Myth #2: Private exchanges are built on robust technology platforms that bring new value to the market.

Reality: Certainly, this is true for some exchanges and they do hold promise in terms of new value. Some private exchanges, however, are built on platforms that are based on old technology. These may, in time, prove inefficient, cause service issues and actually increase costs.

Myth #3: Brokers are implementing private exchanges at a rapid rate to offer more choice and flexibility to expand their reach in the market.

Reality: Plan options on an exchange are generally limited or are packaged as a bundle with other products. Trading flexibility in plan design for a turn-key system will generally lead employers to ask for products or features that need to be handled outside the exchange.   

Myth #4: Employees will have access to more products and can select options better suited to their respective needs and wants. 

Reality: While true, employees can become overwhelmed with too many options, and generally can't afford all the choices presented to them. My experience has shown that without limited choices, employees have a tendency to make decisions that may not be in their best interest. Decision support can help, but doesn't solve this dilemma.

Like anything in life, when something looks to be too good to be true, it usually is. If you are participating or plan to participate in one or more private exchanges, I have a few suggestions for you to consider. 

• Define your strategy first and then seek an exchange that provides the best fit. There are dozens of types of exchanges all designed to meet different types of objectives, at varying levels of sophistication, service and support. For example, some generate a quote for an employer; others don't. Some offer ongoing benefit data management; some don't.   Some use defined contribution concepts exclusively; others don't offer defined contribution at all.
• Practice due diligence. Even some of the best and most successful exchanges lack the necessary infrastructure to allow for scale and administrative simplification.   
• Experiment, and don't be afraid to switch exchanges if the one you're working with isn't meeting your needs. Yes, they can be time-consuming and potentially expensive to implement. But, it's okay to "fail fast and fail cheap" versus dumping additional time, resources and/or money into an exchange that doesn't really get the result you desire.

As with any new start-up, private exchanges will go through tremendous change and in a relatively short period of time, and the options will eventually narrow down to a few winning models. 

Remember, too, the underlying buying behaviors of employers and employees, as consumers will ultimately determine the pace and extent of their development. So, listen to your clients and base your investment in what they want and need because, ultimately, private exchanges and the market in general will be defined by them.