Conflicts of interest can present themselves at any time, in all aspects of our lives. Where is the line drawn? It requires keen observation to identify them followed by great discipline to abstain from taking part. Many professions have procedures set up to help identify potential conflicts and to guide the involved individuals around them safely.
For example, attorneys search within their firm to see if there are any situations where they could be representing another entity that would create conflict with the representation they are providing for you. Real estate professionals have to disclose if they are working as the agent of the buyer/seller or both. Your CPA will not serve as your auditor as well as your tax preparer.
When it comes to employee benefits, how do you ensure your advisor is really serving as your advisor – not with some other entity’s interest in mind?
My first recommendation is to examine your contractual agreement. Does it clearly identify the services that your broker will provide and outline payment? Does it explain who will pay compensation? If you aren’t paying it, who is? What influence might this paying entity have on your broker’s behavior? Is the method of payment in alignment with your best interest? For example, if the broker’s compensation is a percentage of premium, does it make sense that they would earn more as your costs go up? Does that align with your interest? At HCW, we have full transparency around our compensation in all of these aspects.
My second recommendation would be to examine the products your broker is recommending to you. Does that representative have any influence, other than your needs, impacting their recommendations? Our industry is notorious for brokers getting into the product business. At HCW, we refer to it as the manufacturing business. If your broker goes out and buys a product, or private labels a product, does that bias their opinion?
We have seen many examples of this over the years. The most recent phenomena is brokers buying private exchanges and/or HRIS systems. Once their organization made this investment, I wonder how many of their clients suddenly became “perfect” candidates for this solution? We have seen it with brokers that deliver FSA services, Cobra services, HRA services, etc. Are they ever going to direct you to another vendor’s service over their own? As the old saying goes, “If all you have is a hammer, everything looks like a nail”.
My third recommendation is to evaluate the relationship with your broker and the insurer/reinsurer for your organization. Is your broker serving in a conflicted role there? A great example of this is the emergence of captives. Some brokers have elected to create their own captives. In this case, the broker has likely engaged the services of several third parties to create the captive, but by leading the direction of the captive and the underwriting decisions, whose interest are they really representing? When it is time to negotiate your costs with the captive, are they advocating on behalf of your best interest, or on behalf of the captives’ interest and all of their other clients that are in it? Inherently there are two sides to this negotiation and being on both sides is a conflict of interest. A captive may be a great solution, but have your broker find one that doesn’t position their interest against yours.
At Hill, Chesson & Woody, we understand and embrace that we are in the advice and guidance business. Our clients hire us, expect us to learn their business, the accompanying strategy of that business, and identify methods to create employee benefit plans that align with that business strategy. That is our product! In order to remain clear of conflict we steer away from the previously mentioned scenarios. The only time we elect to break this direction is when we cannot source solutions in the marketplace to provide the outcome our clients need. Then, and only then, will we build a product.
A recent example is HCW’s enrollment services unit. The market was not responding with good solutions for middle market employers. As a result, we elected to build our own service here. We used other company’s HRIS tools and then built the complimentary professional services to accompany it.
Staying true to these principles is hard when you are looking for differentiators amongst brokers. Many firms depend on creating these products to make themselves appear exclusive in some way. I would encourage you to step back from your relationship and look for these types of misalignment and conflicts of interest. Taking the time to evaluate your relationships will help you ensure your broker is only aligned with the best interests of your organization.