My recent post on rebates sparked considerable interest, so I’m doubling down with a parallel topic that’s equally frustrating: broker overrides. Many of you know these are incentive commissions paid to brokers for bringing in new customers and renewing profitable arrangements—and they’re a pervasive problem in our industry.
In fact, the issues are so similarly egregious, I can pretty much use the same basic narrative from my rebates article for outlining my grievances.
The truth is, much like rebates, broker offers of lower (sometimes even zero) fees are really just a subterfuge for hidden fees and higher plan costs. They are not in the best interest of the benefit plan or its members. One could even argue that receiving these incentives is counter to the obligations of a fiduciary.
This is why we flat out don’t accept them. We work for the Plan, not the vendors. As required by the Consolidated Appropriations Act rules, we avoid conflicts of interest and charge a clearly stated and reasonable fee for our services.
Is this a meaningful difference? Our experience tells us it is. For example, after (an important distinction) recently managing an RFP on behalf of one of our clients, the winning vendor told us it was going to send us $100,000 in incentive compensation.
Of course, we rejected it. Just like we always have and always will. Why? Because we believe accepting this money compromises our ability to act in our clients’ best interest and undermines the integrity of the industry as a whole.
Incentive or contingent compensation (overrides) are designed to reward brokers (often referred to as “producers” for obvious reasons) for:
• Selling one vendor’s product over another’s,
• Making sure the products sold are profitable for the vendors, and/or
• Selling the renewal.
How can we remain unbiased if our bottom line depends on which vendor you choose?
As the new fiduciary rules continue to evolve, it’s important to ask your broker some tough questions:
-Do you take any overrides or money from vendors outside of agreed-upon commissions or fees (either on our account or others)?
If so, how can you ensure these payments don’t influence:
-Who you solicit bids from?
-How you compare bids?
-How you negotiate final offers?
-The recommendations you make?
Because the truth is, overrides (much like rebates) create inherent conflicts of interest that drive up costs for employers and their plan members (even if employers feel they never “see” them). To truly act in your best interest, brokers must reject these payments and adopt transparent, conflict-free compensation models. Only then can the industry begin to restore trust and deliver genuine value to benefit plans.