The Cost of "Free" Advice

Christine Simone
May 23, 2024

The world of financial planning has moved away from commission-based advising and embraced charging for financial advice. In 2022, more than 70% of advisor revenue was comprised of asset-based fees, and advisors projected that commissions would continue to decline by 25% over the next two years. Additionally, one analysis found that in 2021, “12 of the top 25 firms that are fee-only practices saw their AUM increase by 28%.” The other 13 firms, which also have other forms of compensation, saw only 19% growth in comparison. 

This move from commissions to fees has benefited both clients and advisors in many ways. For clients, a fee-only model means unbiased advice and more personalized, holistic financial plans. When advisors don’t have to worry about earning a commission based on client activity, they can spend more time doing what matters most to their clients, delivering advice that is purely fiduciary and creating comprehensive financial plans for clients’ specific goals.

Financial services as a whole has embraced the fee-only model, so why is healthcare planning any different? Why are advisors still leaning on commission-driven resources for their clients to get advice about their health benefits in critical moments like retirement or enrolling in Medicare?

There’s No Such Thing As Free

For starters, we all know that nothing is ever really “free.” 

By working with an insurance broker or agent, you’re choosing someone who earns commissions based on the health plan a client signs up for. Being paid by commissions exposes your client to potential bias. 

For example, Medicare Advantage plans in some locations pay agents nearly up to twice as much as a Medigap policy with a Part D drug plan would if the client enrolled in “traditional” Medicare. These policies might not be the best option for your client 

Further, on most insurance agency websites, you’ll find a disclaimer similar to this: “We have contracts with many but not all plans. As a result, we do not offer every plan available in your area. Any information we provide is limited to those plans we do offer in your area.” 

This means that clients are rarely shown all the plans available to them in their zip code, and might be missing plan options that are most cost-effective and/or offer the best possible coverage for them. 

When I speak with advisors, some have told me they have a local contact from a single insurance company, meaning they represent only one carrier. This is not a great outcome for clients, because they could miss out on being able to see specific doctors that are important to their care if they don’t contract with that carrier.

Unscalable Client Support

Aside from commissions that could lead to biased advice, most of these brokers can’t offer scalable client support. Remember when I mentioned that brokers can only sell the plans they’re licensed to? This means that a broker in Pennsylvania likely can’t support your clients outside that state — some can’t even offer the same support from zip code to zip code in one state. One of our long-time clients shared that needing to scale client support was one of the main reasons they went with Caribou, rather than an insurance brokerage: 

“We had a couple of local consultants in Philadelphia who could help somebody in the area, but…we have clients in almost all 50 states. An insurance consultant in Philadelphia can’t help our client in Miami. I liked Caribou’s model and that it had a nationwide ability to answer the questions that I couldn't. And three years later it's only gotten better and better.” - Clifford Haugen, President & Financial Advisor at BLBB Advisors

Under the umbrella of scalable client support, brokers are also limited to only helping Medicare-eligible clients. Since brokers don’t make nearly as much in commissions from Marketplace plans, most do not offer health insurance guidance for pre-65 retirees or anyone who’s not Medicare-eligible — evidence that they are driven by commissions. Caribou puts an emphasis on Life Events, which essentially means that there are many milestones and events in life that necessitate a healthcare planning conversation. This gets you, the financial advisor, involved in more of your client’s financial life and creates a more accurate financial plan through all stages of life — not just when they turn 65 and become eligible for Medicare.

Last, if you’re a large or growing RIA, your local contacts are likely a small, mom-and-pop-style shop. They likely have limited bandwidth during high volume times like Open Enrollment, can’t comply with the same level of security that you do (I recently spoke with an advisor whose local contact got hacked and ransomed for money), and it’s unlikely that they’ll extend the same level of client service that you do in your practice. These are all critical reasons to be involved in the process, leading me to my last major point on why it’s important to deliver healthcare planning in-house.

No Advisor Oversight

This risk isn’t talked about much, but it should be. If you’re referring your clients to a third party, they could sell them other products that could put their financial plan at risk or that could be competitive with other areas of your business, like long-term care insurance or annuities. Remember, these contacts are incentivized to sell, and there’s no reason why the conversation about Medicare couldn’t spark a conversation about other forms of insurance. 

Even worse: nothing is keeping your health insurance referral contacts, likely brokers or agents, from suggesting that your clients speak to other financial professionals, putting your client relationships at risk. This is part of why advisors have moved towards more comprehensive planning in other areas of clients’ finances, like tax or estate planning. More oversight allows for more control over the client relationship and a deeper relationship.

Final Thoughts

Using fee-only healthcare planning software like Caribou, instead of commission-based healthcare planning, not only aligns well with fee-only, fiduciary advisors but also results in:

  • Truly honest guidance that’s driven by data, and not human bias or commissions.
  • Clients presented with all, not a limited set, of their options.
  • The ability to support all types of clients (not just Medicare beneficiaries) in healthcare planning decisions, which is especially critical in today’s financial planning landscape given the average age of retirement is 62.

For the same reason that people who are serious about their financial plans and investment strategies benefit by partnering with financial advisors who are only compensated for their advice, financial planning professionals benefit by partnering with Caribou to offer holistic, unbiased, personalized health insurance analyses to clients. 

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