With consolidation in the big-plan consulting market over the past few years garnering all the headlines - Towers Perrin merging with Watson Wyatt in 2009 to form Towers Watson and Aon joining forces with Hewitt last year to create Aon Hewitt - it's easy to forget there are a slew of smaller consulting firms out there providing consistently high levels of service to thousands of small- to mid-sized organizations.

With that in mind, EBN called on three smaller consulting firms to get their views on large-firm consolidation, what it means for them, trends they're seeing among their client base and what unique attributes smaller consultants bring to the table:

* Ed Bray, JD, director of compliance for Burnham Benefits Insurance Services and one of EBN's Contributing Editors.

* Laurie Miller, another EBN Contributing Editor and president of Miller, Buettner & Parrot, Inc., an employee benefits consulting firm in Rockford, Ill.

* Robert Arnoff, president of Arnoff & Associates, an employee benefits firm based in Ohio, and co-author of "The Three Rs of Employee Benefits."


EBN: Has the consolidation in the big-plan market had an effect on your business?

Bray: Word on the street was that, 'We've known these entities to have different philosophies in the way that they've done things. For example, Hewitt's a very service-based organization where Aon is a more product-driven organization.' A lot of folks were saying, 'How are these two going to come together and make it work?' The fallout was that we actually gained some clients from larger firms because of their trepidation as to what might happen there.

This wasn't a Home Depot entering the marketplace and a mom-and-pop hardware shop going out of business. We weren't really going after their clients anyway. So, it's not like two entities in our space got together and started eating up all the clients. We're not going after clients that an Aon Hewitt or a Towers Watson would be going after.

Miller: I wouldn't necessarily attribute [growth in our business] to [consolidation] as much as that in 2010, there was so much uncertainty in the marketplace because of health care reform that people were looking for consultants to help them navigate some of that confusion. That opened up a whole new role for us.

Arnoff: We've really not been affected from that standpoint. The economy has had a bigger effect on us than any single entity or group of competitors. People are frozen and so instead of taking action sooner, typically employers today are saying, 'Let's see where the economy is next month' or 'We're trying to keep the doors open this month; let's talk again in 90 days.'

The economy and geographic area that we're in, we're in the proverbial Rust Belt of the nation. I'm in a suburb of Cleveland. The economy here is not going well. Certain pockets of the economy are doing very well, and we're fortunate to have some of those clients. But every adviser has his own story from that standpoint.


EBN: What overall trends are you seeing in your industry?

Bray: We're seeing HR departments, from a staffing standpoint, at smaller numbers than ever before. We're also hearing, more than ever, that employers are looking for any cost efficiency opportunities they can find. They're counting on their brokers to be an extension of the HR department. The third [trend] is the complexities in the benefits environment. We're seeing new levels of reporting requirements that we haven't seen before.

Miller: We also saw, with the economy, many employers become very lean in their HR departments. So they've been leaning on us more than they ever have in the past because they just haven't filled those positions or those positions have been eliminated, and they're outsourcing those services for employees.

Bray: We're seeing firms of Burnham's size become more specialized. Just a few years ago, Burnham Benefits and its competitors in this space were really relationship-driven. But with the complexities of benefits, coupled with health care reform and cost-containment challenges, you're seeing these brokerage firms become more specialized in terms of the resources they're hiring on. For example, compliance, communications, underwriting, wellness and admin support resources. We're seeing benefit brokers and consultants of our size becoming more specialized in those areas.

We've got a number of clients that are under 50 [employees]. When the pay-or-play hits and the exchanges are up and running, they're not going to be responsible for pay-or-play because they won't be penalized by the federal government for not offering insurance. And, the way we're seeing it right now, it's going to be cheaper for them to say to employees, 'Go through these state-run exchanges to get your insurance.' What's going to happen then, to some of the smaller brokers, is we're going to lose some revenue we've counted on from a volume basis. What we want to do is prepare ourselves for the future. We're seeing brokers, who were very transaction-oriented, opening up consulting arms, true fee-for-service consulting arms, so that when the dust settles through 2014, they can still feel operational and functional and make revenue by expanding into business areas they hadn't been in before.

Another area is wellness. You're seeing a lot of brokers get into the wellness game because they know that even if that respective employer gets out of the health insurance game, they're still going to want productive employees.


EBN: What are your clients looking for right now?

Miller: As opposed to just somebody who goes out and markets the coverage, they're looking more for the HR side of things and how they can prepare for, and comply with, health care reform. And we really made that a focus of our practice, becoming knowledgeable and assisting our clients in helping to prepare. One of our main focuses is employee communications. When there's not a lot of communication, it creates fear and uncertainty.


EBN: How are employers dealing with health care reform?

Arnoff: A lot of our clients are taking a wait-and-see approach. What's going to happen with the elections? Will we see Obamacare repealed? Will we see a new version of it? There's a lot of posturing about where this is going. When I'm advising clients, I say our crystal ball has been somewhat on the fuzzy side for awhile. Taking a defensive posture, we really want to look at the what-ifs of what can happen. We're scenario-driven when we're advising clients, as opposed to advising based only on one scenario. We want to position them for success based on the environment that's going to change versus hoping and praying it's this one particular scenario.

Bray: Health care reform is affecting everyone. It's not just affecting the benefits department. You need to be prepared to communicate as effectively with senior management as with employees and all the functional areas you work with. When you're working with a smaller firm, you've not only got the relationship, but you can have someone out tomorrow talking to those respective entities in the language they want to hear.


EBN: What are the advantages for employers of hiring a smaller, boutique consulting firm?

Miller: I think the reason people choose us is because we have such in-depth knowledge of the local market and issues and trends, especially among the health care providers and vendors. [Knowing] what's going to work here locally, which you might not get when you're not dealing with that every day.

Bray: Specialists are often right onsite. Anyone can grab me for a phone call or for a meeting at a client's. Also, I'm not billable. I can travel very easily with the sales associate. In some of the larger firms, their compliance office might be based somewhere else, and it might take a few days to get back to the client. Just the fact that our specialists - whether it's compliance or admin support or communication or underwriting - are right onsite with the folks who are running the account, and they're generally very accessible.

More work can be provided under standard fees. For example, a number of projects came out of health care reform, [such as] the early retiree reinsurance program. We're going to start seeing requests for financial modeling where clients are going to say, 'Tell us what our plans could reasonably look like into the future, as well as the costs.' In a smaller firm, that's generally taken out of the standard commission you're earning. So one of the advantages is that for a lot of the work that's being asked of consulting firms in general, the smaller firms, more often than not, are able to absorb that into fees they're earning because they don't have a lot of overhead.

In a very volatile benefits environment, we have less red tape than what I see in the larger organizations, where they have to move up through a management structure in order to make decisions on things for clients. We're much more nimble and agile because we don't have a lot of red tape.

Arnoff: In our marketplace we're not going after the Fortune 500 clients, and we're not going after the mom-and-pop business that has a couple of employees. We're in the upper end of the small marketplace and the midsized marketplace. And because of that, we know who we serve well.

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