If you stop to
think about it, there are a number of
surprising parallels between the medical
and financial-advisory professions. Both
remedy issues vital to long-term
happiness: health and wealth. Both
require highly technical knowledge,
coupled with personal and intimate
service. Both require an initial
assessment and diagnosis — a look at
past and family records, a talk about
current conditions. Also, both require a
discussion of options and the delivery
of advice: the doctor suggests various
kinds of treatment; the advisor suggests
savings, investment and distribution
strategies. Finally, for both, the final
solution may well require the help of
other specialists and experts in the
field.
The thing is, despite these many
similarities, most doctors and financial
advisors price their services in vastly
different ways — and doctors have, by
far, the superior model. The fundamental
pricing model for the medical profession
is based on the three stages of
professional services rendered:
examination-testing, diagnosis and
prescription- treatment. When you visit
a doctor, you pay for the appointment
plus any tests performed by the doctor,
hospital or specialist lab. When the
tests come back, you may have an
additional appointment, which you pay
for, plus additional tests. You may then
opt to visit — and pay for — a
specialist as well. Once all of the
testing is complete, your doctor and/or
the specialist assemble the information
and make a diagnosis. The doctor then
prescribes a treatment, which can be as
simple as a single medication or the
recommendation to adjust your lifestyle
(cut down on trans fats and lose 20
pounds). You may instead require a
corrective procedure — surgery — or
specific rehabilitative treatment, such
as physical therapy for a sports injury.
Each of these items requires additional
payment to a specialist that is
generally not the doctor you first
visited with your condition. But note
that your doctor was paid along the way
for his or her help in diagnosing your
condition and finding the right
specialists.
Appointments and patient tests have become the cash cows of private medical practices. Many physicians keep track of their appointment and test rates on a monthly basis to guide their financial progress. One advisor I know has a physician client whose “business model” includes the monthly benchmark of 244 billable patient visits. If the doctor has not seen 122 patients in the first two weeks of the month, he accepts evening and weekend appointments until he's back on course.
Contrast this model with that of financial advisors. How and when does a client whose “condition” is that he's underfunded for retirement pay a financial advisor? Many advisors do not ask for a thorough list of financial disclosures in their very first meeting with a prospective client, and even fewer actually charge for this initial conference. Score one for the doctors, by comparison, who have set the bar higher for their participation in a first meeting — and been paid to boot.
In addition,
consider that the vast majority of
advisors still get paid in fees on
assets and commissions, thus making most
of their real pay only in the
“treatment” phase of the advisory
relationship. In other words, long after
the client has submitted to the
advisor's examination of his portfolio,
provided information about his financial
affairs and expectations and allowed the
advisor to make a diagnosis of what ails
his financial or retirement plan. Only
then does the advisor earn fees and
commissions for rebalancing portfolios,
providing professional management and
acquiring insurance policies for estate
planning — all “treatment” services.
And, of course, many prospective clients
walk away or lose their nerve during
examination, testing and diagnosis.
Imagine if the doctor waited to be paid
based on every new patient's acceptance
of the full course of treatment.
According to a study by The World Health
Organization, 50 percent of patients do
not take their prescribed medication as
instructed by their physicians — even
lifesaving medicines like beta-blockers.
Know Your Worth
Here are four ways to improve your
pricing model — and boost your
reputation:
1. “Invest” Your
Time, Never Give It Away
Make your first meeting with the
client count, literally. Janet (not her
real name), an independent advisor in
Connecticut, tells prospects that their
first meeting requires three years of
tax returns and costs $500, which can be
applied towards her first-year retainer
fee if the prospect becomes a client.
This means your pitch will have to be
made before the first meeting, and the
client may have to do some homework
before coming to see you.
2. Require Full
Disclosure
A Kentucky-based advisor tells clients
it would be financial malpractice not to
have a complete picture of their
finances before making recommendations.
Indeed. When you first visit a
physician, he typically asks for records
from your prior primary physician; he
creates a full medical history from a
thorough questionnaire; and new tests
are conducted as part of an overall
physical. This is an unmistakable profit
center for the medical practice, but
it's also a source of critical
information for treatment. What would
you think of a doctor that didn't ask
for that information? Be sure that you,
the financial advisor, ask thorough
questions.
3. Promote
Exclusivity
A prominent pediatrician I know in
upscale Westchester County, New York,
has just one partner physician, but
works with 1,800 patient families. I'm
certain few of his patients' parents are
aware that their precious little
darlings are competing with 3,000 other
kids for the time and attention of their
beloved family doctor. Likewise, most
financial-advice clients don't know that
the average registered rep has over 500
accounts (according to SIFMA). Talk up
your practice specifics and be clear
that your time is devoted to a select
group of affluent families. If you have
a lot of clients, try creating an upper
tier of top clients that receives more
attention and personal time before you
start sending any away.
4. Insist on Annual Checkups
The greatest opportunity to earn
additional assets from affluent clients
is during calendar year-end reviews.
Here are two reasons: First, it is the
easiest time at which to compare your
services to those offered by other
providers — quarters are tricky and
fiscal years are awkward. Second, most
high-net-worth people earn the bulk of
their pay from bonuses or profit-sharing
that is calculated based on year-end
results and paid early in the new year.
These two factors create urgency for
clients to examine their current
providers and seek alternatives for that
big cash infusion. Do you know when your
top prospects get paid?
Keep these things in mind as we head
into 2007 and it will all add up. Your
minutes and hours and days will begin to
bring in more dollars.
www.registeredrep.com
