Co-pays for financial planning?
Posted on July 8th, 2008 – 5:33 PMBy Kara McGuire
What do you think of this idea, floated by Yale economist Robert Shiller in the latest issue of Atlantic Monthly:
There’s a strong case to be made that the government should subsidize comprehensive financial advice for low- and middle-income Americans to help prevent bubbly thinking and financial overextension. One way to do this would be through co-pay arrangements like those in place for Medicare or for private health insurance. Accredited advisers, charging a flat fee, would be partially reimbursed by the government; the moderate costs to consumers would create a much broader market for their services.
Shiller, the “Irrational Exuberance” guy known for his prediction of the dot-com bubble as well as the bearer of bad news S&P/Case-Shiller Home Price Index, says that the average person’s inability to assess risk, price and affordability has contributed to the current real estate mess we’re in.
Treating financial advice like medical advice is an intriguing concept. And finding a sales-pitch-free advice model for the masses is a subject that I’m passionate about. But I think I read somewhere about how our health care system isn’t feeling so well.
And given the current deficit, I pity the fool who would be charged with convincing the government that financial advice for those of modest means is as critical as life-saving health care or food stamps.
10 Responses to "Co-pays for financial planning?"
Ever tried to talk someone out of buying into a bubble?
Financial advisers aren’t immune to buying into bubbles, and subsidizing their services is likely to get less wealthy people to seek out the services of those financial advisers who give exactly the advice they don’t need.
Unfortunately, the government only deals with bubbles when it’s too late.
Here’s an idea:
How about we use the schools to teach people some basic financial skills?
Isn’t that the point of having publicly-funded education? to prepare & equip citizens to participate in our society? Isn’t basic financial literacy the kind of thing that - particularly in the age of complex financial instruments - we should teach everyone?
If “[t]here’s a strong case to be made that the government should subsidize comprehensive financial advice for low- and middle-income Americans,” there’s a stronger case for doing this in schools, rather than codifying a gov’t funded income stream for financial planners into law.
Shiller has always been a pompous ass.
Any way to expand the size of governemet, and he’s in.
He’s implying that intelligence can be tracked according to income.
What if I choose to not care about income, yet have 15 MBA’s?
Will I be a victim, and eligible for help….in the form of someone telling me what they think is the right thing to do.
How about Shiller mind his own business, and shut up.
ditto bsimon’s comments. but, like the health system in this country, the public school system is also not doing so well. Hard for them to take on more requirements when the existing ones are underfunded and overly rigid.
it’s funny, but the health system shows the ills of being almost completely privatized and the school system the ills of being almost completely public. perhaps the best answers lie somewhere in between?
mike d,
How did you come to the conclusion that the public school system was NOT doing so well?
This contridicts all data I’ve seen and read.
Kara - as you know our firm already provides financial planning services to the masses through our corporate advisory agreements. I do not see a reason why the government needs to get involved in personal financial planning and I doubt it would be particularly effective (similar to the effectiveness of generic financial education through 401k vendors and their websites). Why would the best financial advisors want to get involved in a government reimbursed flat fee financial planning program similar to Medicare? Many good physicians opt out of the Medicare system and do not treat Medicare patients because of the bureaucracy involved in getting reimbursed. Our advisory agreements are 100% funded by the sponsoring employer so anyone in the company can access our services without worrying about cost to them. The cost to the employer is negligible when put in the context of overall employer benefit plans particularly when the rising cost of health insurance is considered. Our advisory agreements make us fiduciaries to the plan and employees. I too am passionate about financial planning for the masses and we are already providing a practical, workable solution that has been a win-win for the employer and the employees. The financial planning industry has little interest in our approach because it does not target high net worth or ultra-high net worth clients (their preferred topic). The government should not be the solution to personal issues like long term financial planning.
Dan:
In general I agree with your position, but is your company and others like it really advising the “low- and middle-income Americans” Mr. Shiller speaks of? Or just middle-income employees of large corporations? Perhaps your model would work great - IF it was affordable to EVERY employer and available to EVERY employee - even those who work at McDonald’s.
Milo:
I am a product of and firm believer in public schools - from their overall quality to the basic concept that we should be providing education to our citizens. But there are systemic problems that are inevitably reducing our children’s ability to compete in the global marketplace. Jonathan Kozol’s 1991 nonfiction book “Savage Inequalities” details the horrors - and not much has changed since then, except for new laws that just end up replacing old ills with new ones.
And just to demonstrate my willingness to be fair, here’s a link to John Stossel’s “Stupid in America” 20/20 feature. I can’t stand Stossel - he dumbs stuff down and oversimplifies things. But this article represents a frequent criticism of public schools and points to ways it could be done differently.
http://abcnews.go.com/2020/Stossel/story?id=1500338
So THESE are the things that brought me to my “conclusion”, even though it’s not one I’m very happy about. And I fully admit it’s open for debate - link us some of the “data” you’ve seen, and let’s talk more…perhaps on another blog! 
Mike D. - I am not sure there are other companies like our small firm - I have never come across agreements like ours. We primarily help low and middle income Americans because the employer is paying the fee and these are the employees who most need help, but do not have access on their own to competent advice. The “typical” person we help is an RN so solidly middle income with generally low overall financial sophistication. We cover roughly 6,000 employees in the Twin Cities area through two corporate agreements. We almost never deal with the “highly compensateds” in our programs - they have access to their own planning resources. I agree with your comment about our model being more affordable for large employers - very true because it is more cost effective for us to learn the benefits of a large company and then spread that learning curve to a large number of employees. However, our most expensive agreement right now is $60/retirement plan participant per year. It would be more expensive for a small company (less than 200 people), but still reasonably priced in the context of providing a comprehensive benefits package. Our agreements are less expensive than most generic software providers. The financial planning industry has no interest in what we do because our approach does not make enough money for the advisors or the large firms. Actually the media also has little interest in what we do because we do not spend advertising dollars and the media is generally cynical about the value of financial advice.
Dan, that’s really interesting. Any interest in selling to state gov’t? 
It sounds like you’re doing good work - best of luck, and know that you won’t find as many “cynics” here.
Mike D. - Which part of state government? Our expertise is in health care (mostly RNs as I mentioned before), but we have also dealt with a lot of state employees (spouses of employees we help). You can contact me directly if you have more questions - our website is http://www.dorvalchorne.com. You can also view a free pdf version of my book “Financial Success for the Rest of Us” on the website. Thanks for your well wishes.
