Consultants can introduce new standards and respect industry benefits |  EBA

Consultants can introduce new standards and respect industry benefits | EBA

Seven years ago, I walked into a boardroom at the headquarters of an investment advisory firm in Tysons Corner, Virginia, as an intern at the Fiduciary Standard Institute. Today’s agenda? To develop the first draft of what would eventually become the institute’s project Real FiduciaryTM Practices for financial advisors.

The idea was to define “best practices” that credit financial advisors adhere to in their relationships with clients. This means crafting a professional code of conduct based on fiduciary principles that protects the interests of clients who place their trust in the advisor sitting across from them. We wanted to raise the bar higher.

Fiduciary duties in investment management have their roots in Counselors Act 1940. Law 40, as it is more commonly known, says in no uncertain terms that there is a vital and important distinction between how brokers and advisors serve investors in the securities world.

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Brokers sell financial products appropriate to the client’s needs, and are only allowed to give “only occasional” advice to the sale. By definition, a broker sells investments and insurance products from a list restricted by the policies of the companies they work for.

ConsultantsOn the other hand, they sell their trusted advice and impartial expertise and thus owe the clients the highest level of care under the law. The duties of honesty of loyalty, due diligence, and utmost good faith require the advisor to either avoid or mitigate conflicts of interest. Removing the conflict entirely or neutralizing it through mitigation enables the consultant to act in the best interests of the client.

After spending several years in employee benefits In the world, I have seen how similar the financial and employee benefits are. They are twin industries – both subject to ERISA. Company retirement plans and health and welfare plans are regulated in similar ways by the Department of Labor.

But much more than that, it became clear to me very early on in a fee-based benefits consulting firm that the benefits that brokers and consultants provide to their clients fall more into the category of trusted advice — and much less of an umbrella of just selling insurance.

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The role of the mediator has evolved tremendously in the past 15 years since the first whispers of Affordable Care Act. Today’s benefit brokers find themselves caught in the trap of benefit design, healthcare procurement strategy, and compliance Help – even in the full insurance market. The value that these benefits brokers bring is enormous. But most importantly, it is no longer essentially about buying the insurance product the way it was two decades ago.

While the role of interest brokers has changed significantly, compensation models have generally not. The benefits industry is still dominated by commissions. For example, Gallagher’s 2018 annual report reveals a reliance on premium-based commissions. Reveals that revenue may have a negative impact[ed]Through the ‘increasing desire’ of employer clients to pay them based on fees rather than commissions that ‘automatically increase.’ The resistance acceptance is astounding.

This mentality does not remind us of a profession. Real professions such as law, medicine, and accountancy have standards of professional conduct, ethics, loyalty, and due diligence. These professions organize themselves through institutions and among their members. They set a clear standard–such as passing a law into law or taking a Hippocratic oath in medicine–and commit themselves to it. Financial planning done in-house repair herself in a profession for the past fifty years. These things require concerted effort, willpower, and time.

What the industry needs is a higher level of behavior and ethics that clearly define what brokers, consultants and advisors should target. I’m heading Fee Advantage Advisory Committee only whose mission is to provide this gold standard.

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As our name suggests, we start with the premise that the individual’s compensation model is important.

Avoid conflict or, if that fails, mitigation begins with compensation. All is equal (state law allows), a TRUE The benefits professional prefer direct customer fees over commission from the insurance company. Furthermore, a benefits professional chooses to reject rewards and transgressions that may impair their judgment.

The word “transparency” is another effective word. The Real Benefits Specialist is transparent not only in his compensation (as required by law under the Uniform Appropriations Act known as CAA), but also in how the business is run in general. Benefits professionals advise only to the extent of their competencies and have a well-documented and justified basis for why they are making their recommendations.

The renewed and increased emphasis on transparency of compensation for the mediator or consultant from the Civil Aviation Authority is long overdue. Now that it has arrived, we have a unique opportunity on our hands to reflect on who we are as an industry and who we want to be.

Let’s choose together to move from a mere industry to a respectable profession.

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