Monthly Archives: January 2016

Fidelity Enters the Benefits Business – Why Many Others Will Follow

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.

I am just like Tom Brady

Recently, I found out that I am just like Tom Brady. Tom Brady is a quarterback. I was a quarterback in high school. We are/were both quarterbacks. Therefore we must be equal. Well, that was the logic used on me a few months back when I spoke to the owner of a benefit brokerage firm about using an HR/Benefits technology consultant.

Joe QB 2

He said he just hired a person, so he was all set. I know the person he hired. I am not going to say I am the Tom Brady of technology consultants, but relative to the experience of this person it is a fairly close comparison.

I know what it feels like to have your service or even yourself become commoditized.

As a technology consultant, I get calls all the time from brokers asking what I think about this or that vendor. I follow it up by asking what they are looking for and the answer almost always comes back as “a competitive advantage.”

Brokers too are complaining that their business has become commoditized. It is hard to differentiate yourself when you provide advice or some service. Just recently I was at my dentist getting a crown and before the dentist started she asked if I had any questions. I only had one and that was, “Are you any good at this?” I hoped she was.

While websites like Yelp or Angie’s List are resources for people to share their opinion on some product or service, there aren’t many people out there sharing their opinions on such sites about their benefit broker. And we aren’t Tom Brady, who has a many more opportunities in front of a few more people than you and I to demonstrate our differences or skills. Creating a differentiator to open new doors when you are an adviser without a big venue to display your talents can be a challenge.

I think this explains why many brokers are looking for some technology as the differentiator. It is much more tangible. You can put videos and pictures on your website. You can go to meetings and do demos. And after you get the client you can set up some system and hope that client is tied to you. But, from my perspective, this provides a false sense of security. As we all know, technology gets old. Today’s market leader will be outdated in six months. So then you are stuck with yesterday’s technology. And most brokers don’t know how their technology really compares to that of competitors. They move from being a good or great benefit consultant to a bad technology salesperson. Their shortcut to differentiation becomes a liability, not an asset. I have seen this way too many times.

Shiny new toys

Getting new business is tough. Having something new and shiny to open doors can be tempting. But the apple was shiny, too. From my perspective as a technology consultant there are opportunities everywhere to be different and solve real problems. As employers adopt new technologies they will need help implementing, integrating, optimizing, extending, communicating and training.
There are companies around the world whose businesses are all based around servicing some other product or technology. BASF didn’t make the product, “they made the product better.” That opportunity exists in the benefits business. However, developing the service model and then marketing it takes a real lot of hard work and is not as easy a selling the shiny new toy. But as the old saying goes, if it were easy then everyone would do it. And everyone has the shiny new toy.

Tom Brady and I are/were both quarterbacks, but that is where the comparison ends. I guess if I put on a Patriots uniform and ran out on the field with the team some may think I was a professional football player, until of course, I had to perform. So, I, like many of you, need to find better ways to differentiate or even ways to simply display my skills. The opportunities are out there. Don’t let the shiny new toys distract you from finding the real solution.

The New Benefits World is Here – Though You May Not Have Seen It Yet

I write quite a bit about change and disruption, and have recently given my “bold predictions” for the future of the benefits business. I also have had conversations in my office with staff members and some brokers that I consider part of my “think-tank” where I asked them if I am way off base with some of my ideas. And though the tagline to this blog is “Challenging Everyday Thought”, as I like to challenge conventional thinking, I am also one who does not like being surrounded by “yes men” who simply agree with me. I enjoy great debate.

In-spite of these challenges to my ideas and some second guessing on my part, my partner and I have made substantial changes to our business for 2016 (that will benefit our broker customers) that assumes the industry we are in, the HR and Benefits world, has begun a major transformation that will change the industry forever. And the changes we are making are needed to survive and thrive in this new world. We believe inaction is much riskier than action. In fact, we think the opportunities ahead, with the changes we are making, are much greater than any time in the past. Yet in-spite of my beliefs about how the business has changed I see many people acting as if it hasn’t. It seems like the whole world thinks A and I think B.

What prompted me to write this blog is that yesterday I went to see the movie the “Big Short”, based on the Michael Lewis book about the real estate bubble and crash of 2008. Not to be a spoiler but the movie was centered around a few hedge fund managers and traders who predicted the real estate market was going to crash and therefore bet billions that the market would do so. There were moments in the movie where some of these manager’s thoughts and actions somewhat mirrored what my partner and I have been going through as we made the decision to change our business. In no way am I equating the magnitude of their actions relative to ours but I will equate some of their thoughts and emotions.
In the Big Short the main characters often questioned themselves because even though they thought all the evidence pointed to a coming market crash they wondered how come so many others in the industry and government could not see the same thing. How could they all possibly not see this coming problem? It certainly says a lot about what I call “groupthink”. Yet I always refer back to my favorite Ben Franklin quote that says, “If everyone is thinking the same thing then nobody is thinking”. Was that it? Nobody was thinking.

In the benefits business I see somewhat the same thing but obviously not to the degree of a market crash. I have predicted the following changes in the benefits brokerage and health care business.

1. HRIS/Benefits Technologies without Payroll will become obsolete.
2. The majority of employers with fewer than 100 employees will look for a single-source technology and services solution in the future.
3. There will be dozens of Zenefits-like companies in the market within 6 months.
4. Small group health insurance commissions will be 50% of what they are today by 2017.
5. Employers will be out of the health risk business within 3-5 years.
6. Most health insurance will be individually purchased within 3-5 years.
7. Provider systems will dominate the health insurance market in 5-10 years.

Details of these predictions can be found at this link:
My Bold Predictions About the Future of the Benefits Business – A Summary

While these are beliefs of my mine based on my own experiences, and I will say a little of “challenging everyday thought” thinking, my partner and I did do some research before making the decision to change (let me say enhance) our business strategy. In the Big Short they did their market research. They studied the delinquency and default rates on home mortgages and visited mortgage lenders and home buyers before placing their big bets. My ideas were validated by several sources including:

  • I spoke to a venture capitalist who is investing in the HR Technology space tell me that they are primarily looking to invest in HR type companies that are also going after the benefits commission. The commission drives the revenue but the HR technology/service would drive the differentiation.
  • A recent Human Capital Management industry study by George LaRocque and Steve Smith of The Starr Conspiracy says:
  1. There will be disintermediation in the benefits broker model … expect the roughest fight to be here. …. Because of the benefits component, there’s a ton of revenue out there for companies to grab. Expect more companies to go out there and grab it.
  2. HCM companies that deliver only point solutions are vulnerable to disintermediation. …Now, there’s the push toward “one desktop” — a holistic work experience. The thinking is that an HR system shouldn’t be somewhere you go. It should be a seamless part of your daily user experience as an employee.
  3. A sea change is underway in how employees get benefits coverage. This is the change that no one is talking about – yet.
  4. HCM market leaders will grow 50% to 200% year over year. We believe the benefits component is the fuel for the growth.
  • A representative from a local hospital system getting into the insurance business stated, “There will be no Blue Cross version of us in 5-10 years”.
  • And how about this – A broker proposal showing the cost of the following services for an employer:
    Accountant – $150 – $300/hour
    Attorney – $200 – $500/hour
    Benefits Broker – $600 – $1000/hour
This brokers fee: $250/hour.
If you are a benefits broker and look at the above comments and my predictions you may feel uncomfortable. I sure do because my business to this point has been built on the current industry model. In the Big Short many people felt very uncomfortable because their livelihood was on the line. The ones shorting the market felt uncomfortable because they bet the farm that everyone around them was wrong. And as the market progressed the ones protecting the status quo became uncomfortable as the world around them began to crumble. And the changes came so fast many could not react in time to survive.
In the past I have said that changes to the benefits world are coming. First to broker distribution followed by big changes to the health care market. I am now changing this to say the changes are here. The horse is out of the barn and it is not coming back. And from my seat almost everyone in the business that I talk to doesn’t see this coming. Or they say they see the changes coming but after speaking with them I think most are misreading the market. Admittedly all of this is self-serving as my partner and I have placed our bets that the market has changed.
Like in the Big Short this is somewhat a study of human behavior. In this information age it is really easy to influence behavior. There is a lot of information out there and if the majority are saying the same thing then most people feel uncomfortable thinking the majority is wrong. But then again, maybe nobody is really thinking at all.