As we are working with prospects on new business opportunities, we are often asked how we are compensated for the services we are going to provide. Have you ever questioned your benefits advisor on the compensation they earn as a broker/consultant for your company? Has someone on your executive team ever asked what you pay your advisor? The compensation, or what you thought the compensation would be, was likely disclosed at the outset of your partnership, but does your advisor provide you with an annual disclosure of their full compensation? If not, maybe it is time for an advisor compensation check-up.
Typically, benefit advisors are compensated for benefits consulting/advisory services based on a fee agreement, commission agreement, or a combination of the two. However, what many employers do not know is that it is common for the insurance vendors, that advisors place business through, to also pay the advisor incentive compensation, or bonuses, for their mutual clients. The terms of these incentive compensation programs vary from vendor to vendor. These agreements are not negotiated by advisors with the vendors; and it is a practice the vendor implements automatically, on an annual basis. The incentive compensation within these agreements is not guaranteed, and actual payments to advisors can vary year to year, based on the terms specific to each vendor’s incentive compensation/bonus policy.
You may ask: So how does my advisor earn these incentive payments? And, how are they calculated? In general, vendors base incentive payments on new business written and total premium maintained or renewed. The terms of each vendor’s incentive compensation program varies, and there is not an industry standard or regulations that vendors must follow. The terms of the program can change quarterly or annually, with annual terms being the most prevalent.
So what about disclosure, how do I know if my advisor is receiving the incentive payments? There are several ways you can find out:
- The best way to understand if your advisor is receiving incentive compensation is to ask. If they answer yes, also ask how much they receive on your account annually. If your advisor answers with something similar to “Our incentives are all grouped together, cannot be broken out and are not assigned to any particular account” challenge them or discuss the compensation arrangement directly with your vendor.
- Request that your advisor implement and provide an annual compensation disclosure statement. This disclosure should reflect all fees, commissions, and incentives paid to your advisor for a calendar year.
- Another way to determine if your advisor is receiving an annual incentive is to check your annual 5500 filing. If you are an employer that covers 100 or more lives and files the required Form 5500, the schedules that are provided by the insurance vendors reflect the commission and the incentive payments that were paid to your advisor.
Treat your advisor relationship like every other vendor partner within your health and welfare program. Don’t leave money on the table, check up on them to understand the compensation they are being paid in relation to the services that you receive.
If you would like to discuss this topic in more detail and learn more about health and benefits advisor compensation, please reach out to Lesa Votovich.
Lesa M. Votovich, GBA
Vice President, Health and Benefits
412.394.9308
lesa@cowdenassociates.com