You may have seen the press release announcing that Fidelity has entered the benefits business as a broker. According to the Boston Globe “Fidelity will act as a broker, selling the plans of traditional insurance providers and competing against hundreds of other agents and brokers for that business.” Fidelity has been in business since 1946. Most know them as an investment company and 401k administrator but fewer know that they are also a benefits outsourcing firm and even have payroll services. Yet, in spite of being in these businesses for years, they decided to get into the benefits business now. One has to wonder, why now? And after Fidelity, who is next?
If you are a benefits broker this is big news but should also be viewed as another “shot across the bow” sending a signal to the market that this is not business as usual. First we have Zenefits – now Fidelity. Though these companies are very different and entered the brokerage business from different market positions and with different value propositions, I believe the market conditions driving them into the business are somewhat similar. So what are these conditions.
Employer desire to simplify. Employers are getting overwhelmed with technology, new laws, new benefits, and a changing workforce. They are looking for simpler solutions from fewer vendors. Both Zenefits and Fidelity are promising simplicity by combining things that have been delivered in silos in the past.
Demand for more and better outsourced services. Employers will be looking to outsource more services, especially in the SMB market, as the HR world gets more complex. Zenefits says just enter your new employee data and “we will get them on benefits. We will get them on payroll.” Fidelity already provides a broad range of HR, Benefits, and Payroll services and is now adding more.
Advance of Defined Contribution Plans (aka Private Exchanges) –We have all seen the articles on Private Exchanges. Fidelity has already developed the service infrastructure to support employees who are already making financial decisions with more options (401K). If I am an employee and now have five medical options will I have a place to call if I need some help to decide which of the five I should pick? Fidelity has the tools and the call centers to provide these services.
Financial Wellness in the Workplace – According to some statistics up to 40% of employees lose productivity at work due to financial stress. With defined contribution plans employees are given even more options often creating more stress. And we all know there is a lot of cost shifting onto the employee going on. The problem with such plans is they are too narrow in their scope. Most decision support tools take into consideration employee benefit decisions but leave out other parts of an employee’s financial life. Isn’t there a relationship between the medical plan deductible I should choose and whether or not I maximized my 401K contribution? Should I buy more Life Insurance or should I have a 6-month cash reserve first? In most peoples lives the type of car they drive is somewhat related to how big their mortgage is. You get the picture. Things that should be related are presently disconnected in the typical benefits model. Fidelity, by combining financial counseling or decisions with other benefits decisions delivers a more holistic approach to the decision process thus creating a higher probability of a better outcome for the employee. For the employer this employee may be more productive. Joe Laurin, who runs the health marketplace business at Fidelity, said in a telephone interview. “The real distinguishing point is this ability to bring the health and financial wellness together.” (Bloomberg)
The Broker Commission is in Play
One of the problems in the market is the employers are looking for simpler solutions, better technology, with “white glove” outsourced services, but they often don’t have the budgets. Zenefits has shown that the market is willing to change their broker to get these products or services. The benefits commission is in play and the whole market knows it. You won’t read this in any press release and most likely not from any Fidelity representative but this is a market reality that few talk about. That is of course, other than Parker Conrad, CEO of Zenefits, that will talk about it all day.
So Zenefits, Namely, Gusto and now Fidelity enter benefits brokerage business. They are not alone. I know local payroll companies and HR consultants that have gotten into the business too without the fanfare of these bigger firms. Why? Because benefits brokers compensation ranges from $25 – $50 PEPM while Payroll companies get $7-$10 PEPM – HR Tech Companies $5 – $8 – Benefits outsourcing firms – $7 – $14 PEPM – and HR Consultants fight for $150 – $200 per hour. I hear employers, and many times their brokers, complain about the service from their payroll company. I can guarantee you this, if they made $35 PEPM versus $8 PEPM their service would be much better. The reality of the market is that many employers will see a reallocation of their HR spend from their benefits broker to other service providers as a way to fund the technology and white glove outsourced services they desire. And if they don’t know they can do this someone will point it out.
What can other brokers do?
I have read many articles about how brokers need to “sell their value”. Value is not only a function of the product/service that the broker is providing but also includes the price for that service. This is the elephant in the room that nobody wants to discuss. How can one discuss value without price? I like the kid who plows my driveway. He even gets out of his truck and snow-blows places his plow can’t get to. But I also like that he charges me $40. If he charged $100 he would still be a great snow-plower. He just wouldn’t be mine.
These other vendors that provide products and services that are now in greater demand think what they offer is of great value too. Nobody is questioning whether the benefits broker delivers a valuable service. What is in play, and people are now challenging, is the price for that service. This is the real catalyst that will continue drive companies into the benefits business. To compete, traditional brokers will either need to sell their “value” with their price on the table relative to what these new entrants are providing, or start providing some of these new products and services that seem to be in greater demand. Think about a call center on nights and weekends. Brokers will want to silo off the benefits brokerage service but these other vendors are going to make every effort to no longer let that happen. The only thing that will slow this down would be a total market move to fee for service.
Fidelity is the tip of the iceberg. More press releases from companies that provide some solution in the HR, Benefits Payroll technology or services space will be coming in droves. Zenefits made noise. They are new and interesting. Fidelity is a whole new ballgame. All the comments about Zenefits can’t be applied to Fidelity. Zenefits was version 1. Most brokers are hoping they would go away. But what usually comes after version 1 is version 2. And version 2 is better. Now we have Fidelity – and things will get better.