Seven years ago, I walked into a conference room at the headquarters of an investment advisory firm in Tysons Corner, Virginia, as an intern at the Institute for the Fiduciary Standard. The docket for the day? To hammer out the first draft of what would eventually become the Institute's
The idea was to identify "best practices" that fiduciary financial advisers adhere to in their relationships with clients. That meant drafting a professional code of conduct based on fiduciary principles that protect the interests of clients who place their trust in the adviser sitting across the table from them. We wanted to set the bar high.
Fiduciary duties in investment management have their roots in the
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Brokers sell financial products that are suitable to a customer's needs, only being permitted to give advice that is "solely incidental" to the sale. By definition, a broker sells investments and insurance products from a menu that is limited by the policies of the firms he works for.
After spending several years in the
But much more to the point, it became clear to me very early on into working for a fee-based benefits consulting firm that the advice benefits brokers and consultants give to their clients falls much more under the category of trusted advice — and far less under the umbrella of merely selling insurance.
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The broker's role has evolved tremendously in the past 15 years since the first whispers of the
Whereas the role of benefits brokers has shifted greatly, compensation models generally have not. The benefits industry is still dominated by commissions. Gallagher's 2018 Annual Report, for instance, reveals a dependence on premium-based commissions. It discloses that revenue may be "negatively impact[ed]" by the "growing desire" of employer clients to pay them on a fee basis instead of commissions that "automatically increase." The admission of resistance is striking.
This mindset is not reminiscent of a profession. True professions like law, medicine and accounting have norms around professional conduct, ethics, loyalty and due care. These professions self-regulate through institutions and among their own members. They set a clear standard — like passing the bar in law or taking the Hippocratic Oath in medicine — and hold themselves to it. Financial planning has been
What the benefits industry needs is a higher standard of conduct and ethics that clearly identifies what brokers, consultants and advisers should aim at. I head up
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As our name suggests, we start with the premise that one's compensation model matters.
Conflict avoidance or, failing that, mitigation starts with compensation. All else being equal (and state law permitting), a true benefits professional prefers a direct client fee to a commission from an insurance carrier. Further, a benefits professional elects to decline bonuses and overrides that may impair their judgment.
"Transparency" is another operative word. A true benefits professional is transparent in not only his or her compensation (as is required by law under the Consolidated Appropriations Act known as the CAA), but also in how business is generally conducted. Benefits professionals advise only within their competency and have a documented and well-reasoned basis for why they make the recommendations they do.
The renewed and heightened emphasis on broker or consultant compensation transparency from the
Let's choose to make the stride from a mere industry to a respectable profession, together.