Minding the House
In the spirit of full disclosure, I have accepted commissions in the past, and been comfortable with that approach if disclosed and transparent.
Having said that, this article asks the question, “Do commissions make sense as a vehicle for compensating professional advisors in 2009?” I am limiting this question to health and other group benefits, but if it has any carry-over into other areas that’s OK too.
As a fee-based consultant, I have often had dialogue with an employer that goes something like this…
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Employer |
“We work with HRrUs Advisors on our benefit plans. They have been our brokers for many years, they know us well, and they give us our renewals – with options – every year.” |
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Tod |
“They are indeed, good people. If you don’t mind my asking, how are they compensated for the work they do? And, do you know how much you and your employees are paying them?” |
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Employer |
“Well, they get commissions from the insurance companies, and they do everything we need them to do.” |
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Tod |
“Makes sense. Do you know how much the commissions are, and do you have documentation of the services and time that is spent on ’everything you need them to do’?” |
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Employer |
“Let me look at the 5500 here and see what we can see. Where is that thing, I hope we filed them.” |
My old high-school English teacher would not like this generalization, but I hope you get the point. Commissions have long been the preferred vehicle for insurance agents and brokers. And when premium increases were reasonable, the compensation might have had more relevance to the services provided. But as any analysis of FreeERISA will tell you, broker commissions are all over the board, and as more and more employers move to a core and voluntary approach to benefits programs, the commissions paid to brokers, consultants, and vendors can get very large very quick, and impractical to manage and monitor.
So, what’s an employer to do? What is the right approach?
For starters, benchmark the commissions. Create a summary of coverages that pay commissions, the commissions schedule, and the amount of commission paid/received. Compare that to the number of covered lives and the premium paid. Then consider the result. Some coverages may merit a higher percentage than others. Some – hard to imagine – might merit a higher rate, and some may not merit any commissions at all.
Then, ask your broker for a scope document that outlines the services received for the commissions paid (I am certain that a good broker would welcome this request because it allows them to document and trumpet all of the great work they have done for you – this is not an adversarial approach, it’s proper management of resources, and a fiduciary responsibility). If you utilize an enrollment company for voluntary solicitation, and that service comes with core enrollment, request a detailed summary and scope of services. Compare that to a fee-for-service approach, and benchmark with your peers.
At the end of the day, HR/Benefits will be held accountable for the programs offered and the resources invested. Having complete documentation, with a clear accounting of fees paid is the right management approach, and will hold everyone responsible for the services they offer and the fees/commissions they receive.
And then ask your broker if they’ve been on any nice vacations lately…
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