The model for financial planning is well-established. Most advisors rely on a fee that is based on assets under management. For this, some may receive a financial plan while others settle for a service fee based on the financial plan itself.
But could there be another way?
The Affordable Care Act is creating many changes beyond affecting how health insurance is sold to individuals. Part of the law is intended to reduce the rapidly increasing healthcare costs.
In order to reduce such costs, the government is changing how they pay hospitals for services. With Medicare, one lump sum is paid, rather than paying the hospital and the doctor for medical services each time a procedure is done.
In other words, if you go to a hospital for carotid artery disease that results in a potential stroke because the operation unleashed clots in your system, Medicare only pays the hospital once, despite how many operations or services are needed to resolve the issue. Before Medicare was implemented, doctors and hospitals would have each been paid twice: once for the carotid artery disease exam/treatment and again for responding to the potential stroke.
Implementing an Incentive System
This “lump sum” payment is an incentive system of sorts, which is changing how doctors and hospital operate. By incentivizing doctors and hospitals to do it right the first time, rather than promoting as many operations as possible, the hope is that the cost of healthcare will decrease.
A recent story featured on National Public Radio, titled “Three Ways Obamacare Is Changing How a Hospital Cares for Patients” by Lisa Chow, discussed that at Summa Akron City Hospital in Akron, Ohio, doctors are preparing a new way of doing business, which I believe could be used as a model for financial advisors.
Three new approaches are being used at this hospital to profit from the new Medicare payment system.
- Doctors are using checklists.
- Doctors and hospitals are teaming up. Where they were previously paid separately, they will now be paid together with one lump sum.
- Outpatient follow-ups are being more heavily conducted as there is now an incentive to keep patients out of the hospital for 30 days post-surgery.
As a sales trainer for financial advisors, I see these three changes benefiting financial planners as well.
Atul Gawande, a doctor and professor at Harvard Medical School, popularized checklists in The Checklist Manifesto. Since 2009 when the book was published, doctors and hospitals have begun using checklists more frequently.
Checklists help to reduce simple error and produce a consistent product or service each time for a client. They also reduce the cost of providing service.
A Team Mentality
Financial advisors are known for being lone rangers–out on their own helping clients. But this is changing in two ways. First is by creating a mindset to collaborate with the client in order to see how an advisor can ultimately help her client in the most efficient and effective way possible. Second, advisors are increasing their collaboration with lawyers, accountants and insurance providers to establish comprehensive plans.
Joseph Martorelli, a financial advisor in Connecticut, brought together a team of individuals which include a business coach, insurance agent, business attorney and mortgage broker. They share a space and collectively market each other as Milford Financial Center.
In Greenwood Village, Colorado, Herb White has created a similar entity at Life Certain Wealth Strategies. The team includes certified financial planners, estate planning attorneys, tax specialists, investment specialists and insurance specialists.
In all, the model allows collaboration and a complete financial plan that is better for the client.
Helping Clients In The Long Run
Historically, the fees that clients are expected to pay are based on assets or commission. Both have their advantages, but maybe now that Obamacare and Medicare are changing how hospitals are paid for each client, is it possible that FINRA and the SEC will allow more than just accredited investors to establish a fee based on capital appreciation? Who knows. But it could spur things in a direction that really puts clients’ needs at the forefront, while saving them money.
Obamacare is incentivizing hospitals when patients don’t require follow-ups within 30 days. Financial advisors could think about how you can reward clients (and your staff) by saving clients time and unnecessary follow-up. If you really understand the client from the get-go, then changes to plans and direction can be minimized.
With doctors and hospitals being incentivized for new approaches, there may be benefits to be found in the Affordable Care Act after all. The key for financial advisors is to find a model that costs less and still provides quality financial advising to the client. Think about how you can capitalize on the three things highlighted here: checklists, teams and helping clients in the long run.