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Funded to the teeth by RIAs, Michael Kitces and Alan Moore now have a second big play--modernizing plan payments--and broker-dealers are beating down the door

AdvicePay replaces paper checks and 60-day waits with ACH and credit card transactions for financial plans -- a concept validated by hundreds of their own XYPN advisors signing up

Friday, January 25, 2019 – 4:01 AM by Brooke Southall
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Alan Moore and Michael Kitces are building a better mouse trap and customers are beating a path to their door

Brooke's Note: I read all the painfully rearview 2018 trend pieces about what to watch for in the RIA business. The No. 1 omitted trend was a new kind of match up of strange bedfellows, which is equal parts opportunity and desperation. See: BlackRock is going big into the annuity business with Microsoft to create a 21st century defined benefit pension system Big companies want in on wealth management, but they're playing from behind, or from beneath the wet blanket of a legacy model. But this article reflects a different kind of trend -- the increasing ability of the RIA business to solve its own problems, both with its own money capital and intellectual capital, without ever leaving the immediate ecosystem. We saw it yesterday with the deal the very RIA/M&A firm of Silver Lane made with Raymond James to block out Wall Street. Today, we see Kitces and Moore surge ahead with AdvicePay, not only fulfilling a software need but doing so with funding almost entirely from RIA, Inc. Of course, borrowing money from "friends" has its own perils, but I'm not sensing a whiff of trouble. Nothing but transparency and common tribal understanding underscores how this deal went down. Even details were shared with this reporter about valuation, revenues, business model and other fun facts.

On Jan. 22, 2018 --almost exactly a year ago -- Michael Kitces published a Nerd's Eye View blog post to let readers know he and co-founder Alan Moore were becoming the PayPal of RIAs

The article got 94 shares and was intended for RIAs, but then the unexpected happened. 

Big companies with corporate RIAs, including big IBDs, insurance companies and national RIAs expressed urgent interest in becoming customers.

"What we didn't realize is that enterprises would call right away," Kitces says.

On Tuesday, the firm announced that it had successfully raised $2 million to launch AdvicePay to the corporate RIAs at those very large firms. The raise size reflects the need to shoulder higher overhead relating to a doubling of staff to 12.

Moore and Kitces now have a second play at capturing a big share of emerging plan-for-pay business. XY Planning Network (XYPN), also co-founded by this duo, is largely based on this model and now includes 852 advisors. See: As many of his RIAs hit critical third year, Michael Kitces uses XYPN Live event to signal his startup's market power is catching up to his mind share

AdvicePay is basically software that takes the process of charging for financial plans and makes it a subscription service.

Until now, it's been largely a business of paper checks and virtually no visibility as the payment travels from client to advisor to broker-dealer and back to advisor over the course of 60 days. 

Pain point

"It was a pain point we didn't know about," Kitces says. "The whole 60 days the advisor is saying: 'Where is my money?' Now advisors can see everything."

In other words, the whole fee-for-planning trend arising in 2019 was burdened by a very 1989 kind of problem -- no way to get paid for the planning without entering the rabbit hole of paper checks sent and processed by opaque and indifferent institutions.

It stands in stark contrast to the ultra-smooth fee-based wealth management model that sucks cash straight out of an investment account. Many millennials who pay for planning don't even have such an account.

The most important aspect of the software is making the payment trackable, like a FedEx package or -- as Kitces and Moore joke -- a Papa John's pizza.

The software makes another giant leap forward with billing -- which currently puts the burden on the client.  "You have to go in and click 'pay' every month," says Moore. "That's not good for business."

Kitces says that the subtler payment mechanism finds the right balance between transparency and business pragmatism.

"There's a difference between transparent and slapping the clients in the face with it," he says.

Credit card transactions are one potential drawback, Kitces acknowledges.

Even in the AdvicePay model, credit cards have fees in the 2% range. Some advisors are using the software with Automated Clearing House (ACH) payments (namely echecks), but credit cards are preferred in many cases, he says.

"ACH has more fraud issues," says Moore.

Money in the bank

Before the latest round, AdvicePay had previously raised $500,000.  Previous to that, Kitces and Moore also kicked in their own funds. See: After PayPal demurs, Michael Kitces and Alan Moore launch online payments firm for RIAs

The latest round comes from crowdfunding, or a 506(c) capital raise. AdvicePay posted notices on Kitces.com and the AdvicePay.com websites, announcing the capital raise and advising interested parties to contact them for more details.

The $2 million was raised based on a presumed valuation of $6 million. It was done over the summer and closed in October. A blog posting published May 28 kicked off the deal. 

AdvicePay now has 22 investors across two rounds, and more than half came in the latest round. Many investors were RIAs, but none of them were Marty Bicknell, Ron Carson, Josh Brown or Steve Lockshin, who often appear as RIA celebrity financiers for these kinds of ventures.

"You would not recognize a single one," Kitces says.

In addition to the RIA principals, two executives from future enterprise clients also participated.

Asked whether the crowdfunding raised issues, Kitces and Moore said it was surprisingly doable. Normally companies do a 506 Reg D capital raise, meaning they only talk to accredited investors about the deal.

"The major difference between a 506 Reg D raise and a 506(c) raise: We were responsible for ensuring investors were legally accredited investors," Moore says. "We outsourced this to a 3rd party service, but ultimately take on the liability of verification." 

Players to be named

At this point, the modifications to AdvicePay for enterprises are complete. The raise is largely aimed at financing business expenses like sales and service. AdvicePay will announce within 30 days the names of the some of the software's big users, Kitces says.

The first enterprises go live next month, and it'll immediately triple the Bozeman, Mont. company's annual run rate from $500,000 to about $1.5 million.

"We chose to do this capital raise without a platform, since the main value add of those platforms is to connect you with potential investors, and they take a healthy share of your raise which just wasn't necessary," Moore adds.


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January 12, 2022 – 3:13 AM

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Top Executive: Michael Kitces



February 18, 2019 — 3:21 PM
I find enormous value in the services my CFP/RIA provides. That said, the thought that someone considers it reasonable to even suggest charging me based on my net worth or income scares the crap out of me. A 2%/20% is a better value proposition , as bad as that is. If a percent of AUM is not working for the advisor they may need to do what everyone else does without sufficient income: get a second job until a single full-time job can provide an adequate living. We all need to be careful of overestimating our own importance or the value we provide to our employer or customers. A happy client but disturbed observer.

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