Speaker 1: 0:00

What lessons can we learn from a securities advisor turned healthcare agency owner? We'll find out on this episode of Shift Shapers.

Speaker 2: 0:10

Change either energizes or paralyzes. The choice is yours. This is the Shift Shapers podcast, bringing the employee benefits industry interviews with individuals and companies who are shaping the industry's shifts. And now here's your host, david Saltzman.

Speaker 1: 0:32

And to help us answer that question, we have invited Donovan Rikus, who is CEO of Ethos. Benefits Donovan, welcome to the podcast.

Speaker 3: 0:39

David, thank you for having me. I've been a longtime listener, I can tell you, many, many years, and I've actually, you know, called on people that you've had on your show. After done business with them, worked out solutions for clients. Thank you.

Speaker 1: 0:56

That's awesome. Hey, it's my pleasure. As you know, we've talked off air. I've had a great career. This is my little tiny way of giving back to the industry, and I have fun doing it because I get to talk to people who are doing interesting things. So, speaking of interesting things I alluded to it a little bit in the intro Tell us a little bit about your background. How do you get to be doing what you're doing today?

Speaker 3: 1:17

Naturally, like anybody else with insurance, somewhat by accident right, I'd kind of found my way into financial services after I had opened and operated a Gold's Gym for a few years Kind of my dream did it and it was around the time of Planet Fitness starting, and Planet Fitness is basically, you know, the functioning illiterate of gyms and the gym business. But it certainly made for disruption. You know their model is charged 10 bucks and make it so cheap that it's, uh, more painful or or, you know, I guess, more of a burden to cancel than to just keep Right. Uh, so it kind of drove down the values, put the gym business in a flux but nonetheless operated it, owned it for six, seven years, sold it, um and started in financial services. So, um, I came into benefits actually from from securities, like you mentioned, from being a financial advisor.

Speaker 3: 2:15

And you know, in that path and being a financial advisor you basically have two choices when you start and that's if you want to be a series, six or seven advisor or a 65 or 63. And basically the difference is, are you going to charge commissions or do you want to do fee-based consulting? And for me I chose to go fee-based consulting With the little bit of experience I'd already had in financial services. You know you start at captive companies. You kind of get your education, um and you, but you have to do things their ways right. You're selling their products for their reasons. It was kind of stuff that I didn't really want to sell to my own family members, um, and being a financial advisor, I wanted to make sure I didn't go down that path. So instead of on something where I might be selling, you know, commissioned products for a 3% load, a 5% load, whatever it is, I decided to go fee-based, have a better conversation and actually align myself as a licensed fiduciary with that client.

Speaker 1: 3:18

You know it's interesting because the group business side of the universe has not really entertained that For a while. The life insurance side did and there are still some life insurance folks who are doing fee-based work, although they're fewer and further between than they were. It kind of had a resurgence back a while back. But today we have these things in our industry like the Johnson Johnson lawsuit that just happened and it's brought to bear a word that we don't talk about a lot on the group side of the business and that's called fiduciary, which you dealt with when you were registered rep, I dealt with when I was. But for most people in our business that's kind of a new thing, unless they're on the ERISA side of the business, and even then it's kind of an amorphous concept. Can you give us a good working definition of what a fiduciary is and what it means to be a fiduciary?

Speaker 3: 4:10

So basically to act in the best interest of the trustee or the client.

Speaker 3: 4:16

So in this case, for us it's going to be the employer and the employees and the main conflicts, as I see it, is really kind of the incentives that can drive decisions away from the best solution, the best option for the employer in a tradeoff of a commission or a bonus.

Speaker 3: 4:37

So in that same way I did it with securities. That's what we try to do at Ethos Benefits. We do not take any commissions, we do not take any bonuses on healthcare of any kind, and what it does is it allows us to work directly with our clients without any questions of conflicts, without anything else there, and it really opens it up and it starts the conversation off in the right way. And it is not only helps me sleep at night, you know, knowing I'm doing the best thing for my clients, which in turn goes down to their hundreds of employees and even more of family members and other insured members, but it's a great honest way to have a conversation and make sure you know both myself and my agency kind of last and sustains in this business without having those those conflicts.

Speaker 1: 5:29

Are commissions inherently bad?

Speaker 3: 5:32

Definitely not. No, I wouldn't say commissions are bad at all. Like, by all means. Like you know, we are providing a service. There needs to be some compensation for it. I think the only thing that is bad is a failure to disclose that right. So it's fine. Commissions are not bad, they're not evil Don't mean to say it that way. But hiding things that could incentivize you to, you know, kind of provide different advice, different options to clients than you would have if that wasn't there. Yeah, I think that's a little bit of an issue.

Speaker 1: 6:07

You know it's funny because you can make that a positive. I mean all the years I sold which was the first half of my 40-something year career no matter what I was selling whether it was life or DI or even medical I would always tell clients here's what I'm making on this, and if at any time you don't think the service I'm rendering is worth it, you need to fire me. And it became a big selling point and a differentiator for my agency. But a lot of people are reticent to talk about that. I don't know why.

Speaker 3: 6:38

I agree with you. You know it's a radical transparency right. It might be painful the first couple times you do it. I think it's a little bit of that kind of imposter syndrome too, like, am I worth it? Is that too much? But what I have found is when we explain it to people they're actually surprised. They have an assumption for the services that we've been delivering that it's more, that it should be more, that it should be more.

Speaker 3: 7:08

And it also opens up for really good kind of opener conversation with prospects to just understand, like you know, if they're trying to get their own employees to do a certain behavior, they're going to incentivize in line with that. And if they had an incentive that went against the behavior they wanted, you know they would probably get that as well. So it's a great easy place to start it. Kind of simplifies wanted. You know they would probably get that as well. So it's a great easy place to start it. Kind of simplifies benefits. You know benefits is made to be very confusing, largely because the data and all the information that's needed to make a good decision is just not provided. And this is the very simplest of that.

Speaker 1: 7:42

How do you select product if you're on the fee-based side of it? Do you guys only work with larger self-funded groups where that's a lot easier to execute?

Speaker 3: 7:54

So towards the end of last year we did actually sell off a large piece of our business what equated to about 200 plus employers, what equated to about 200-plus employers and those were largely on the smaller, fully insured side, and the main reason for that was to align Now with those smaller products.

Speaker 3: 8:13

You can't remove commission, but certainly we were still doing the disclosures, but really it came down to our agency trying to make a bigger impact and bring that to more employees. So we do tend to work exclusively on the large group side and we do tend to self-fund, but that doesn't mean exclusively. While we love it, we believe it's the only kind of sustainable path forward in the long term. It's not always right for every company in the short term right. So we still do the carrier business, we still have fully insured clients. So you know, when you're working with a large group you can set those amounts, you can change those commission amounts and again disclose it and anything else that might come along with it. So we kind of just do our best with that process. But we seem to align ourselves with with the clients that are looking for solutions.

Speaker 1: 9:11

And now a word from our sponsor. This episode is sponsored by MZQ Consulting, a concierge compliance firm that excels at making the complex simple. Have you seen the news lately? Johnson Johnson is being sued because J&J's health plans failed to negotiate lower prices for prescription drugs. In the case of one drug, the plan paid $10,000 for a drug that regularly is available for under $80. Not only were the members of the benefits committee named personally, but their benefits advisor was also named in the suit.

Speaker 1: 9:48

And that, dear listeners, is why you need a top-flight compliance firm. Yes, MZQ handles all the usual compliance stuff, from ACA reporting and tracking to RAP documents, 5500s, mental health, NQTL and QTL analysis and a whole lot more, but the heat is being turned up on fiduciaries who don't act like it. In this environment, using an ERISA attorney-led compliance consulting firm is your best strategy, your clients too, and MZQ Consulting is where you should go For more information. Go to wwwmzqconsultingcom or email them today at engage at mzqconsultingcom. Now back to our conversation. So let's talk about the disclosure process for a moment, because it's really foreign to a lot of agencies and a lot of folks who do a great job helping clients and do indeed think of the client first and don't worry about what the commission is. But what is that disclosure conversation like with a client? The client.

Speaker 3: 10:51

So it starts I mean it definitely starts in our first kind of discovery call, figuring out where they're at and how they have that set up, currently having that discussion. But then as we get further down the process and we're actually in proposal, if we're showing them different options, that compensation is on the bottom of each kind of column of, of each one that they could choose, cause sometimes it will change despite our best efforts per carrier, even if we try to kind of standardize it. So during that process it's front and center. And then as we get you know enrollment wrapped up, we're doing that kind of final calculation against what we were showing them in the proposal, just to adjust for head count or whatever else might have changed during the enrollment.

Speaker 1: 11:39

Do you find yourselves doing any hybrid work where some of it's some of your income is commissioned on a case and some of it is fees, depending on the basket of services that you're providing?

Speaker 3: 11:50

Yeah, I mean we're. We offer, you know, pretty comprehensive set of services and also kind of the what we call the enhanced line. Some people call the voluntary or the ancillary there's a lot of names for them, but those you can't really remove commissions from those product lines. Of course it's usually voluntary, it's employee paid, so those are disclosed. And then we're also offering a full host of, you know either, compliance, benefits, administration. So the great thing about being fee based is you really get to set your own worth with the client based off what you're providing to them, rather than having insurance carrier tell you how much you're worth and then you're either offering you know, more to keep the client or whatnot you really get to. You know the whole goal is to meet the client where they're at. I think you know. Meet them where they're at, give them the services they need, not the ones they don't, and make sure that's a fair equation for both parties.

Speaker 1: 12:48

Yeah, I mean I never really understood why, given a choice and not everybody has a choice and in all markets there really isn't a choice but I never really understood why, given a choice, you would want to put yourself in a position where you are limited to whatever the carrier told you you were worth on a particular case, because you and I both know advisors who aren't worth any amount of money. And then you and I both know advisors and I think most of our audience strives to be the kind of advisor where, no matter how much they get paid, they're going to give more. So it's strange isn't it?

Speaker 3: 13:22

Yeah, kevin Trocchio says that this industry has rewarded mediocrity for way too long, and I couldn't agree more. And I think it's also a crutch for advisors to come in when they don't have that confidence in themselves to just say like, well, that's the commission. Or really what's usually done is to not disclose it at all and just feel better about it because, like, hey, the carrier put it in and you know that's what it's going to be.

Speaker 1: 13:46

You're not skipping on packages, though. I mean, you're still doing a lot of what people would consider near cutting edge or cutting edge. For example, I know one of the things that you guys do a lot of is reference-based pricing.

Speaker 3: 14:05

How does that work when you're talking to a client about the overall cost of a plan? It depends. You know we've gone through this process. We've been doing reference-based pricing I think for six or seven years now, so we're by no means new to it. I think for six or seven years now, so we're by no means new to it. And how we've approached it's kind of changed because you know it is, it is a um, there is a difference in administering those plans and that doesn't just go down to like the vendor that we put in there. It goes to how we fill in those gaps in between employee and the repricer and the TPA to make sure, make sure things are going smoothly, timely. If we're doing a redirect, it makes sense. They feel like it's in their best interest. So it's definitely a client-by-client discussion. We like reference-based pricing. It is certainly not for everybody but it is something that fits well and those cases are interesting because obviously it really multiplies the workload on my agency and my team when we're doing those cases In turn.

Speaker 3: 15:01

The employer definitely gets the results. But that's something we have to take into consideration when we're kind of doing the consulting fees. And often you know, when I'm talking to. You know, agencies across country when we're doing conferences or benefits pro or whatever it might be, they're usually shocked on how much we're charging. But we do that after we've delivered the results right. So we kind of go in. We were usually matching that commission that they had prior right.

Speaker 3: 15:29

We're breaking that down to a fee, delivering the results and typically on that first renewal we're saying, hey, look, here's the work we did. I think you can see that it was more work, it was more involved. We're more in contact. Here's kind of the PPM we would like. And that is how the conversation goes. We have yet to ever have an employer say no or push back or even negotiate it. They, you know, after the results have been delivered, it kind of flips what they've been experiencing in benefits, their entire working career right. Every year a worse result comes in and the advisor gets paid more. So for the first time they got a positive result and I'm asking for, you know, a tiny fraction in return and it's usually a very quick, agreeable conversation and we're kind of moving on.

Speaker 1: 16:15

Yeah, healthcare does seem to be the world capital of inverse relationships between value, and value given and value received. When you set your fee in that kind of an arrangement and you're not taking a PEPM until the end of the first plan year, do you set it to cover just basics or do you do you still factor profit?

Speaker 3: 16:36

in yeah, no, no, we're typically starting where they were. So we'll start with kind of the commission minus the eight, the agency bonuses and stuff that we wouldn't be receiving the carrier bonuses. So we're we're typically matching the commission and kind of explaining that, breaking it down Right, um, and that'll change by market. So that's usually, you know, fair. But we know we're going to put in quite a few more hours, like if we're talking about, you know, a typical carrier, versus going reference-based pricing with your fiduciary pharmacy, maybe some medical concierge in the middle. I mean we might, my agency might, be doing four times the amount of work Easily.

Speaker 3: 17:15

Yeah, and that's not even that's after the plan's up and running. That's not even constructing and creating the plan and getting it up and running in practice, but just the service work throughout the year. So it's been one of the kind of the newer initiatives to kind of track the stewardship. It's a tough thing to do. My attorney's really good at it, he can track every minute. But it's been a little bit of a challenge to implement that with our team as we're getting phone calls, servicing claims, maybe calling providers for somebody to kind of track that time. So we do our best to track engagements with their insured population. Show that combined with the results and then that second year. Basically what we're asking for is the increase from you know where their last broker was, if you will to you know the extra work and results we delivered. So we're kind of just getting that increase, do you?

Speaker 1: 18:07

find that in that second year and thereafter you're actually better off as an agency than if you had just sold a straight commission product.

Speaker 3: 18:18

I mean to me we're better off the first year because I just, like I said, I'm in good conscious, like I'm sleeping well, like I just can't imagine knowing these solutions exist to solve problems and not implementing them because it's not convenient. I was just talking about financially. Yeah, I mean potentially, you know, I'd say we put in the workload, but just because we have a very good, like effective, team that really has a strong knowledge base, I wouldn't say it's that far off. You know, in seeing some other agencies I kind of see you know the turnover, other things that increase those costs. So I feel like with the retention we've been able to have the training where my team's up to speed. Uh, I, I don't, it's not anything I would measure.

Speaker 1: 19:05

Yeah, Well, and that's exactly where I was going to go. I mean, I think part of the payoff has to be retention, and that then makes a whole world of difference in your ability to exponentially build your book, and I presume you guys have found that they didn't want to hear the bonus conversation about what they needed to do, so the agency would get a bonus, so they could in turn get a bonus right.

Speaker 3: 19:36

Like that is something that is throughout kind of our hiring process and our personal ethos, and like just you know who we are when we're recruiting, that they see that those people relate with it, and that's been the team that we have right now which has been the biggest game changer. And it's funny. It actually came after, kind of like you know, the brand story stuff that you do, right. We did essentially that, that practice with Kevin Troche and Wendy Kniep, right, and when we got, when we became aware of that story, we put it down, we made it into a brand package, we told our employees, we told everybody we were interviewing. It really changed everything so quickly. It was one of the most shocking things, something I didn't think we'd get that type of return on. Like you know, I thought branding, I'm going to get a cool new name and a cool logo, um, but really it was completely different. Change Changed the people.

Speaker 1: 20:31

Yeah, story is just exponentially powerful. I mean it's order of magnitude stuff, it's not simply arithmetic and a lot of folks don't understand. I'll go off on a tiny tangent here. A lot of folks don't understand that the story is as much for your internal folks as it is for the clients. Although we build client-facing stories in essence, it helps define what you. It is for the clients, although we build client-facing stories, in essence it helps define what you're doing in the agency, and that sounds like that you guys have found that as well with your team.

Speaker 3: 21:00

Certainly. I mean, you know, if you think about it, the stakeholders or the executives in a company might know and understand, like, what the mission is and why. But, like when I was thinking of it prior to the exercise, I was like if I asked my employees, they would each say something different. You know what I mean and that will show you that it's not clearly defined. And you know, like kevin says, you should repeat it so much that they're almost making fun of you for kind of repeating who you are. And that's, that's when you'll know you've kind of done it enough and everybody's on the same page as far as who you are as an agency and what kind of solutions you're offering for clients.

Speaker 1: 21:36

Kevin's a lot nicer than I am. I usually tell clients if you wake up your staff at three in the morning and point a super soaker at them and they can't automatically rattle it off, soak them. So another question I guess, as you go down this fee-based route and obviously feel really good about it and feel that you're delivering a legit, real, perceivable value to your clients, does it change the model of the kind of plan design that you use? Do you find yourself doing a lot of defined benefit versus defined contribution yourself?

Speaker 3: 22:13

doing a lot of defined benefit versus defined contribution, I'd say it changes not necessarily in that route. I mean, can you ask that in a different way?

Speaker 1: 22:27

Kind of tell me what exactly you're Sure, once clients get comfortable, that they've got a really good package and that everything's being honestly delivered, is it easier for them to say to employees hey, we're going to give you an allowance and you go buy what you need for you and your family, as opposed to having a fixed price plan where everybody gets the same benefits, or has that not made any difference at all?

Speaker 3: 22:48

I think it's employer by employer. We've certainly seen some get a little bit more creative now that they have a little bit of room in the benefits plan and it's not just like this, you know, scramble at renewal to keep it affordable for the employer and the employee. So that's been a rewarding part of seeing what kind of stuff they want to add and how they want to add it. So, like you know, we're starting to get into a lot more of the direct primary care combined into these plans, which I think is great.

Speaker 3: 23:14

We've had a challenge with it in the past, not because it wasn't viable, just because we had a lot of and we still do have a lot of businesses that just have employees all over the country, right, so they're just, they don't have that location where we can easily assign a DPC. So I think, you know, after they see, you know, the second and the third renewal, they start to feel more comfortable and realize like, okay, we actually have some stability here for once. So now that I know we're not waiting for, you know, a bomb to go off on the renewal, let's see how we can apply that. And it's cool working with the HR teams to see, like, what kind of initiatives they want to bring forward and we typically give some suggestions and they take it whichever way they want.

Speaker 1: 23:58

So where do you see this going, this whole fiduciary model going and or the fee-based model going? Do you find, as you talk to other people who are in the business I know you and I go to some of the same conferences Do you find that people are intrigued in maybe dipping their toe in that water, or is it still mostly commission?

Speaker 3: 24:17

I mean it's a mixed bag because you know, like when we do the conferences regardless of what conferences there's almost zero representation from the large publicly traded brokers and agencies, right? So, talking to that crowd, you know they're a little bit more innovative, they're a little bit more on this path and you know I think it's important, it's important for the employers to know that, like you know, the compensation disclosure is mandatory now, like most employers don't know that, they don't know they should be receiving it before they get into an agreement and before they make a decision on a plan. But even with that being law, like you know, that penalty is on the employer, not on the broker. So I think, even you know, the large agencies have been slow to even disclose when they should be, versus the more independent agencies are kind of moving down this way a little bit faster, for sure.

Speaker 1: 25:22

Interesting conversation. Good place to end for today. Donovan Reich is CEO of Ethos Benefits. Donovan, thank you for sharing your expertise with the audience. I hope you come back, Thanks.

Speaker 3: 25:31

David.

Speaker 2: 25:32

Shout out to the crew at Grand River Agency for their awesome post-production. This Shift Shapers podcast is copyrighted content and may not be reproduced in whole or in part without the express written permission of Shift Shapers Solutions LLC. Copyright 2024.