Wednesday, January 20, 2010

Healthcare and Financial Services, Can Either be Fixed?

This is Part 2 of a 3 part series.

I know, sigh. As if another commentary is needed on either issue. But appropriate today as we wonder with the election yesterday, what's next.

Let me get right to the point.

What if the fee for health care, was paid in units of life expectancy?

What if a brief office visit to the doctor visit would cost the patient 1 week of lost life, and to speak with the nurse on the phone call, meant you would pass away 1 day earlier, what would change?


Long ER lines of people with mild colds, wanting a doctor's note for work?

--The Emergency Physician with a staff and equipment ready to handle serious trauma is going to reduce life span by more than a visit to the family doctor.

Maybe wise people would use the health care system when they had reasonable belief it would protect the potential for longevity more than the likely cost. They would get preventative checkups, and take greater personal responsibility for staying healthy, knowing that a hospital stay can take years off your life.

Those concerned about rationing of health care may say this is what happens in my odd illustration. Just a difference in who is controlling the rationing.

I would say this is a material difference that induces personal responsibility and consequences.

OK, enough. Sorry.

So how does this relate to financial services? More specifically, financial advice. Confused on the difference? See Part 1 here.

What if the fee for financial advice was paid in units of financial success?

What if a person receiving financial advice compensated the person giving them advice in a unit of future financial benefit. What would change?

What? You say that is how it works?


You say we use money/investments to accomplish financial goals, and that is how we pay people to give us financial advice?

So the person then ought to be able to justify the value of the advice above the consequence to our future net worth (like a doctor getting paid in lifespan). If not, we should keep the money for our financial benefit, right?

Tell me then, why is the financial system just as broken as the health care system that doesn't have the benefit of an apples to apples comparison? I mean how much is a heart transplant actually worth?

Let's do the exercise then and maybe we can find the problem.

Considering everything, how much did you pay your advisor last year?

You didn't pay anything... you think? But you are not sure?

Alright let's approach this from a different angle. Since financial professionals get paid various ways, let's find a standard.

What was your financial advisor's gross income was last year, including any fees given to other entities or employers, and then we'll divide that by their total number of clients. You don't know this either, right?

So we are stuck for now.

No reason to estimate the value of the advice if we don't know how much you paid.

But what if you and everyone else did know? To the penny. Every year. And not just some parts, but all of it? And what if you didn't have to piece it together from legalese riddled prospectuses using a calculator to convert percentages to dollars?

Well, let's address that in Part 3.