Broker Quietly Drops Contingent Fees

With all the attention on contingent commissions surrounding four major insurance brokerage firms, little note was paid to one broker's public declaration it has abandoned taking the fees.

With no fanfare, Palmer & Cay decided late last year to drop contingent commissions and placed a notice on its Web site to that effect.

In it, the broker said that in response to "recent concerns associated with contingent income commissions" it has "discontinued all contingent income agreements."

The 137-year-old insurance brokerage firm, Savannah, Ga.-based Palmer & Cay recently was acquired by Charlotte, N.C.-based financial services giant Wachovia Corporation.

Independently, around the same time in November, before the merger, Wachovia decided it, too, would no longer accept contingent commissions.

Sandy Deem, vice president of corporate communications for Wachovia, said the insurance division decided it would end contingent fee agreements. Like Palmer & Cay, it is not under any investigations, she said. The discontinuation of the fees would have "no material effect" on the company's operations.

When asked why the company never publicized the discontinuation, she explained that, "there are some issues we prefer to communicate directly to our customers."

Palmer & Cay said it discontinued the agreements due to the public perception that the fees are connected to unethical behavior. The broker said it knows of no circumstance in its business dealings where the fees affected its contract placements but felt it was in the best interest of full disclosure to discontinue the fees, adding, the "termination of these agreements is the right thing to do."

The acquisition brings 950 employees spread among 22 states and Washington, D.C., in 34 offices into the fold of Wachovia Insurance Services. Wachovia said that the purchase, terms of which were not released, would place the firm in the top 10 of insurance brokerage firms.

Marsh & McLennan, Aon, Willis, and Arthur J. Gallagher also have discontinued the commissions. The four major brokers have reached agreements to end state inquiries into the fees. The inquiries began last year when New York Attorney General Eliot Spitzer sued MMC for alleged abuses that involved steering and kickbacks in return for volume placed commissions.

Unlike the other four, Palmer & Cay's decision to terminate the fees was not in response to any investigation of its practices, according to a knowledgeable source, and there are no investigations taking place. The fees constituted between six and eight percent of its annual revenues, the firm said on its Web site.

Wachovia Insurance Services said that, with the Palmer & Cay merger, the division would generate more than $400 million in annual revenue with approximately 1,800 employees. As a whole, Wachovia Corporation for the first quarter of 2005 reported net income of $1.6 billion, or $1.01 a share, on revenues of $6.5 billion.