If most of us bothered to picture our proverbial moral compass we’d probably see a circular contraption or a star-shaped figure pointing us toward the ethical high ground. Bob Arnoff would see a can of soup.
On a grocery run in college, Arnoff picked up four cans at the store and didn’t realize he’d only paid for three of them until he got home. His conscience couldn’t take it, so he returned the freebie to the store, explaining to the dumbfounded manager that he didn’t feel right messing with their profit margin. “That was sort of a triggering event of my consciousness of ethical considerations and ethical behavior that really made an impression on me as far as doing the right thing,” he says.
Of course, it’s not about the soup. It’s about any insignificant moment of right or wrong that sets our ethical standards for when it really counts. Can shaped or not, it’s tough times like these when our moral compass matters most. Benefits professionals especially are in a position of trust, one that’s easy to manipulate for personal gain when clients don’t know the intricacies of the business.
“If an adviser is losing business because clients are going out of business or their commission trails are dwindling and they’re saying ‘OK, well maybe I’m not going to be as ethical on the next case,’ I think they really need to look at their moral compass and [ask], in the long run, is that going to not only hurt the client, but also hurt them from an integrity standpoint,” says Arnoff, president of Ohio-based Arnoff and Associates.
More often than not, people don’t realize they’ve gotten themselves into an ethical dilemma in the first place. Alex Plinio, co-chair of the Institute for Ethical Leadership at Rutgers Business School, says it’s important to train yourself to recognize the issue, make a conscious moral judgment on it and then establish a moral intent — all before taking any action.
Addressing that first step, Arnoff and fellow industry insiders share a few danger zones that could send your moral compass off track.
The golden rule
Recognizing and confronting an ethical dilemma is the hard part. Solve it by simply treating your clients as you would want to be treated, says Dave Petno, consultant with Accelerated Benefits in northeast Ohio. “The key to business ethics is realizing that you’ve got to put the interests of the client in front of your own interests,” he says. “As long as we’re focusing on what’s best for that client, and telling them the downside as well as the upside, then we really don’t have a problem. It’s not a very complicated situation.”
Sounds easy enough. But it’s also easy for ethical pitfalls to arise when you decide a less-than-noble route could benefit you both. Bob Hart, president of Arizona-based Paragon Partners, has heard of brokers slipping up when they think no one will get hurt. “When you talk to the broker on the street, sometimes it amazes me how they’ll not totally tell the truth for a stupid little commission,” he says.
For example, Hart heard of a broker who, when signing a client with a new insurance company, feigned ignorance about an employee’s cancer during underwriting in order to get a lower rate. Because it’s a small company with only a few dozen employees, Hart says it’s likely that most people know one of their fellow employees has cancer, but there are still ways to cheat, like asking the newest employee to sign the underwriting form. “They’ll go to the person that least likely knows,” says Hart. “The key to it all is the commission. If the broker wouldn’t look at the commission, if he would just do this right, at the end of the day you’ll always make money if you do things right. Why is your integrity worth $300 a month?”
Avoid letting the lure of a short-term reward sway your standards by always painting the worst-case scenario for you and your clients, says Petno. “You might be thoroughly happy with the fact that you’re paying less and your employees are paying less and they have good coverage, but when do the insurance companies get to be real interested in how accurate you were when you applied for coverage with them? They get real interested when there’s a major claim, there’s a serious condition,” he says. “My job is to protect you from the worst-case scenario.”
Such a scenario, Petno says, could entail a phone call from the insurance company canceling the policy on the employee with the pre-existing condition. Or worse — they call to cancel the entire group policy and claim that both you and the employer committed insurance fraud.
“Looking out for the worst-case scenario for our clients always generates the most ethical position. The cutting of corners has a way of biting everyone in the rear end in the long term. We can’t do that,” says Petno. “As ethical and good business people our job is to build our reputation on servicing people well in the long term, not taking the best deal for them in the short term and sacrificing their long-term effects.”
Who are you?
When offering service options as both a broker and consultant, as many benefits professionals do, the two roles can become entangled, making it unclear when to be a broker and when to purely consult. For Arnoff and Petno, it comes down to compensation structure. “Where an adviser is collecting commission but also charging a fee for service that’s, from my perspective, crossing that gray area,” says Arnoff. “I really believe that consultants should do consulting and a broker should do broker work.”
Representing yourself as a fee-based consultant gives the client the assumption that you’re independent and unbiased, creating a level of trust that shouldn’t be violated. “I’m helping you select insurance company B or C. Well, if B is going to come back and pay [me] some sort of back-end [commission] and C is not, then that’s a problem,” says Petno. “If you’re a fee-based consultant then you should only be a fee-based consultant and not receiving any compensation from the insurance companies that you’re evaluating.”
Conversely, commission-based brokers need to make it clear to clients that they will be receiving compensation from insurance companies.
“If [clients] are interested, they have a right to know what that compensation is, and any sort of drastic differences in your compensation depending on the insurance companies should also be disclosed,” says Petno. “Our job is to provide value, and value includes the benefits that we provide divided by the amount of money that we receive for what we do.”
Sometimes the decision to represent yourself as a broker or a consultant is not always clear. Or it may become time for a relationship that started in one capacity to change to the other. Such a situation could arise if a client grows from a 50-person company to 500 employees, says Arnoff.
“Usually, we’re dealing with the HR department. If that department is still one person, a case can be made where a broker can still be considered appropriate if they are expanding the services they’re offering and really justifying their service,” he says.
If that’s not the case, it may be time to switch from broker to consultant. Even if the client doesn’t agree, “at least you’re planting a seed to the client that there is an ethical consideration. There is an appropriate time. It’s really, from my perspective, the client’s call to say when that appropriate time is, and not for the adviser to be the judge and jury,” Arnoff says.
So why bother to switch at all? “It’s really a revenue consideration,” he says. It may be more sensible for the employer to use their money to hire a benefits administrator, rather than paying increasingly higher commissions to you.
“Let’s say a broker’s commission starts off at $500 a month ... and a few years later it ends up being $5,000 a month for when it’s a 500 person group. My question to that adviser is can they teach, can they train an in-house person to do the majority of the services that they’re performing (what I call the meat and potatoes services) so they can have an in-house person and still be the chef in that relationship?”
Know what you don’t know
There’s a well-practiced tendency for any business person to call themselves an expert in their field. But just because it is common hyperbole doesn’t make it right, says Arnoff. “I would never want to call myself an expert. You’re really saying you have more knowledge than the vast majority,” he says. “It’s the ethical responsibility of that adviser — if they are not appropriate — to not fake it.” Such a situation for Arnoff would include performing a stop-loss funding analysis without the expertise of a relevant TPA.
Hart believes brokers selling voluntary products need to make themselves thoroughly familiar with employers’ existing group plan before offering benefits that could be duplicative. “If they don’t know about the health insurance plan it’s unethical,” he says. “The concept of voluntary is to supplement the health insurance.”
If you don’t have the skill set to help a client with their needs, you must walk away rather than fake it, says Arnoff. If a client wants help with financial planning for their retirement program and you have no experience with it, help them find a certified financial planner. “It’s sort of, if [I] had a heart condition, I wouldn’t want my podiatrist giving me advice on what to do next,” says Arnoff.
Focusing on the client’s best interest also means walking away if they want you to do something unethical. But, if you’re doing your job right, the issue should never come up.
“I’ve yet to have a client I properly advised tell me to do something in a way that I would call unethical,” says Petno. “If I explain to them the pros and the cons of the ethical way versus the unethical way, the client will always select the right decision, especially if they trust me as an adviser.”
Developing and maintaining standards
Factors such as background, life experience, religious convictions and values we are taught as a child go into developing our sense of what is ethically sound. However, that sense is tempered by our external environment, says Plinio. “When people are making decisions, influencing factors tend to relate to when the decision is being made. Like, what do my peers think? What do others think about what I’m doing? Sort of a dumbing down of the values and ethics,” says Plinio.
When ethical decisions are outwardly directed, we’re more likely to be influenced by factors out of our control, such as the economy. “Too often what we see happening is ... decision making is much more based on the influences in peoples’ environment,” says Plinio.
One step toward keeping your moral compass pointed in the right direction — no matter what the economic storm — is to have a culture of ethical leadership at your business. According to Plinio, a former HR director himself, research shows that about 10% of companies have some degree of focus on ethical leadership at work. As part of the National Association of Health Underwriters, Petno recently taught a continuing education class on ethics. Deane Elek, director of the Benefit Advisors Network, says NAHU’s code of ethics is a common guidepost for the industry, as well as those of individual states’ departments of insurance.
Whether trigged by a shopping trip in college or any other minor event, the development of ethical standards is a lifelong process. “Morals and ethics are not just black and white,” says Plinio. “It’s not just, hey, I’m going to do the right thing. Well, sometimes doing the right thing is very complex. We’re not talking about compliance with the law. We’re talking about things that are in the gray area which requires some creative thinking ... so that you’re doing the best job that you can when you’re making complex decisions.”
