Some indies starting to add group benefits

May 22, 2006 @ 12:01 am

By Bruce Kelly

NEW YORK - In a dramatic shift in the way independent-contractor broker-dealers treat their affiliated registered representatives, some leading firms are beginning to offer benefits such as health insurance.

The firms making the moves, which include Securities America Inc. of Omaha, Neb., and the broker-dealers in the AIG Advisor Group Inc., could reap short-term recruiting advantages by offering benefits while other firms catch up, said one industry recruiter.

'Great news for advisers'

"Group benefits have been a missing link in the independent channel," said Jonathan Henschen, president of Henschen & Associates, a recruiting firm in Marine on St. Croix, Minn. "This is great news for advisers that medical coverage can now be offered on the broker-dealer level."

Mr. Henschen added that while there are "a few producer groups that offer group medical," it is a shift for such benefits to be offered on the broker-dealer level. In addition, some reps and advisers switching from "semicaptive environments" at some insurance company broker-dealers often are used to this type of benefit and look for it when leaving their firms.

About 45 million people do not have health insurance, according to published reports. Only 60% of businesses offer health insurance to their employees, but 90% of health-care policies are purchased through employers, reports said.

Securities America, which last Monday lost a $22 million arbitration case, one of the largest ever, is offering its 1,863 affiliated reps a number of options in the new package, including: major medical, limited medical, dental, accident insurance, a medical discount savings card and term life insurance.

Securities America said it will appeal the award in the arbitration case, which focused on sales of variable annuities and B shares of mutual funds.

The AIG Advisor Group, which has more than 7,000 affiliated brokers and advisers at its five independent-contractor broker-dealers, plans to roll out a comprehensive benefits program. Those benefits include: major medical insurance, limited medical insurance, a medical discount program, dental insurance and a prescription drug program.

Called the AIG Advisor Group Benefits Program, the plan, to be introduced formally July 5, also includes advisers' families and employees.

The new benefits package also includes supplemental-insurance programs, with accident, cancer and critical-illness insurance.

The thorny issue of maintaining advisers' independent-contractor status was researched intensely when devising the new benefits package, said Kristina Pleiman, Atlanta-based assistant vice president for business development with the AIG Advisor Group.

The Department of the Treasury said in February (InvestmentNews, Feb. 20) that it intends to scrutinize the tax status of independent-contractor workers. There are about 120,000 independent-contractor registered representatives.

"It was a lot of research," Ms. Pleiman said. Independent-contractor status "was a very big question out of the gate."

Ms. Pleiman said that the answer was for the AIG Advisor Group to go to a third party or outside provider, while also adding to the offering with insurance from its parent, New York-based American International Group Inc.

Advisers pleased

Many advisers already use an outside provider for insurance, Ms. Pleiman said, but now the advisers can tap into a group program. The plan is similar to an adviser's going to an outside insurance provider, but AIG helped to build the platform and structure it to resemble a group plan, she said.

AIG advisers were pleased with the new offering, particularly as providing benefits for employees has become increasingly expensive.

"I think this is a wonderful enhancement for people running individual firms when providing benefits to employees has become a growing expense in running your business," said one AIG Advisor Group-affiliated adviser, who asked not to be identified.


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