By Doug Aldeen
Editorial and Emerging Market Trend (Broker/Advisor Litigation/Voluntary Benefits):
Earlier this week, Heinz Corporation, through its fiduciary committee, sued Aetna alleging significant fiduciary violations. The proverbial dung hit the fan. Seismic? Hopefully. Seismic to me, however, would be adding the broker/advisor, Willis Towers Watson to the lawsuit.
Consider: That would be the equivalent of the Skipper from Gilligan’s Island outrunning Usain Bolt over a full 200 meters ( I would pay to see that). Imagine an entire encyclopedia set worth of conflicts of interest, murky conversations and genuine pirate looting and pillaging on full display. It certainly would be must see television… . More to the point, I believe there is an equally vibrant market in the EMPLOYEE paid benefits as well.
Case in point: A recent review of an arrangement between a plan sponsor and a large brokerage revealed the following:
1. The brokerage “stacked” commissions by bifurcating EMPLOYER paid and EMPLOYEE paid products. Almost 42% of the total commissions (at a commission rate anywhere between 70%-90%) were paid by the employees for “triple A rated” (tongue in cheek) products and policies such as: critical illness a/k/a “you are not sick”; accident a/k/a “falling off a ladder is not an accident. Claim denied”; legal a/k/a “better call Saul”. The list goes on. This brokerage was getting 18 different lines of revenue, 10 of which were voluntary benefits, employee paid and outside the disclosure requirements of the CAA. These product/policies are not worth the paper in which they are written. Put simply, the employees have bought pure crap. That is analogous to knowingly and intentionally letting Fat Albert into your kitchen and having access to your fully stocked refrigerator for a midnight snack. There will not be much left once he is finished… .
Recommendations Moving Forward:
1. Check ID at the door and know what and who is being offered to your employee’s;
2. Review the insurance products for quality;
3. Establish a fiduciary committee of experts who can vet these arrangements.