Employers choosing an employee benefits broker usually compare quotes, service teams and carrier relationships. Donovan Ryckis, CEO of Ethos Benefits, thinks the first question should be simpler: whose interests does the broker work for? He made the case on ShiftShapers episode 487, hosted by David Saltzman and published on BenefitsPRO. This article covers his main points.
Donovan came to benefits from securities. As a financial advisor he had two choices: sell commission products or work as a licensed fiduciary. He chose the fiduciary path, then found that group health insurance had no such choice built in.
What does it mean for a broker to be a fiduciary?
A fiduciary acts in the best interests of the person they serve. For a health plan, Donovan said, that means the employer and its employees. The conflicts he sees come from incentives that pull a recommendation away from the best option for the employer, in exchange for a commission or a bonus.
Most benefits brokers are licensed insurance producers, and the standard for an insurance recommendation is suitability. On Eric Dyson’s podcast Be More Than A Fiduciary, Donovan put it this way: “any insurance product that I could sell to Axiom is suitable for them to purchase.” That is a much lower bar than the duty of loyalty and prudence ERISA places on the people who run the plan. The fiduciary standard explains what that duty requires of employers.
Are commissions the problem?
No. “Commissions are not bad, they’re not evil,” Donovan said. The problem is an incentive the employer can’t see, one that could steer the advice toward a different carrier or product than the broker would otherwise recommend. A carrier bonus for placing a certain number of groups, or a higher commission on one line, is the kind of incentive he means.
David Saltzman, who sold for the first half of his career, told the same story from the other side. He always told clients what he was making and invited them to fire him if the service wasn’t worth it, and it became a selling point. Donovan called that “radical transparency,” and said it makes an easy, honest start to the relationship with any advisor.
What do brokers have to disclose?
Brokers and consultants who expect $1,000 or more in direct or indirect compensation from a group health plan must disclose it in writing, along with the services they provide. The disclosure is due reasonably in advance of the date the contract is signed, extended or renewed. The rule came from section 202 of the Consolidated Appropriations Act, 2021, and took effect in December 2021.
Donovan’s point on the show was that most employers don’t know they should be receiving it. And while the duty to disclose sits with the broker, the employer carries risk too. Without the disclosure, the arrangement is not reasonable under ERISA and becomes a prohibited transaction. An employer that learns a disclosure is missing has to request it in writing and, if it still hasn’t arrived after 90 days, notify the Department of Labor. Broker compensation disclosure walks through the deadlines.
What should you ask a benefits broker?
Ask every candidate the same questions, in writing, before renewal season:
- How are you paid, and by whom? For each line of coverage, including voluntary and ancillary lines.
- What bonuses, overrides or incentives can you earn from carriers and vendors, and do any depend on how many groups you place with them?
- Will you accept a fiduciary standard of care for your advice, in writing? If not, why not?
- Does your firm have financial ties to the carriers you recommend, such as ownership interests or loans?
- What claims data will you get for us, and what will you do with it before the renewal arrives?
- What does a three to five year plan look like for our health plan, beyond this year’s renewal?
A broker who answers these clearly is easier to hold to account. For the tactics these questions are meant to catch, see the Benefits Dirty Dozen. If you decide to change advisors, a broker of record letter makes the switch.
Are large brokers or independents more likely to disclose?
In Donovan’s experience, independent agencies are moving toward full disclosure faster, and they make up most of the room at the benefits conferences where these ideas are discussed. That is one advisor’s view, not a survey. The better test works for a firm of any size: will you put your pay and your standard of care in writing?
How Ethos Benefits helps.
Ethos Benefits accepts fiduciary responsibility for its advice on your health plan, in writing, and its consultants work to a fiduciary standard of care. We help committees review every service provider’s compensation disclosure and record how each decision was made, as part of our fiduciary governance work. Axiom Healthcare Services now requires disclosures from every provider; read the Axiom case study. To see how your current arrangement measures up, Request a Strategic Analysis.