3 Questions Aggressive Brokers Are Asking About Compensation Disclosure

Brokers who wish to keep (or develop) their book of business should start with these three inquiries.

 

A new federal rule for broker remuneration disclosure is encouraging greater transparency in the benefits industry—but adding an extra hurdle for brokers.

 

New broker compensation requirements were established by the Consolidated Appropriations Act of 2021. The idea is to increase transparency in how brokers are compensated outside of client transactions. But how does this play out in the real world for brokers?

Yes, brokers must now take an extra step to stay in compliance, but the structure of the rule also implies that broker-client relationships may be impacted.

Will clients view the services brokers give in a different light if brokers are required to disclose the remuneration they receive for directing clients towards a specific package?

 

Now that the Department of Labor has provided additional clarification on what this rule entails for brokers, it’s time to plan client discussions. Brokers who want to keep their book of business (and develop it) should start by asking themselves these three questions.

 

1. Do my clients have a clear understanding of how I’m paid for the services I provide?

Clients may be confused about how their broker is paid because brokers have not previously been required to disclose their income. Employers, for example, may be unaware that their broker is compensated on a commission basis or that they frequently earn more when their client’s expenditures rise.

Employers will have to evaluate 1) if they believe their broker is genuinely giving them with the best health plan suggestions and 2) whether the cost is worth the service once they have more information about how their broker is compensated.

If an employer is taken aback by their broker’s compensation, or if the broker is uncomfortable with having to make this disclosure, it might spell disaster for retention.

 

2. Is my business in jeopardy?

When it comes to picking insurance products and negotiating with plan suppliers, more openness means the plan sponsor has more clout.

If a client notices that their broker is pushing a plan for which the broker might fairly expect a big amount of pay — either directly or indirectly — it may create doubts about the broker’s commitment to finding the best products for the client. Employers may be more eager to hire brokers who provide the best value for their money now that they can see how much commission they make.

Carriers may not always provide much in the way of remuneration or incentives to brokers. It will be even easier for the broker to demonstrate to clients that they are genuinely interested in supplying them with the greatest plan in this situation.

Broker income does not have to suffer as a result of increased openness. The new ERISA disclosure regulations boosted openness, which reduced fees and overhead costs for 401(k) programs, while brokers continued to perform well.

 

 

3. Do I go above and above for my clients?

Compiling these disclosures, in light of everything brokers do for their clients, may cause some brokers to reconsider the services they provide in relation to their income.

For example, the new legislation places some of the responsibility for ensuring compliance on the plan sponsor; however, brokers can be proactive by providing that disclosure information to clients before they even inquire.

Brokers must also give compensation disclosures as part of their regulatory obligations. In terms of workflow, adding it to the routine for preparing other compliance documents should not be a problem (assuming the broker has a process for automating client document creation).

The extra labor stems from a desire to do more to assist clients in cutting expenses and providing excellent service to their staff. Brokers, for example, might provide a tailored benefit book to clients to help them better educate their employees about their benefits packages. Brokers can also use their knowledge to assist clients in ensuring ERISA compliance.

CAA compliance will drive proactive brokers to create innovative ways to delight clients and defend their position as the client’s broker.

 

Be ready to answer client queries.

This broker compensation disclosure rule, like ERISA, will have an impact on how health plan pricing is structured, as well as how brokers are compensated. Brokers will need to rethink how they position the services and value they give to their clients in the near term.

 

 

 

 

Source: https://www.benefitspro.com/2022/04/14/compensation-disclosure-3-questions-proactive-brokers-are-asking/