This article is the third in afive-part series that will take you step-by-step through theprocess of becoming a next-generation advisor. It examines thechallenges so you will be ready to tackle them head on. You canfind the first two articles here:

Suspicious minds: Prepping your team forhigh-performing health plans

Faster than most expected, non-traditional competitors likeAmazon, Walmart, Apple and Google are starting to move into thehealth care arena, which means brokers are in a vulnerablespot.

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Most in our industry are aware of the Amazon, Berkshire Hathawayand JPMorgan Chase joint venture, Haven, a Boston-basedindependent, nonprofit health care company aimed at increasingpatient satisfaction and reducing health care costs. But many arenot aware of other ventures that are cropping up. For example,Google's parent company recently invested $375 million in OscarHealth, a new insurer focused on technology and lowering costs forpatients. Meanwhile, Walmart will begin piloting its own brandedcenter of excellence providers beginning in 2020.

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Amazon, Google, Apple, Walmart and other giants are experts inbuilding for scale by conducting smaller pilots that allow them toestablish their operations and KPIs. Once the concept has provenvalid, they pour fuel on the fire. In September, Amazon rolled outa trial virtual clinic for their Seattle employees; once theydefine their model, it will be easily duplicated in othergeographic areas.

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So why does this matter to you? Think about it: Your firm mayhave 100 clients, but if you are only paid by three insurancecarriers, how many clients do you really have? After all, a clientis whoever pays you. Most brokerages have a concentration ofrevenue from three or four sources (insurance carriers). Inreality, most firms and producers today don't have the freedom theyneed if they remain beholden to a few major carriers and reliant onreceiving commissions from them.

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Related: Wheredo benefits brokers fit in Amazon's new health careventure?

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Don't make the mistake of thinking that the industry only getsdisrupted if one of these new ventures becomes successful enough totake out a major insurance carrier. What if instead, they couldsimply prove that a broker distribution channel was unnecessary orbrokers are overcompensated in highly regulated and commoditizedmarkets? How long will a major carrier continue to pay these higherdistribution costs if their competitors'costs are far less? Andwhat if that reduction of distribution costs from the carriers alsohappens to represent 50 or 60 percent of your annual revenuetoday?

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If your business is going to survive this forthcoming onslaughtfrom non-traditional competitors, you will have to adopt afee-for-service model, just as you will need to add more value foryour employer clients.

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Among other things, the fee-for-service model gives you true freedomfrom insurers threatening to pull your appointment, bringsdiversification to your revenue streams, and allows you to tie yourcompensation to results or value. Most importantly, it allows youto do what's best for your clients.

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Key steps

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Here are some of the steps you will need to take to safeguardyour business, so you can continue to serve the best interests ofyour employer clients:

  • Get a clear, precise picture of your revenue streams. Find outexactly how much annual revenue you would stand to lose if you losta particular carrier. A lot of firms don't have an easy way toquantify their top revenue streams, and they don't do a great jobof tracking their commissions. One of the biggest complaints frombrokers is how hard it is to track commissions. This becomes mucheasier when you switch from commissions to fee-for-service.
  • Decide how fast you want to convert your business tofee-for-service. Ideally, you should aim to convert your entirebusiness within three to five years. Develop a plan at the startand pay attention to the changes in the marketplace that may tellyou to move faster or slower. Adjust your marketing messages basedon how fast you want to convert your business. Think in gradualterms, such as "what would it take for my firm to go from 90percent commissions today to 60 percent commissions a year fromnow?"
  • Start with your biggest clients first and keep working your waydown. Your largest clients are used to this model already fromworking with other advisors and consultants.
  • When adding new clients, only take them on a fee-for-servicebasis.

With most clients, the switch to fee-for-service will bewell-received. The conversations don't have to be hard. There's noreason to expect a lot of pushback and confusion from clients.Clients and prospects are more inclined to work with brokers whoare transparent and have more skin in the game.

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You can charge a per-employee amount, a project fee, a monthlyretainer, or an hourly fee. One word of caution: With regulatedmarket business, it can be difficult to switch to thefee-for-service model. The laws vary by state regarding what youcan and cannot do with your fees. The licensing varies, too. Insome states, you may need an advisor license. Check your state'slicensing requirements to understand what you are allowed to dowith your regulated market business.

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Make sure your clients are not double paying the premium andyour fee. Broker fees must be fully disclosed to the buyer, andthey must be reasonable. Some states treat broker fees as surpluslines premium and subject those fees to a separate tax.

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Do you have the staff and technology to implement the transitioninternally? If not, you will need to outsource it. It doesn't needto be complicated. You can easily get accounting software that willprobably be more accurate than the system you're using now to trackcommissions.

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Regardless of how you structure the fees, becoming an advisor oftomorrow will make you better prepared for the disruptions that the big non-traditionalcompetitors will bring to the health insurance marketplace.

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The next three articles in this series will take youstep-by-step through the process and examine the challengesinvolved, so you will be ready to tackle them head-on. The articleswill focus on:

  •     Now that you are ready: Transitioningyour clients
  •     Now that you and your clients are ready:Managing your carrier relationships
  •     Conclusions and looking ahead

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