Hiring a new employee in a tight job market can be a difficult task. How much should employers pay to attract an individual who will meet and/or exceed operational needs? Too low an offer can chase off qualified potential employees. Offering too much can waste precious financial resources. The right compensation structure can establish invaluable cultural and motivational guidelines- often determining the future success of both the employee and employer. The same principle can be applied to large employer groups looking for an employee benefits broker. Hiring the right broker at the right price can save groups significant amounts of money and ensure the successful operation of their benefits plan. The problem is, determining how much brokers are being paid under conventional methods can be nearly impossible without transparent disclosure on their part.
Most traditional brokers are engrained with a commission based motivation. The more products they sell to their clients, the more money they make. When a group receives a double digit increase on their medical coverage, the temporary discomfort a broker feels in a renewal discussion with his/her client is quickly replaced by the proportional increase in monthly commission checks. Add to that the additional hidden perks brokers may receive in the form of override bonuses, trip incentives and carrier production awards, and groups may legitimately start to wonder if their broker has their best interests at heart.
A comparison of a similar service based role points out the inherent conflicts in the commission model. What if a CPA was paid in the same way most benefit brokers are compensated? What if the more taxes one paid, the more money the CPA made? That may sound ridiculous, yet that is the current working compensation model in place for most group benefit brokers. From its genesis up to now, the traditional model encourages an increase in client spending. Even the best intentioned broker is paid more if their clients spend more. It’s time to consider something different.
What if commission based brokers started considering themselves more as benefit advisors? What if these advisors and their client groups contractually agreed on a fair compensation amount before premium was even determined? What would happen if advisors had no monetary distractions to keep them from providing their clients with the best benefit value the market had available? This new compensation model would ensure employer groups that their advisor was acting in a transparent manner to give them access to the most comprehensive list of potential insurance coverages and plan innovations. Benefit plan goals would align for both the group and its advisor through transparency and disclosure. Year in and year out, groups would know they were getting the best value available in the market from their trusted benefits advisor.
Change in a long-established industry like this doesn’t happen easily. Many brokerages aren’t set up financially to offer this kind of compensation structure. For others, old habits and the draw of seemingly unlimited earnings could prove to be too much a temptation in order to make a change. But employers facing the financial hardships of constant annual health care increases deserve to be presented annually with every available cost saving option- not just the ones that maximize their broker’s profits. It’s time for employer groups to be confident knowing that their advisor is working for the same goals they have in regard to their employee benefit plans.