when building out subscription services, it can be helpful to look to other preexisting businesses to better understand the market and avoid reinventing the wheel.
That said, while the $1/month Ellevest subscription is affordable, it’s not for everyone. Fret not, however, for even Charles Schwab offers a similar service for their Schwab Intelligent Portfolios Premium customers, one which requires a $25k minimum investment and targets higher net worth customers. Based on the way that digital streaming took off (and how everyone now wants a slice of the pie), as well as the tens of thousands of deliverable subscription boxes that have popped up within the last ten years, it may be only a matter of time before investment subscriptions become the new normal.
When deciding if a subscription-based business model is the right venture for you, keep in mind what draws customers to these products. McKinsey found that subscriptions fall into three categories: replenishment (automatic, recurring orders of necessities like razors or toilet paper), curation (new items and personalized experiences), and access (exclusivity and members-only benefits), and noted that “a great end-to-end experience and are willing to subscribe only where automated purchasing gives them tangible benefits, such as lower costs or increased personalization.” Ellevest hits these targets with personalized portfolios combined with exclusive banking offers, educational opportunities, and consultation discounts. However, it’s also important to know why customers ditch their subscriptions too, so that these shortcomings may be monitored and avoided; poor value for the price and dissatisfaction with the product or experience can kill subscription rates.[5]
[1] https://www.investopedia.com/terms/g/gig-economy.asp
[2] https://get.fuelbymckinsey.com/article/sizing-up-the-subscription-e-commerce-market/
[3] https://www.ellevest.com/pricing-plans
These articles are prepared for general purposes and are not intended to provide advice or encourage specific behavior. Before taking any action, Advisors and Plan Sponsors should consult with their compliance, finance and legal teams.
Before leaping into the unknown, we recommend a thorough examination of your plan. Because we are experts in the field, we know the marketplace and know what your existing vendor is capable of offering. Through this examination, we can help you optimize the service you receive.
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