The Cost of ‘Free’ Advice for Retirement Healthcare Planning
By 
Financial advisory practices have moved in waves from commission-based to fee-only compensation. In 2022, more than 70% of advisor revenue consisted 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.
This move to fees has benefited both clients and advisors. For clients, a fee-only model means unbiased advice and more personalized, holistic financial plans. When advisors don’t have to worry about earning commissions based on client activity, they can spend more time doing what matters most to their clients: delivering purely fiduciary advice and creating comprehensive financial plans for clients’ specific goals.
Financial services as a whole have embraced the fee-only model, so why is healthcare planning any different? Why lean on commission-driven resources for your 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 like 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 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 great for clients, because they could miss out on being able to see doctors who are important to their care if those doctors don’t contract with that carrier.
Unscalable Client Support
Aside from relying on commissions that could lead to biased advice, most 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 longtime clients shared that needing to scale client support was one of the main reasons they chose to work 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 emphasizes Life Events, which include milestones and events outside of Medicare that necessitate a healthcare planning conversation.
Supporting clients in significant decisions about healthcare plans gets you, the financial advisor, involved in more of your clients’ financial lives and allows you to create more accurate financial plans throughout all stages of life—not just when clients turn 65 and become eligible for Medicare.
Last, if you’re a large or growing RIA, your local health insurance contacts are probably small, mom-and-pop-style shops. They likely have limited bandwidth during high volume times like Open Enrollment. They also can’t comply with the same level of security you do (I recently spoke with an advisor whose local contact got hacked and ransomed for money). It’s unlikely they’ll extend the same level of client service as you do in your practice.
These are all critical reasons to be involved in clients’ selection of health plans, which leads me to my last major point.
No Advisor Oversight
This risk isn’t talked about much, but it should be. If you’re referring your clients to a third-party insurance agent or broker, they could sell them other products that might put their financial plans at risk or compete 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 client relationships, and offering healthcare planning in-house means that advisors can:
- Offer truly honest guidance driven by data, not human bias or commissions.
- Present clients with all, not a limited set, of their options.
- Support all clients (not just Medicare beneficiaries) in healthcare planning decisions. That’s especially critical in today’s financial planning landscape, given that the average retirement age is 62.
At Caribou, we make it possible for advisors to extend the scope of their services by providing a pathway for clients to receive unbiased, personalized health insurance analyses that address both their financial and healthcare needs.
