Advisers may think they’re disclosing enough of their compensation information as is, but it turns out, it still isn’t enough.
The Consolidated Appropriations Act, 2021, introduced new compensation regulations under the pre-existing No Surprises Act, and will directly affect brokers and consultants. Agents, brokers and consultants as well as subcontractors will now be required to disclose their compensation to plan fiduciaries. The new regulations are going into effect December 27, 2021, and will impact contracts and agreements entered into or renewed on or after that date.
The recent addition from the CAA has left advisers and brokers with questions surrounding current and future clients — questions that Jennifer Berman, co-founder and CEO of concierge compliance firm MZQ Consulting, called ‘game-changing.’
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“The set of new provisions [is] requiring health plans to get information from their brokers and advisers about the compensation being received by those brokers and advisers,” she says. “There's a section that tells plan sponsors that they have to make sure that their vendors are compensated reasonably.”
Advisers were previously only governed by their fiduciary duty to disclose their compensation on their annual Form 5500, according to Berman, which helps the Department of Labor and the IRS determine whether employee benefit plans are operated and managed according to government standards.
“Before it was just, ‘Hey plan sponsor, you need to make sure the compensation you pay is reasonable,’ but it didn't say how they were supposed to do that or what they were supposed to do to do that,” Berman says. “This [law] has a very specific prescribed set of rules about exactly when and exactly what needs to be included in the disclosure.”
The lines of coverage the mandates apply to are primarily group health plans, which include medical, dental, vision and a few EAPs. Among items that now need disclosing is a comprehensive list of the services being provided by the broker or adviser and information about their direct and indirect compensation, including commissions as well as persistency or retention bonuses.
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Despite the additional rules and regulations being allotted to brokers and advisers, the new law continues to prove to be bothersome for those it’s affecting, according to Berman.
“What's interesting about how this law works is it doesn't actually directly govern the folks who they are compelling to make the disclosures,” she says. “This is not a law that says, as a broker you must disclose this information to your client. What the law actually says is as a plan sponsor, your client must get this information from their broker from you.”
It’s not that advisers and brokers don’t want to disclose the information required, Berman says. But the new law, she says, implemented these requirements without any clarity on how to do so, particularly when it comes to compensation amounts that cannot be known ahead of time, such as persistency bonuses, meals and trips.
“The systems for this reporting weren’t there before,” she says. “The statute doesn't address all of the tactical issues that arise with respect to implementation.”
