This is a period of uncertainty for fee-based independent financial advisors. On the one hand, ‘robo advisors’ are seeing some success in attracting assets with their consumer friendly interfaces, readily accessible data and low-cost approach. On the other hand, aging Baby Boomers are increasingly turning to advisors for long-term care (LTC) planning and elder care information, advice that requires specialized expertise.
The result of these trends is increased fee pressure combined with the challenge of how to get paid for providing healthcare or elder care advice, which differ from a traditional fee-based model. My belief is that the underlying demographic shifts and technological change at the heart of these trends are here to stay. So too, is the ‘squeeze’ on traditional advisory business models. If you agree, then the question to consider becomes how to profitably expand your independent advisory business in the face of these headwinds.
The Case for Healthcare Planning
Assessing the demographics of your current and future clients is the first step in thinking about healthcare planning services and your business model. “Look at the demographics of your client base and the clients you want to acquire,” says financial and eldercare expert Mary Lesko. “What are their ages? Do I have inter-generational clients? Do they have access to an employee assistance program?”
Mary, a CFP and CLTC, and who is a financial and eldercare expert and the Principal of Long Life Matters, tells me that the size of your firm, the demographics of your clients and whether the principals see healthcare planning as an issue will determine whether it becomes a service offering or something that is offered on an ad hoc basis when clients request it.
“When you are talking about healthcare planning it makes a huge difference whether you include long term care planning, as it ups the ante significantly,” says Mary. “Basic healthcare costs are just another expense item to budget,” she adds. Consensus estimates of healthcare expenses for a retired couple range from $200K to $300K. However, even that amount doesn’t take into consideration potential long-term-care needs.
According to Mary, “One in eight people have Alzheimer’s, and that number is projected to triple by 2050. People are living longer.” When LTC enters the equation, Mary advises her clients to think of it as caring for an infant or small child. Daycare and supervision costs come into play in addition to the financial aspects.
Choosing a Business Model That Works
Healthcare planning is complex. The decision on what level your firm will support it requires careful consideration. To get started, don’t think of it making a binary “yes” or “no” decision. I asked Mary to give advisors a range of options for helping clients in these types of situations:
- Increase your clients’ awareness of the issue
- Collaborate or form strategic alliances
- Build a commission-sharing referral base
- Develop in-house expertise or bring someone in house to provide advice
Option 1: Educate Your Clients on Healthcare
A straightforward way to increase your clients’ awareness of the issues related to healthcare and long-term care planning is to insist that healthcare costs are part of the financial planning equation. “Make it part of your annual review with clients,” Mary advises. You could also provide content about these issues in your client newsletter or provide speakers on the topics at client events. She says “Buying LTC insurance for yourself is another way to become educated on what’s involved and then share your knowledge with clients.” Advising on healthcare in a rapidly changing market, and helping your clients plan for the unexpected, can be challenging. Maura Carley, president and CEO of Healthcare Navigation, LLC recently discussed key issues in healthcare planning for 2014 in a short podcast.