How employers can expect to pay benefits brokers, whether by commission or fees, is likely to reflect the idiosyncrasies of the country in which they are buying perks, says Katrina McKeever
Benefits consultants and brokers often play a key role in helping international benefits professionals to source products and services in the different countries in which they operate. Advisers’ services can help organisations to get to grips with local regulations and ensure they are able to purchase the most appropriate product for their needs at the best price.
When it comes to paying for their services, however, it can be difficult for to employers to determine exactly what they will be charged in advance. Anne Teggart, international compensation and benefits manager at Sony Pictures Entertainment, says: “Usually, I know once the bill comes in and I then have to marry that up with the work that was done over the previous quarter. To improve this, I now insist on knowing all charges up-front before any work commences.”
Although commission is still the prevalent method of payment internationally, particularly in countries where there are limited regulatory controls, the move towards fee-based payment is beginning to emerge to meet employers’ demands for greater transparency. Some international consultants are taking the lead on transparent billing, disclosing details of commission paid to them by providers to employers, even if they have not been asked to do so. Pete Whittington, benefits director at JLT Online Benefits, says: “There seems to be a general theme [in] many countries to move towards fees, usually driven by a regulatory requirement to disclose commission levels.”
Where advisers provide international services to larger organisations, the level of remuneration is usually dictated by the employer’s global policy, says Whittington. “This gives the organisation a consistent global approach and allows them to benchmark costs on a like-for-like basis,” he explains.
Some multi-national employers may request a fee-based arrangement, based on a service level agreement, while others may prefer to pay using a combination of fees and commission, where advisers claim a fee for giving advice on top of commission for sourcing products. How an adviser is remunerated depends to an extent on what products employers are sourcing and in which country they are being purchased.
Benefits such as healthcare and pensions, for example, lend themselves more easily to a commission-based structure than consultancy services, such as setting up a flexible benefits strategy, says Whittington. “This is typical in most countries, but [organisations] which have an international presence will engage on a fee basis for required strategic advice relating to market demands and legislative challenges in each country.”
Paul Kelly, principal at Towers Perrin, says the charging method may also depend on whether additional services are provided. For example, in France it is common for advisers to charge a fee for sourcing private medical insurance as well as commission for administering the scheme. “That is typically where you might find pressure towards a fee-based structure because commission is a pretty crude way of paying,” he says.
However, commission remains a driving force in less regulated markets. The level at which this is paid varies greatly depending on the product and country. For example, in Eastern Europe, there is a trend towards commission charges on benefits such as insurances, because these types of perks are still fairly new, and were formerly provided by the state.
Similarly, in regions where there is less regulation, such as Latin America and parts of Asia, commission remains popular. In Russia, where there are virtually no state controls, commission of up to 40%, or even 60%, is common for some savings products, with a further 10% renewal commission. For group life cover, that can run to 10% to 15%, compared with 6% in Ireland and about 2% in Belgium. In Scandinavia and Finland, the practice of paying commission on financial services has been abolished, while in Norway fees are more common.
Ultimately, employers must decide how they want to pay for these services. Smaller employers, for example, may prefer to look at the total price, which is often cheaper if it is based solely on commission. Multi-national companies, however, may lean towards up-front fees for advice, or multi-national pooling with transparent billing, says Alain Bicqu™, vice chairman, global employee benefits practice at Willis International.
Whichever way employers choose to pay for services or products, Bicqu™ says: “It is to do with transparency and it is a fundamental right for [employers] to understand why they are paying the price they are.”†
†If you read nothing else, read this…
- †Advisers can charge a flat fee or commission for benefit products they source – or a combination of both.
- †Multi-national employers tend to favour a fee-based consultancy, whereas smaller companies may prefer to focus more on the overall price.
- †Commission rates tend to be higher when buying products in less-regulated markets.