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For many years now, actuaries have gone beyond their traditional roles within insurance companies and started providing consulting services to various other organisations and corporations, particularly regarding group insurance and retirement plans.

If you offer employee benefits, you are likely working with a consulting actuary or a broker. How does one decide between the two? Moreover, what is the difference between an actuary and a broker? Let’s help clarify this distinction!

Differences Between an Actuary & a Broker

According to the Canadian Institute of Actuaries, actuaries are professionals who are skilled in the application of mathematics to solve financial problems. Actuaries employ their specialized knowledge of the mathematics of finance, statistics, and risk theory on specific situations. Under Canadian law, the title “actuary” can only be used by holders of the Fellow designation, which is granted following the successful completion of a lengthy program of professional exams, field work, workshops, etc.

In a previous article, we addressed the difference between a “broker” and an “advisor”, two terms that are sometimes used interchangeably. In Quebec, the Autorité des marchés financiers (AMF) delivers the designations of group insurance plans advisor and group annuity plans advisor further to the completion of mandatory college education, exams and an internship. The profession features a wide variety of skills and educational profiles.
In Quebec, group insurance and annuity plans can be offered to employers, associations or trade unions only by actuaries and AMF-certified advisors.

Different Types of Mandates or Projects

Returning to our initial question, are there reasons why you should select an actuary rather than a broker? As actuaries are number crunchers, we believe that they bring significant added value in a variety of situations, including:

• Forecasting complex financial projections
• Assessing the merits of various financial arrangements
• Analyzing the financial impact of plan design modifications
• Performing actuarial valuations for post-employment and post-retirement liabilities
• Establishing reserves for disability and waiver of premiums in order to negotiate with insurers
• Etc.

However, there are more than financial aspects in managing a group insurance or retirement plan! As number crunchers, actuaries may be less equipped than advisors for other mandates or projects such as:

• Supporting plan administration (service issues, claims problems, etc.)
• Promoting prevention and managing costs 
• Supporting the employer with employee communications 
• Proposing innovative services and solutions
• Etc.

Compensation Models

Actuaries typically work under billable hours or fixed fee model, whereas brokers are normally paid on a commission basis (some actuaries also work on a commission basis, and then provide a reconciliation with the actual hours worked). Both models have their pros and cons:

Billable hours or fixed fees

Pros:

• One only pays for the actual hours worked on a project or mandate

Cons:

• Hard to budget, as costs may fluctuate from one year to the next depending on projects
• High hourly rates may cause clients to be reluctant to consult their actuary for advice
• May prompt actuaries to work in haste and not go into greater depth in order to avoid presenting hefty bills

Commissions

Pros:

• Stable costs from one year to the next
• Allows for enhanced level of service when necessary
• Easy to share costs with employees

Cons:

• May be harder to reconcile

Regardless of the compensation model used by your actuary or advisor, what matters the most is having a transparent discussion and ensuring the compensation structure is suited to your needs and your reality.

Actuary & Broker: How to Benefit From Both Models?

At AGA Benefit Solutions, we provide the best of both worlds! Our unique business model enables us to combine the strengths of our actuarial team with the skills of our advisory team. Through this approach, we can deliver the best results for our clients with unparalleled support and expertise.

Moreover, we are able to administer your plan and let you benefit from all the resulting advantages.

Any Questions?

Contact us! We will be pleased to answer your questions.