Many firms are thinking about offering bill payment services, but are concerned with the risks associated with offering this type of service. It’s important to have a well thought-out plan to avoid accidental bill payment.

Question 1: What are the benefits of providing this service?

There are many benefits to adding bill pay. First and foremost, your clients want the service. A competitor may be providing this service to your client with varying degrees of success — and offering bill payment as an integrated service within your wealth management or business management offerings provides multiple benefits to both you and your client.

According to AgilLink’s recent bill pay survey, firms that offered bill payment services reported three clear benefits to their operations:

• Additional stickiness in client relationships – 62%
• Ability to provide better insights and planning – 41%
• Additional revenue – 31%

Question 2: Which customers will receive the service, and how will I get paid?

One of the big concerns of firms considering bill pay services is that they will take on the work and not be paid properly for it. It’s important to determine early how bill pay services will fit into your customer segmentation strategy and to have an appropriate revenue model associated with the bill pay service offering.

Is bill pay something that you will offer to all your clients? Will you offer it as part of a matrix of services that a client opts into? Will it only be reserved for your largest clients? Thought should be given at the outset to how this service will fit into a client segmentation model, and in some cases, this may drive firms to create and define the model. Bill pay is a type of service that not all your clients may want, or that you may not want to offer to everyone. Client pricing goes hand in hand with segmentation, so it is important to get this work done up front.

Many firms are hesitant to appropriately charge for bill payment service, which is understandable. But it is something that clients value. And if a client values something, then they are willing to pay for it.

Trying to incorporate this into basis points on assets under management (AUM), can be a challenge. Some firms will do this as a strategy to prevent or reduce discounting. Asset management fees have come down over the past decade, and adding this service is a strategy that some firms use to keep fee revenue in place.

Another pricing strategy of many firms is to include the fee as part of a retainer. A client may select from a menu of services, and based on what services they select, a monthly or quarterly flat fee will be determined. Many firms will revisit the fee after the first six or twelve months to make sure the level of work and complexity is in line with the revenue generated.

Using a hybrid approach with a flat fee for only bill payment and AUM pricing for investment management is also another option. If clients have concerns about the cost, it’s important to clearly lay out what is involved and the infrastructure and talent that is needed to offer the service. If they want the cheapest bill payment provider, then they may not be a good fit for your firm.

Question 3: How do I define and standardize a bill pay offering?

When servicing ultra-high net worth (UHNW) individuals and families, firms will often customize their approach to servicing these types of clients. Customization is key to attracting and retaining these types of clients. But when it comes to bill payment, firms need to be clear about the offering, where they can customize their approach based on the needs of the client, and where they cannot customize.

Customization can introduce risk and prevent firms from properly scaling the offering. Areas where firms should consider a more standardized approach will be in the mechanics of how bills actually get paid. Trying to pay bills from a client’s bank account can introduce risks to the client and to the firm. Simply put, not having a segregated account can open up the client to internal fraud. In addition, if there is fraud in the account, the client may quickly point to your firm as the cause when in fact they may have created the situation by falling victim to, for example, a phishing attack.

Another problem with paying bills with the client’s chosen bank is that it becomes harder for firms to standardize procedures across dozens of financial institutions. Transparency is lost across accounts, which limits the ability to scale, and there is a loss of control, which can introduce risk.

We recommend having a segregated operating account with a provider that is accustomed to services with third-party intermediaries, such as advisors and business managers. Having a well-defined bill payment process that you can clearly explain to the client will go a long way in helping standardization.

Finally, another area firms should think about is reporting. If bill payment is the input, then client accounting is the output. Ensure you have a set of standardized reports that helps represent your work and that provides the client with insights. Understand, however, that creating this standardization means investing in technology vs. trying to leverage Excel to create these reports.

Question 4: Is taking custody the right choice?

For registered investment advisors (RIAs), the main compliance consideration is the SEC Custody rule. If an advisor has the ability to move assets out of a client’s account, that is considered custody. If you are using client credentials to access their banking account, then you have custody. These rules are designed to protect clients from having their funds stolen or misused. There are two options for complying with SEC rules:

Option 1 - Blanket Authority: If clients give their advisor blanket authority to move money for bill pay purposes, this activity must be declared on the firm’s ADV. The firm must also hire an accountant to do an annual surprise examination.

Option 2 - No Action Letter:  The firm also has the option to rely on an SEC no-action letter from 2017 which outlines 7 steps that need to be met in order to provide these services without an annual exam. Custody still needs to be disclosed on the firm’s ADV, even when relying on the no-action letter. 

While the compliance rules require work up front, most firms find that compliance is not a difficult process after the initial setup tasks are complete, such as clients signing the necessary approvals. For more information on the Custody rule, please visit the Security and Exchange Commission’s website here. As always, consult with an RIA compliance expert before finalizing any plans.

Question 5: How do I protect my clients from fraud?

To protect your clients from fraud, it’s important to choose a system that is purpose-built for advisors. It should come with the proper safeguards in place for fraud protection, such as approvals workflows. It should include the ability to identify abnormal fluctuations in bills, protections to monitor for potential fraud, and include a way to provide clients with a means to approve the bills they want to keep an eye on.  

When choosing technology, the two biggest considerations are implementing a system that provides a robust workflow and transparency across clients throughout the bill payment life cycle.

Additional considerations:

Approval Workflow – The person entering the bills should not be the person approving the bills. Full stop. This basic separation of duties is key to minimizing the opportunity for internal fraud. Your bill payment system should support this separation of duties and provide a full audit trail on all transactions.

Your client may want to be involved in the approval process, or you as a firm may decide that invoices over a certain dollar threshold will require client approval. This approval should be done electronically, and the client should be able to authorize approval on their device of choice, which is most often a mobile device.

Transparency – Having insights into what is going on at any moment in the bill payment life cycle is important for a number of reasons. You should have a system in place where you can see all your clients, and see at what stage each of your clients’ bills are. A system that is not multi-entity or using multiple providers will limit your ability to scale your operations, and will prevent having the proper controls in place.

Question 6: How will I keep my clients’ data secure?

In today’s climate, data security is at the top of everyone’s mind. When considering a bill pay platform, there are two types of data security requirements to consider:

• Protecting client data from an external attack, like a hacker or ransomware. To best address an external attack, make sure you choose a company that is up-front and specific about their security protocols. Because AgilLink is an RBC company and is an affiliate of City National Bank, we provide bank-level security protocols and safeguards.
• Preventing the risk of fraud coming from someone inside your firm. To address the risk of fraud, AgilLink gives you control over access to your systems and data. You can help prevent fraud through user-level, role-based permissions, with multiple approval workflow and audit trails. We use Microsoft Azure for hosting, and we employ rigorous information security protocols. 

_{This article and the information contained herein is for general information and education only. It is provided as a courtesy to the clients and friends of AgilLink. AgilLink, as a matter of policy, does not give tax, accounting, regulatory or legal advice, and any information provided should not be construed as such. Rules in the areas of law, tax, and accounting are subject to change and open to varying interpretations.  You should consult with your other advisors on the tax, accounting and legal implications of actions you may take based on any strategies presented, taking into account your own particular circumstances.}

AgilLink is an RBC company and a wholly-owned subsidiary of City National Bank Member FDIC

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