Moving From Commissions To Fees In Employee Benefits

Around the same time, it began to see some of the unique challenges that employers were encountering in deploying retirement strategies successfully. “So, we began to integrate our financial advisory experience into the HR function … and to integrate our revenue from this business service into our HR pricing model.”

More recently, it expanded its service offerings still further, with “on-boarding” (bringing new employees “on board” with a client company); immigration support (working with client companies’ travel teams, providing subject matter experts on immigration issues, and occasionally providing immigration-related legal resources); and global payroll (assisting with not only global payroll, but also global benefits procurement, global compensation, and sometimes recruiting).

Today, his firm’s mission statement has several elements: serving companies and employees as a “trusted advisor and partner;” collaborating with clients to meet human resource challenges by delivering “innovative and sensitive solutions using the most appropriate products, technology and processes;” and serving as a team that maintains the highest standards in ethics, expertise and personal commitment in serving clients “while building lasting friendships with them.”

Nowhere in his company’s mission statement does the firm represent that its mission is to sell anything, stressed Hanna. “Rather, we strive to solve client challenges by delivering an integrated solution.”

In meetings with clients, he said he always discusses “the traditional” 3-step approach to human resources.

“Step 1 is consulting,” he said, noting that employer clients pay for this advice. “The bigger the client, the more they are likely to pay.”

“Step 2 involves assembling the procurement team,” he said. Here, the client’s HR team generally hires vendors and brokers to source–or “white label”–outside services such as payroll, retirement plans, benefits, and recruiting.

“Step 3 requires the client to manage the various aspects of Steps 1 and 2,” Hanna said, noting that “this is the origin of the large HR departments that seem to grow at most client companies.”

By collapsing the 3 distinct roles of consulting, procurement and service into one end-to-end experience, Hanna said his firm has found value creation in the relationship. Usually, he said, this value is “more than enough to underwrite the cost of the broader range of services and still generate reasonable profits” for his firm.

The “secret sauce” is vendor management, not outsourcing, he stressed.

“Outsourcing isn’t new; everyone outsources,” he observed. Also, outsourcing isn’t just about salary arbitrage, he said. “While there has been a huge business around outsourcing from other countries where the (educated) talent pool is deep and salaries are a fraction of what they are in our own country, even this salary cost disparity is shrinking. In the future, as the global economy becomes real, salary differentials will not be as great as they have been.”

But, with vendor management, he continued, “the more relationships that you are able to control, the greater the opportunity for value creation and the fewer vendor margins that need to be served.”

Today, in all client engagements, he said his firm’s objectives are to provide a single-point solution for HR challenges; manage and support employee interface; manage vendor relationships; create operational and cost efficiency; and become part of client DNA.

Focusing on the last two points, he raised these questions for the audience to ponder:

“If you were in a position to control the employee interface between all of the employees at your client companies, how hard would it be to positively impact enrollment decisions and 401(k) participation, and to position your firm as a trusted personal advisor, beyond your role as the employer’s consultant?

“If you are so ingrained in the client’s DNA that your firm is touching all benefits (even if you have in turn outsourced them), and if your firm is interfacing with payroll, is managing eligibility and immigration, and is facilitating the on-boarding and off-boarding functions, how susceptible is your firm to competition?

“Finally, if your fee-for-service is determined and contracted outside of the insurance product sale (meaning that your negotiations are always based on net of commission calculations) and your client engagement contract runs off-cycle to benefit plan renewal, how likely is it that your client will replace you under a BOR (broker of record) letter when there is no compensation available to pick up and the client is obligated to continue to remunerate you under your contract?”