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May 13, 2014 at 11:20 PM
As financial planning and wealth management become increasingly popular, advisors are increasingly experiencing a ‘crisis of differentiation’ where it’s difficult to distinguish themselves from the competition. This has not only slowed the organic growth rates of many advisory firms as it gets harder to generate referrals, but has made client retention all the more crucial to maintain the revenue of an advisory firm.
A new offering for financial advisors called SAGE Scholars offers a unique way for advisors to offer a client perk that can help support retention and potentially generate referrals. These are Tuition Rewards, ‘rewards points’ that clients can accrue based on the assets under management (or potentially, the retainer fees) being paid to the advisor, as a rate of 5% per year of the AUM. That means a client with $1 million of assets with an advisor can potentially accrue a whopping 50,000 points per year, which can be used as a dollar-for-dollar discount for tuition among a list of 323 eligible colleges and universities (up to one year’s worth of free tuition) for any family member (including children, grandchildren, nieces, nephews, etc.).
Many students can already earn merit-based aid and discounts from many schools, but there is little certainty about whether the discounts will really be there when the time comes. From the advisor’s perspective, then, offering Tuition Rewards can have a high perceived value for clients who wish to stay with the advisor, along with a service that can generate buzz among clients to drive additional referrals.
What Is SAGE Scholars?
The Tuition Rewards program from SAGE Scholars allows participants to earn “guaranteed minimum scholarships” for family members (e.g., children, grandchildren, etc.) at 300+ participating private colleges in 45 states. The scholarships function as discounts off the list price of the college’s tuition, up to a maximum of one year of free tuition for a students. The points are not liquid, have no cash value and do not have to be honored at any institutions outside of the member colleges themselves.
SAGE (short for “Savings And Growth for Education”) Scholars was formed in 1995 to help improve the affordability of private higher education. The program was created by Dr. James Johnston, a former director of Aadmissions and financial aid at the Wharton School at the University of Pennsylvania. After 19 years of growing the program, there are now almost 300,000 students nationwide enrolled in Tuition Rewards, including a large contingent as part of the Pennsylvania 529 plan. According to SAGE’s data, in 2013 participating students used reward points valued at $33 million with 3,118 applications to member colleges. The number of colleges honoring Tuition Rewards continues to increase as well, from barely over 200 six years ago to 323 colleges and universities today.
(Disclosure: I have a financial interest in the SAGE Scholars for RIAs program. However, the purpose of this article is not to promote the value of my financial interest in the program; instead, I took on a financial interest and chose to support this program because I believe it will be helpful and valuable to advisors.)
Like other forms of loyalty programs, think airlines’ frequent flyer miles or credit card or hotel chains points, SAGE’s Tuition Rewards are earned by financial advisors based on the assets they manage for clients, at an annual rate of 5% of the assets invested. So a client with $500,000 of AUM is eligible to generate $500,000 x 5% = 25,000 Tuition Rewards, redeemable for up to $25,000 worth of tuition discounts at eligible institutions. (Again, up to a maximum of one year’s worth of free tuition; the Rewards can not be applied to room and board expenses.)
Because Tuition Reward points can be used for multiple family members, even clients with larger account balances who may reach the single student maximum quickly (with a $1,000,000 account balance, Tuition Rewards accrue at a rate of $50,000/year!), may find value in continuing to accrue points that can be distributed to any family members (SAGE allows a rather broad family list, including siblings, children, grandchildren, nieces, nephews, aunts, uncles, and cousins). Over the span of just five years, a $1 million account balance can rack up points worth a whopping $250,000 of Tuition Rewards to “hand out” to a wide range of family members. The benefits are not taxable, as Tuition Rewards are treated as a discount to tuition itself, not a liquid/cash benefit.
How It Works for Advisors
So how would the Tuition Rewards program work for an advisor in real life?
Advisors pay to have access to Tuition Rewards and to be able to enroll clients in the program and generate reward points on their behalf. The cost to an advisor to participate is $74.95/month; paid annually, with a one-month discount, it’s only $824.45/year (discounts are also available for firms with multiple advisors). Clients are not charged at all, and there is no per-client cost to advisors (the flat $75/month fee is intended to cover up to the “normal” amount of clients a typical advisor may have).
Upon joining, advisors receive a login area on the SAGE Scholars website to manage their clients, where they can enroll individual clients who choose to participate. Initial client information is entered into the system, which generates a welcome email to the client, who can then go to the Tuition Rewards website and log in to activate their account. Once activated, clients can use their account to monitor their rewards balance, add students to their account, transfer points to students and submit points to colleges on behalf of students at the time of college application.
Once signed up, the advisor provides information on client account balances twice a year (January and July), so that clients receive their points at a rate of 2.5% twice a year (based on December 31 and June 30 end-of-period balances, respectively) to get their total 5% points accrual.
Once clients are set up, SAGE assigns client with ID numbers so that names don’t need to be transmitted on an ongoing basis, to help support client privacy. Over time, Tuition Rewards points accrue for the clients, which they can monitor, track and assign to student family members through the website as noted earlier.
An example of the SAGE Scholars Tuition Rewards program is shown below, though notably the typical account balance (and therefore the accrual of points) for wealth management services may be 10X – 50X larger (or more!).
Additional SAGE Scholars Details
