Shifting Dynamics in Broker Compensation: From Commission to Fee-Based Models
Over the past decade, broker compensation in U.S. employer group benefit plans has shifted significantly from a commission-driven model to one increasingly incorporating fee-based structures.
This evolution in compensation dynamics marks a major trend in the industry, where the total commission payments to brokers have increased from $4.35 billion in 2015 to $6.49 billion in 2024, as noted by KMBI's analysis of Department of Labor Form 5500 and Schedule A filings. Despite this growth, commissions have lessened in their share of overall broker pay, highlighting the rise of fee-based models. Initially, in 2015, commissions made up 81.5% of broker pay. By 2024, this figure had fallen to 76.7%, while the portion of fees rose from 18.5% to 23.3%.
The Drive Behind Fee-Based Models
The shift towards a fee-based model reflects broader economic pressures. Employers, under increased cost concerns, are urging brokers to adopt models that emphasize cost savings and deliver greater value. According to Lockton's 2026 National Benefits Survey, reducing costs has become the paramount concern for 54% of employers, a considerable rise from the 38% reported in 2025. This shift compels brokers to showcase their ability to provide transparent and efficient service offerings.
Brokers Adapting to New Norms
The trend presents both challenges and opportunities for brokerage firms. Notably, the adoption of fee-based models has led firms like Ethos Benefits to emphasize their fiduciary role, aligning broker compensation with client value. Talia Carbah of Ethos Benefits mentions that operating under a fiduciary standard provides better financial and health outcomes for clients, as they do not accept medical carrier commissions.
“Separating fees from recommendation processes is crucial to maintaining transparency and eliminating potential conflicts of interest.”— Rick Kelly, Marsh McLennan Agency
The Influence of Regulatory Changes
Regulatory policies, such as the Employee Retirement Income Security Act (ERISA) and the Consolidated Appropriations Act of 2021, mandate full disclosure of broker compensation. These requirements further pressure traditional commission models and add scrutiny regarding conflicts of interest. Coupled with increased M&A activity, where firms like Inszone Insurance Services and World Insurance Associates drive consolidation, the industry is seeing fewer, larger entities.
Industry Performance and Trends
| Brokerage | Fee-Based Compensation (%) |
|---|---|
| Lockton | 23.7% |
| Aon | 23.5% |
| Marsh McLennan | 23.4% |
| Mercer | 18.4% |
In forward-looking sectors, such as technology, brokers have embraced fee-based compensation faster. From 2022-2024, fees constituted 27.3% of broker pay in the tech sector, surpassing the 22.7% average across broader markets. This trend indicates an industry shift driven by the need for cost-effective, transparent solutions in an evolving market.
Despite the continued prevalence of the commission model, its diminishing footprint reveals an industry steadily gravitating towards fee-based agreements. This dynamic shift is energized by regulatory challenges and industry consolidations, underscoring the pivotal role of transparent, value-driven advisory services in the future of insurance brokerage.