We work in an industry that, for the most part, has a reputation of mistrust. As employee benefits advisers, we are challenged to overcome this perception and prove our credibility regardless of how long we’ve worked with a client and how successful our programs, plans, and recommendations have been. We work countless hours configuring products and add-on services that optimize employee benefits while keeping the cost of healthcare, retirement plans, and other benefits as low as possible.
Throughout this process, we maintain the highest level of transparency regarding the components—providers, cost, co-pays, coverage, etc. We take every measure to ensure our clients know exactly what their package includes and how much it costs because we know how important transparency is.
So, why is our industry still plagued by doubt? And how can we, as the adviser community, change this? The answer is to change the way we are paid. And make that transparent as well.
Fee vs. commission
Today, the majority of brokers are paid on commission related to the premium payments their clients make to the insurer, which often includes a hidden persistency component as well. We all know how this works. It’s the way we’ve always been paid; but we rarely disclose it. Why? We profit directly from our own recommendations and there is an inherent conflict of interest in that fact. If I am paid more than what my client pays, why should they believe I am putting their best interest first?
This is the primary reason our industry struggles to gain the same respect and trust as other professional services and that it is imperative for us to re-think the way we’re compensated.
Four years ago, my firm has transitioned our clients to fee-for-service arrangements with great success. We have also moved away from much of the persistency compensation that advisers receive from carriers to retain blocks of business with them and discuss compensation with our clients early in the relationship. This change has had a dramatic impact on our practice and significantly improved client trust, growth, and retention opportunity.
To help explain our approach to clients and prospects, I discuss
A strange thing happened
My blog was written for the buyers of employee benefits, but benefits advisers overwhelmingly downloaded the fee-for-service agreement template. In fact, they were downloading it three to one over buyers and clients. Perhaps my basic assumption was wrong. It wasn’t that brokers weren’t being transparent about their compensation policies because they didn’t want their clients to know about them; it was because the advisers didn’t know how to change them.
Here are some observations for advisers who may be considering migrating to a fee-for-service model:
The traditional, commission-based way benefits advisers are paid is payer driven. The lack of separation between brokers and insurance companies makes it difficult for clients to believe brokers are operating in their best interests
Clients don’t necessarily know how adviser commissions work, what being “independent” means, or what persistency-based compensation is. There is an opportunity to educate the buyer community around these points and improve credibility through this open and candid initial dialogue
Clients often are not aware of how benefits advisers are paid. The lack of transparency regarding this key component of every broker/client relationship has contributed to the general and widespread mistrust of the insurance industry
In most cases clients think you make more than you really do. When we poll prospects to ask how much their existing broker makes, they always guess much higher amounts than the actual numbers. Clients appreciate discussing compensation early on and having the option to pay a performance-based fee up front or over the term of work
Talking about adviser compensation matters. Having conversations with clients improves trust and respect, which ultimately yields higher-performing and stronger relationships Having conversations within our employee benefits community fosters a productive path to change for the insurance industry at large
A transparent path
Changing the compensation process, disclosing revenue streams, and even working on a performance or results basis is a great start to move advisers as a group beyond what we are perceived to be and allow us to practice with complete transparency.
As benefits advisers, we pride ourselves on providing our clients with honest and innovative work. We must continue to re-think the way we operate and find better ways to serve our clients and industry at the same time.
