Transcribed from the recording and lightly corrected. It may contain errors; the recording is the record.
00:01Welcome, welcome to Business.
00:01The Business of Benefits is your no-BS, no-sales guide to real solutions. No gimmicks, just the truth about how to take control, transform your benefits, and care for your most valuable asset: your people.
00:01If you're tired of the same old sales pitch and you're ready to rethink your benefits, this podcast is for you. The truth is out there. Are you ready to hear it?
00:01Donovan Ryckis: Hey everybody, welcome back to The Business of Benefits. I'm your host for today, Donovan Ryckis. On today's episode, I had on Jay Gepfert, who is the founding partner of Culpepper RFP. Culpepper RFP has been providing RFP services to employers in the retirement space for over 20 years, but recently, since the CAA of 2021, they've also opened up that offering to employee benefit plans. I really enjoyed the conversation with Jay, with us both having kind of a background and a perspective from the securities side and applying that same framework and ideas over to healthcare. But I also love the idea of employers having an unbiased third party to help navigate them through an RFP. There can be a lot of misdirection, a lot of misinformation, a lot of vagueness in the RFP process, the proposal process, the explaining and understanding of claims data and what can be done. So having somebody in the middle seems like it would be a really valuable piece to add to an RFP. I also discussed the idea of separating the advisor RFP and the actual plan RFP, which I think is an important thought for employers to start. Give it a listen. Let me know what you think. Leave a comment, and I hope you enjoyed today's conversation with Jay.
01:52Donovan Ryckis: All right, Jay, thank you for joining me today on the show. We had a conversation recently and I really enjoyed it, because your background and what you've been doing is very similar to mine and the experience I had. Tell me a little bit, or tell the audience, about yourself, your company, and what you've been up to up until now, and then we'll talk about the new developments and why you've found that necessary and things you found during that process.
02:19Jay Gepfert: Sure. So, my background is I've sat on all sides of the fiduciary table. I've been on the retirement side predominantly, and that's how you and I made this connection, which is now moving into the benefit space over the last number of years. But I've worked for recordkeepers. I've worked for large institutional advisory firms. I've been a plan sponsor and a committee member for retirement plans. And then about five years ago, I started up Culpepper RFP, right? I guess maybe six years ago, right at the start of COVID, where I wasn't doing a lot of traveling, no one wanted to see us, and I started to get some inquiries from organizations looking for independent third parties to do evaluations of service providers in the marketplace. And that went on for a couple of years. And then those clients, who were very happy, said, "Hey, oh, by the way, can you help us get into this benefit space? We need to go and do predominantly broker/consultant evaluations." And now that has taken off in the last couple of years, which is how you and I made this connection, which was you have a similar background to what I have, and obviously you've been doing it longer, I guess, what, 10 or 11 years, but similar experiences.
03:15Donovan Ryckis: Yeah, absolutely. Before we kind of get into the benefit side, tell me more about the defined benefit, defined contributions. Were you working with both, or just 401(k)s, and what kind of services were you offering to plan...
03:43Jay Gepfert: Yeah, so we're still doing it right now. So what we're doing is, you can think of virtually any service provider that's necessary for a 401(k) plan, a 403(b) plan, a pension plan, anything along those lines. Could be advisers, recordkeepers, actuaries, go down the list of service providers that take place. And so we've been doing those evaluations for a good number of years, and now see some tremendous commonalities of what that marketplace has already gone through in the last 15 years to know what is taking place, I guess, kind of in the infancy stages of the benefit space.
04:12Donovan Ryckis: Yeah, certainly. Very much my same experience and kind of the change from my agency as well. What I love is, I think, same as me, you're working with your ideal client, and now they're bringing to you larger problems, and you're kind of shifting and working on solving those as well.
04:41Jay Gepfert: Yeah, exactly. I mean, when we finish a project for a retirement plan, they end up with kind of best-in-class structure of how those services should be set up, whether it's from a service or from a fee perspective. And then once those projects were finished, they look back and they go, "Boy, this other area, this benefit space side, it's not the same and it's very complicated, and we don't know exactly what we're paying, and we don't know anything, and can you help us kind of digest this?" And it doesn't matter the size of the organization. We've recently finished a project that had 120 participants in the benefit plan. We're working on one that's got 2,000 right now. We've done ones bigger and smaller, but the commonality is that the plan sponsors don't feel comfortable in terms of where they're at for what they know.
05:36Donovan Ryckis: Yeah. What's interesting to me too is we do the same thing from a size perspective, and what's always shocking is, in most things you would assume as the stakes get bigger, as the premium and the claims costs get larger, that those plans would be better developed, have better strategies, be better managed, audited, all those kinds of things. And we usually find it to be the inverse. It's shocking. It is shocking the stuff you see, and certainly we've started to see that with the ERISA healthcare lawsuits that have begun as well. We'll get into that in a second. Tell me about kind of your first request or ask to bring your services over to the healthcare side, and kind of what that group and some of the other ones have been experiencing, things you found, and maybe shocking differences from the securities side, which operates completely differently, over to what you're starting to see over in healthcare.
06:34Jay Gepfert: Well, what was interesting is my first client was a 403(b) plan, very small, for a foundation in Connecticut. We did that project. They loved it. We made a change in their advisory services. And then the CFO came to us and said, "Hey, can we take a look at what we're doing on the broker side of things? We don't even know if we're at the right spot or not. Can you help us from the beginning?" But what they liked was the process that took place. Can we use the same process, put in a different product, a different service, and come up with a similar result? And so, as it's turned out, that client actually has given us six different projects to do. All very, very different. But those were the first two that we did. And so that seems to be the commonality. Most of our clients, it's interesting, over 80% of our clients are referred to us by external counsel, ERISA counsel. So they're working with their clients on their retirement plans, and now they're obviously helping them with their benefit plans, and I think they see that they need to have a similar due diligence process that they've been following the last number of years on the retirement side, and realize that they're not doing that same level of due diligence on the benefit...
08:00Donovan Ryckis: Certainly. That's kind of one of the same things we try to work with. What we started to realize, I don't know if it's the same for you, is there just was no framework for decision-making. There were no KPIs. And part of that is because healthcare is inflated so much that no broker would want to go back and be like, "Look at our five-year history, look at our 10-year history, isn't this great?" So what kinds of things are you putting in as a framework for decision-making, KPIs, things that the company should track, to kind of put in that framework for decisions?
08:55Jay Gepfert: Yeah. So, one of the things we really try to help them with, along with their counsel, is, "Hey, you need to have some form of committee structure," that there's people relatively high up in the organization, both in finance as well as in HR, maybe even a third area, to oversee these, because the dollars are significant. I mean, they're more significant on the benefit side than they are on the retirement side in terms of spend that takes place. And so that's the first thing that we suggest. The second area that we suggest to them is that, whether or not they're happy or they're not with their... on the benefit side, if you've not done any type of due diligence in more than five years, well, the market has changed. The market is changing rapidly. It did on the retirement side, and it's evolving now very quickly on the benefit side. It's just due diligence, to make sure that you're getting the best services for the most competitive fee through the marketplace. And that kind of process is what we've taken over from the retirement side to the benefit side, which is you have to do the due diligence. You can't just trust your vendor to say that everything is good, because they're going to be protecting themselves.
10:17Donovan Ryckis: Yeah. Certainly. I mean, from securities to healthcare, there's a different relationship. We've discussed that the idea of having a fiduciary advisor on the healthcare side really is not a legal or licensed requirement or possibility yet. And that's certainly something that we look at and try to fix, and that part just doesn't seem to make a lot of sense. You talked about getting a lot of your new customers and plan sponsors through ERISA attorneys. Did this start basically after the CAA of '21, where they started to realize, "Okay, now there's actually a framework that's setting forth those minimum standards, and my clients aren't doing it, and I think they need to figure it out"?
10:44Jay Gepfert: Yeah, I think exactly, Donovan. And there's something similar. I keep going back to the retirement side, but on the retirement side, there was a merger of litigation and legislation that took place that was transformative for the retirement industry, top to bottom. And that obviously has taken place now, like you said, with the CAA. There's the legislation that's come out, and then daily we see the litigation that's coming out in every corner of the benefits area. And so when those two areas merge, and they have merged, that's where we're at right now on the benefit side, is that there's going to be a dramatic shift for everybody. Now, people may not see it looking forward right now. But if we could sprint forward in time 15 years and then look backwards, what you're going to see in the benefit space will be dramatically different than what's going on right now in every aspect of what's happening. It's just moving. It's in the formative stages at this point, but it's happening, and it's happening right now.
12:09Donovan Ryckis: Couldn't agree more. I look at it, that kind of adoption curve. I'd say we're still low on the early... on this, but we are getting there, and it is picking up steam and starting to move. So we talked about first starting with the company on forming a benefits committee, which I completely agree with. All too often, healthcare decisions are pushed down to HR and then just kind of rubber-stamped up top on a CFO, CEO level. And we've seen that do a lot of harm, because what seems to be considered the full array of options is two to three other carriers that bundle the whole healthcare package, and then they think, "Okay, well, that's it. That's due diligence. We did our part." HR can pick the least worst of the two to three, and then it just goes up. And no shame against HR, right? It's too big of a decision, on top of everything else that HR does, to also handle this. You really need a CFO in there and a CEO to understand, "Hey, what are my claims costs? How are we benchmarking this?" So after you get that benefits committee formed, what else are you advising or setting forth as the structure and meeting process?
13:34Jay Gepfert: So, what we're suggesting to them is, frankly, if they have a retirement committee and it's meeting quarterly or semiannually or whatever the frequency is that they're meeting on the retirement side, do the best practice and transfer it over in terms of what you're doing on the benefit side. Make sure that you all are getting together for an hour every quarter to be able to review, ongoing, what's taking place. So the template for the best practice on the benefit side has been around on the retirement side for 10 to 15 years. So it's not as if they have to go and reinvent the wheel. Just kind of glance to your left and see what you're doing on the retirement side.
14:01Donovan Ryckis: Sure. So, I imagine when you start with a lot of these companies, like a lot of the ones we work with, they're not quite even meeting the minimum standards of the CAA, which can make it a little bit difficult, because you could have a quarterly meeting, but you have nothing to look at, right? You haven't met your gag clause requirements. You don't have your RxDC reporting. You don't understand broker comp. Maybe it's disclosed. Maybe a lot of the compensation's indirect. That's a big place to start, because that right there requires the companies to have a good bit of knowledge that they might not already have. Right?
14:58Jay Gepfert: Well, Donovan, it's interesting for us. What we're finding is we're being asked to do evaluations on the broker side, consultant side of things. So, kind of the tip of the spear. And the conversations we have with our clients are, if you don't have the right third party that is your advocate for all the other services, for all the other carriers and all that take place, you're never going to be able to get to the point where you want to be. You have to have that partner at the top. And you need to make sure that, one, their services, their compensation, and that they truly sit 100% on your side of the table. Not, "I'm going to sit on your side of the table when it's convenient," and then, oh, by the way, when financially it's maybe not the best. And so we really work with them to say, "Hey, listen, this is the area that we can help you with." We're not experts. We're not brokers. We're not consultants in this area. We run RFP evaluations, and that's the most important evaluation that a sponsor has. They have to have that partner up front to help them digest and get through the balance of the...
15:56Donovan Ryckis: Right. I love that. So you're really saying, "Hey, if the broker is not meeting these compliance requirements, these are the things you guys are going to need in order to make good decisions. If it's not being provided to you, it might be time to ask for it, or open it up for new partners on your healthcare package."
16:26Jay Gepfert: Yeah, exactly. I mean, when we look at it, we're not just looking at fees. Obviously, that's a piece of what takes place, but the primary piece that we're looking at is what are the broker's services? What are they providing? What are they doing in terms of the legislation and CAA that came out, to make sure they're doing what they're supposed to do? Disclosure of compensation and all. So it's a total package in terms of what takes place. It's not just the broker fees, although we have found tremendous, tremendous savings on the broker side of things. And it's not dissimilar to what took place on the retirement side and still takes place, in terms of both market...
16:56Donovan Ryckis: I agree. And to your point on sometimes the broker will sit on their side until they have something else, I say that all the time: if there is a line at all, only the broker can see it, and they can also move it. As far as what's compliant, what's best for the client, what's not, what's disclosed, what isn't. I've seen so many things like that where you're just like, "I can't believe this is real."
17:23Jay Gepfert: Well, the reality is compensation drives behavior, right? So you need to understand what the compensation is, how they're being paid, where the potential conflicts of interest are, and then you can understand when that advisor, that consultant, that broker is sitting on your side of the table. And until that's taken care of, you'll never know. And I think that's one of the big pieces that we've moved forward with, which is to allow our clients to understand where those behaviors based on compensation have historically been.
17:50Donovan Ryckis: I agree. And I think there's almost no relation ever between compensation and service, or compensation and results, at least not the type of results they want. More often than not, we see broker compensation go up as premium goes up, because they're selling a bigger risk transfer instead of helping that employer avoid risk, reduce risk, right?
18:20Jay Gepfert: I mean, one of the, Donovan, it's interesting. I think one of the absolute best wonders of the world are either asset-based fees or commission-based fees. I mean, it's an unbelievable win for either the adviser on the retirement side or commissions on the broker side, because it allows for you to have a built-in fee increase with literally no additional work or complexity. I mean, what better job is that in the world, that you don't have to justify a fee increase? It just comes across automatically when the carrier commissions and all come across. It happened in the retirement space. It is one of the areas that we look at on the benefit side for brokers. So, you bet.
19:17Donovan Ryckis: Yeah. And I think there's still a lot with indirect compensation, even when they try their best, that frankly can't be properly quantified. I was looking at that yesterday with a PBM evaluation that we were doing, and essentially it's a top five broker by size, and they were charging to be in a block of one of the top three PBMs. So the company was paying about 150 grand a year for the pleasure of being in one of the top three worst PBMs. And in addition to that disclosed, I know there's probably double, if not more than that, an undisclosed compensation for that broker building that block with that PBM. And then also we're working on the pricing study. It's an eight-figure-a-year PBM spend. And looking at the pricing study, I think we'll reduce it 20% just putting a fiduciary in there, right? And it's like, you're getting paid for the pleasure of overpaying. But those measures of indirect compensation are very hard to get to, and very hard to get the truth out of, how and why these recommendations are coming forth. What's the true amount of compensation? How do you lay that out when you're doing an RFP on bonuses? Because that's one of the things that are never disclosed. They'll put kind of in fine print, "We might get 0 to 3% in addition for premium retention and growth." Do you try to get them to quantify that from prior years or spell that out more clearly?
21:09Jay Gepfert: Yeah, exactly. So, that's exactly what we do. We have a huge spreadsheet that we do and look, by product, both in terms of that year's commission plus any type of additional overrides that the broker might get. The best way I can describe it is, on the retirement side, we can nail it down to probably within 99.9% sure of what's taking place. And what we tell our clients is we're not at that point yet. There has to be more market movement, but we're going to get you 95% of the way there. So you're going to understand what that money is, where it's coming from, all of those things that take place. So we never can get 100% right now, because everyone's being very protective. Listen, the amount of money in the benefit space is deep and it is wide, and people are protective of that money. But as organizations like yours around the country come in and start asking difficult questions, and then the plan sponsors begin to understand that they have fiduciary responsibility to be able to answer those questions, that's going to slowly move the marketplace. I mean, we're doing a project right now for a broker. It's about 2,000 lives. And it's a lot of firms that everyone in your audience would hear of. And we're trying to quantify not just what the commissions are, but also that extra override that's coming in. Whose money is that? Our opinion is that's not the broker's money. That money is coming because of the relationship with the plan sponsor. That's the plan sponsor's money. And so once the plan sponsor understands it's their money and not the broker's, then I think that will probably begin to clear itself up, once the market itself decides that it does need to take on a fiduciary status. And once that happens, you have a duty of loyalty to your client and not to the carriers. So it's all going to work hand in hand, which is why this is in early stages, but when that tipping point takes place, the market will move pretty darn quickly.
23:05Donovan Ryckis: So when you're working with a client on an RFP process, other than just designing the initial RFP, are you also working with the responses that come in from different agencies, getting additional clarification and helping the employer through that process on grading and scoring what's coming back from each?
23:34Jay Gepfert: Yeah, Donovan, great question. So we start with our clients from the beginning to the end of the evaluation process. So we help them identify what the key drivers are: fees, service, whatever it's going to be. We actually write the RFP and let our clients do edits, so it's personalized in terms of what they're looking for. We run the RFP. We answer all the questions from the RFP. We interview all the firms ahead of this call. Then once the proposals come back in, we grade them. And then we sit back with the clients and say, "Based on your criteria, here's what the grading is." So as an example, if fees are the number one driver, maybe that's 30% of the decision. If fees are not the number one driver, maybe that's 10% of what takes place in their other service requirements. And then we help them narrow down the field from whatever the original number getting the RFP, say five or six, down to two or three for finals presentations. And then we help them organize and make that final selection.
24:30Donovan Ryckis: So, one of the things I'm still salty on: I lost a prospective client earlier this year, and all good. I mean, that happens. But I went back and I'm like, "Hey, I just want to make sure I understand if I did anything wrong, if you could offer any feedback so I can improve and my agency can improve." And what it came down to is, I don't know what else to call it but a lie. This idea, what big brokerages do, which is this suggestion that they have leverage on the market and that is somehow going to get them a better result. Coming from securities, I understand that's a ridiculous suggestion. The reason that doesn't happen in securities, and brokers don't say that, is because everything is data-driven and they couldn't prove it. They couldn't quantify it. They can't substantiate it. However, in healthcare, since it's not data-driven, because everything is so opaque and gagged and not disclosed to clients, these large agencies and brokers can really get away with this concept of saying, "Well, we have more leverage on the market, and somehow that's going to be better for you." What are your thoughts on that? I'm sure you've seen that come back already.
25:54Jay Gepfert: And to some degree it definitely is in the retirement space. And so one of the roles we play for our clients when they're doing these evaluations is the voice of reality, and they may not like to hear it. There are times we've had to kind of take a pause on a conversation because we've said something that just doesn't align with what their thinking is. And this is one area, which is, that's a crazy thought. There's no reason to be able to go through it. There's a difference between just because someone says it's true and it's actually true, that there is no correlation for what happens. And that could be in any area. That could be in terms of services. It could be, like you said, in buying power. It could be in terms of fees. It could be in a lot of different areas. And so that's a big piece that we take to the clients, to say, "Yeah, that's just total BS. We need to move on from that." And that's a selling story, not a decision-making...
26:50Donovan Ryckis: Yeah, I even saw that this week in a case we're working on. And what the leverage really means, and what it comes down to, is the brokerage or the agency is leveraging additional indirect compensation by filtering through to preferred carriers, and they're kind of avoiding all the strategies that we've had for 10, 20 years, right? Getting a fiduciary PBM instead of going with a top three. Finding cost containment strategies. Network replacement, which everybody will swear doesn't work, right? So that leverage that they say they have, I find, does so much more harm, because they're only looking to use a couple of strategies, and they don't want to see anything outside that world. They're not open to it. They won't do...
27:50Jay Gepfert: Yeah. But I mean, again, I'll go back to the retirement side. There are similar types of claims that take place on the retirement side, because these large firms that we now call aggregators in the marketplace have bought up all these individual firms, and they get special deals with XYZ fund company or whatever else. And what we say to the clients is, just because they have a special deal doesn't mean that it's special to you. It may not be the right product for what you need. It may be, but the odds are it probably isn't, and understand why they're doing what takes place with that. I think on the benefit side, until we really begin to clear up this whole fiduciary status for the benefit brokers, and make sure that what they're saying and doing is solely in the best interest of their clients, you're going to hear comments like that that are not quite accurate in terms of the reality of what takes place. Once that tipping point takes place, and we're getting close. I know your organization does. You're one of the few, but there are other organizations that are kind of getting to the edge of realizing that. I think that begins to clear up some of that.
29:15Donovan Ryckis: Yeah. Yeah. And I think what that special product really does is limit that agency's focus on the open market. So now they're just looking at their own special pet project and not realizing, "Hey, there's stuff out there in the free market that anybody can access that actually improves on that," because we're not building in extra compensation for the brokerage by doing it.
29:44Jay Gepfert: Yeah. I mean, we just ask our clients, "Okay, so why are they doing that?" Well, they're limiting the number of options that you get, but they're going to supposedly give you some buying power. But let's really look at what's driving that. What's being driven by that is compensation to them, right? I mean, that makes it so that they can make even more money from those limited relationships that they're putting in front of clients. It's these common sense but tougher questions that we need to answer for our clients. And I think that's one of the reasons why we're seeing growth in our business: there are relatively few truly independent third parties that can answer those questions honestly and not have their hand out and have some form of compensation based upon their answers. We come in as a dual project. We get signed up on day one, and on day 90, day 120, we're done. We have no other compensation. And so I think that allows us to be more of a referee, to be able to understand what's taking place in the market and deliver that to the clients. So they don't have to worry about, "Is that a salesy comment, or is that fact?"
30:40Donovan Ryckis: Yeah. I think the trend for this quarter: I have three new clients that all kind of had the same experience and voiced it to me, and two of them even used the same term. They said whenever they would bring up the conversation of some innovative strategies, be it DPC or looking at the PBM, RBP, whatever it is, they would kind of explain how the broker would tamp that down, and two of them actually said, "They would just pat me on the head and change the conversation." What do you recommend for employers when they're trying to have conversations or get a true understanding? Because the thing is, at the end of the day, they do like and trust the person they hired. That's why they hired them. I'd see that being a huge value proposition for you as a third party, as kind of a referee in the conversation, to help vet that.
32:04Jay Gepfert: Yeah. So, in one of the evaluations we're doing right now, one of the questions is, "Come to us and explain to us your outside-the-box thinking. What was it, and how were you positioning that to the client?" So they have to, up front, be able to have some creative thought and ideas in terms of what takes place. That's number one. Number two, I keep going back to this area in compensation, which is compensation drives behavior. So what we've encouraged all our clients to do is get out of a commission structure, because that makes it so the behavior goes not in your direction. If you set it up so you have a fixed fee, you know exactly what it's going to be regardless of what the solution is, then your third-party consultant is going to be able to come to you with creative ideas, and it's not going to affect their pocketbook. If they're going to charge you a dollar for it, why do they care what the solution is? They just want the best solution. So I think we're still at the point where compensation drives broker behavior, and we've got to get that fixed so that there's no conflict of interest in bringing new and good ideas to the client.
32:59Donovan Ryckis: I agree 100%. So, one of the things we do to try to mitigate that for ourselves, and so our new clients know, is we'll actually put it in our contract, because sometimes these insurance companies will pay you overrides and bonuses, and if you don't take it, it doesn't go anywhere, right? They're not going to put it back to the client, often. So what we've done is we've just put it in our contract, where we say, "This is our fee. It's not going to be percentage-based, where it's growing on premium. It's a flat fee. We know what that is. If we happen to receive any type of override or bonus, we will reduce your fee by that pro rata amount respective to your account." And that way it's just straight up. We can clearly, confidently say there's nothing in the middle, just the two of us, and we're going to go to market and figure this...
33:56Jay Gepfert: Yeah. And that's exactly what's happened. Again, I'll go back to the retirement space. That's exactly what's happened in the retirement space over the last 15 years, which was it was all an asset-based fee, and now it's switched and moved towards a fixed fee, and so any additional revenue that comes in just goes towards that fixed fee. Exactly what you just said on the benefit side. So this project we're working on right now, there's two areas. One, let's say voluntary benefits, where there is going to be some form of a commission that's collected, that money just goes towards the agreed-to fixed fee. Or if additional overrides are coming in from the carriers, again, that just is going to go towards the agreed-to price. And it makes it so that that money coming in, you have to look at differently. You have to look at it so that the plans understand that's their money, versus that's either the broker's money or the carrier's money. They're all making it because of a relationship. And we've got five firms we're evaluating right now. Four absolutely will not share right now any of those extra dollars. But I would suspect if we included them six months from now, I think it's going to change. The market's changing. The only question is when it's going to come about, because it's slowly moving right now.
35:20Donovan Ryckis: The lack of disclosure is just always stunning. "No, I won't tell you exactly how much, when and why I get paid for your account. Don't be ridiculous, Jay." It just blows my mind every time I hear it. And you know as well as I do, coming from the securities side, this stuff just does not fly.
35:48Jay Gepfert: No, it doesn't. I mean, it's interesting, but maybe it's a little bit of the gray hair, as well as how long I've been at this. So, I remember, I don't know, 12 years ago, I walked into a large hospital system in New England, and proactively, myself and a partner of mine went to the CFO and the senior VP of HR and said, "Oh, by the way, through our analysis, we know that you're being overcharged on an annual basis over a million dollars." Over a million dollars, right? "And here's how you can correct that." And they listened to us for about a half an hour, but basically the closing comments were, "We don't believe you." And they called us... Now, that's kind of where we're at right now, right, in terms of the benefit space. Spring forward five years: by the way, that hospital system got sued, and they had to pay out millions of dollars because they didn't listen to what not only we, but I'm sure others, were talking to them about. Same thing's going to happen in the benefit space. That's the reason why, when legislation and litigation merge, that's when you see a change in the market. And that's happening right now. The only question is, is it going to happen in six months, or is it going to happen in two, three, four, five years? I think it's sooner rather than later.
37:11Donovan Ryckis: Yeah, I agree. I haven't heard something that bad. That's pretty offensive when you're trying to help out a prospective client. But one of the things we get often is they're like, "This seems too good to be true." And I'm like, "This should just be common sense. This should just be how our side of the business operates, and that you have transparency into that." It's not too good to be true, and we'll try to make it as data-driven as possible so they'll see it. But it's so funny coming from that side. I made a post on LinkedIn calling it healthcare Stockholm syndrome, because I was just like, they're almost in love with their captors, thinking this is good and normal, and it's just not.
38:06Jay Gepfert: Yeah. And it's interesting. I mean, this evaluation we're doing right now, and again, I'm just talking on the broker side. I'm not even getting into any of the other carrier conversations. We've got to get the tip of the spear set up correctly in terms of services and fees, so that organization is 100% on your side of the table. Oh, by the way, even on that side, whoever they pick, they're going to have a minimum of a 46% savings on the broker consultant side. I mean, that's a lot of money, right? And there's...
38:36Donovan Ryckis: 46% reduction in the broker fees and...
38:36Jay Gepfert: Commission, 100%. That's not even getting into the whole conversation of all the other providers that broker is going to be responsible... But it's coming about because we're moving from commission. We're moving to a fixed fee. We're moving to cost certainty. We're making sure the client understands those additional overrides that take place. So you have to get the top set correctly with a firm like... Right? And then once the top is set and there's an alignment of interests, and then they sign on as a fiduciary, then the balance of it, it's going to be hard work, but it will tumble downhill in terms of what can take place. And I'm sure that you see that with your clients, which is, you and your client get aligned, then you start working together in terms of what happens. And the savings are significant and the services can improve.
39:32Donovan Ryckis: Yeah. Tell us a little bit more about that. I know you put together a little bit of a case study, and you kind of alluded to it: 46% reduction in the annual fees, switching from commission to fee-based for the actual services, which I love. So important, because like I said, there's usually no relation between what the broker is doing and what the plan sponsor needs. And I would say it's in the name. They're trying to broker a risk transfer to their benefit, instead of consulting on your need, tying their compensation to your need, not to the insurance, right?
40:00Jay Gepfert: Yeah, 100%. If you can pull up that slide, that'd be fantastic. So, one of the things that takes place, and again, I go back to the retirement side. On the retirement side, the terminology went from broker to advisor when we had a change. So now what's happening on the benefit side? It's going from broker to consultant. That's all about how they're compensated. On the retirement side, it went from an asset-based fee to a fixed fee. The benefit space is moving from commissions to fixed fees. On the benefit side, there's the whole extra override of money that comes in. On the retirement side, that was called revenue sharing. That's all basically disappeared now. That's going to disappear in terms of these overrides. And then the last piece is, on the retirement side, 15 years ago, nobody was a fiduciary or a co-fiduciary for these plans. Now, for a vast majority, you have to sign on as a co-fiduciary. That's what's going to be taking place in your market, where very few firms say, "Hey, listen, we're going to put fiduciary terminology in the agreement." But as your organization and a small number of other organizations like yours push the market, and it's going to happen quickly, they're going to have no choice.
41:24Donovan Ryckis: I would love to see how that develops, and have you back on and see how that's changed in six months to a year, because the hard part about it is, for these large agencies that have been operating one way for, really, I always say the employer healthcare problem really started and developed after 2010, right? After the ACA is when these costs and conflicts and everything really took off. But for these brokerages that have been operating that way, I don't know how they ever go about even starting to make that transition, where they're repping a few clients as a fiduciary and the rest they're conflicted on. You know what I mean?
42:19Jay Gepfert: No, I understand. But again, we've seen this before. There is a transition process that takes place. They're not going to change it themselves. I mean, in this RFP that we're running right now with five firms, four of them literally have run away from the concept of signing on as a fiduciary. One national firm, they're right at the edge. They're almost ready to go. They're not there, but it's going to be probably smaller organizations, and I'm not suggesting, Donovan, you've got a small organization, far from it, but probably ones that are more independent that are going to push the market. And the reason why the other organizations, the large international brokers, the large aggregators, in terms of what takes place, is they'll begin to lose business, and at some point the pain threshold gets high enough and they're going to say, "We're going to have to."
43:15Donovan Ryckis: Yeah. No, I agree. And in relation to the agencies we go up against, I would classify us as small, because we're going up against these agencies that are making billions a year in revenue. And the hard part of that transition, and I faced it even earlier than I thought in our agency, is the insurance carriers want to control the commission, and they want bonuses and incentives to get you to make the decision that they want. And as soon as you start to shy away from that, they will threaten you by saying, "Maybe we shouldn't do business together anymore." I.e., for example, if you have a client, "Sorry, you can't rep them anymore." That revenue stream of your existing clients is going away. So they really have brokerages leveraged, because while a client thinks, "Well, I'm the client," in truth, who's paying the brokerage? It's two or three insurance carriers across all their groups.
44:14Jay Gepfert: Yeah. Yeah. And I think, not just in this area, but in a lot of other market areas that we've seen over the years, there has to be a level of... Until that level of pain reaches a certain level, no change is going to take place, right? And the pain right now is starting to come about through legislation and litigation. Once this money starts coming out of plan sponsors' pockets or carriers' pockets or brokers' pockets, or whoever the pocket is, that level of pain is going to be high enough where it will force a change. And that process of running downhill has already started. The only question is how long. And once it starts happening with the big guys, the big plan sponsors, the big brokers, it's going to affect the entire market. And we see it every day. I mean, our clients range from everything from a startup to tens of thousands of employees. And the commonality on the retirement side after 15 years, it's very close. We're not there, right out there on the benefit side, but it's starting to push downhill. And sometimes you just got to ask the question, which was, in this RFP, I asked one firm, "So why can't we get all or some of those commission overrides going to your firm? Can we get them?" You got to ask. And if they say no, you got to say, "Well, why not? Whose money is it? Explain to us how that is in the best interest of the client." Right? I mean, sometimes it's just multiple questions that they have to answer, and it's a very uncomfortable conversation, but I'm sure you do that every single day with your prospects. The uncomfortable question is what moves the...
46:09Donovan Ryckis: Yeah, I agree. Well, Jay, it's been an enlightening conversation. I love the comparison to what we've seen on the retirement side, because that is the parallel. That's what didn't make sense to me over a decade ago, when we transitioned from financial services to healthcare. They're both ERISA. They're both governed by ERISA. They're both employee dollars. So why is this one so important that we'll get lawsuits over 25 basis points, and in this one, fraud, waste and abuse runs rampant? There's no reporting, right? It made no sense to me at all. You're starting to look at companies, and you're like, well, more employee dollars are going to healthcare than the 401(k). We're stealing their future in healthcare. So I love to see the transition. I love how hopeful you are. I agree. The pain is coming. I just hope it goes faster. I didn't think it would take 10 years for the first ERISA healthcare lawsuit. It took a little bit longer than I had hoped. But hopefully that adoption curve is starting to speed up.
47:05Jay Gepfert: Yeah. Well, once that cottage industry that likes to get into the litigation side of things sees that there's even more money on the benefit side than there is on the retirement side, they're going to make that transition across, and they're going to put the pain on the marketplace, and that's what's going to change it.
47:33Donovan Ryckis: Jay, where can people get a hold of you and find out more about your company, or ask you some questions?
47:33Jay Gepfert: Yeah, great. Absolutely. So, my website is culpepperrfp.com. You can go in there, you can click a link and ask for an appointment. We would love to talk to anybody about it. Like I said, we have no limitations of too small or too large a client. We're working on an opportunity with an extremely large multinational advertising agency. And then we had an ERISA attorney call us up about a startup organization. So we can help on all sizes. We'd love to talk to...
48:00Donovan Ryckis: Jay, thanks for being on. And we'll do this again in about a year's time and see how things...
48:25Jay Gepfert: We'll see what the movement is. Absolutely. Thank you for the invitation. It's a pleasure, and congratulations on your business.
48:25Donovan Ryckis: Absolutely. Thank you, Jay.
