Brokers Sour When Talk Turns To Fees

Like the proverbial skunk at a garden party, I spoiled a perfectly civil panel discussion among three mega-brokers on “leveraging innovation as a market differentiator” by asking what innovations were ahead to replace the billions their firms surrendered in contingency fees to settle bid-rigging allegations. Their responses showed there are indeed still hard feelings on the subject.

“The playing field is ridiculously unlevel,” grumbled Don Bailey, CEO of Willis North America, during the 19th Annual P-C Executive Conference, sponsored by the National Underwriter Company and a host of top rating, consulting, private equity and law firms.

“Four people gave up contingency fees, while thousands of brokers did not,” he added, noting that some insurers and brokers are scrambling to come up with new forms of compensation that will pass muster with regulators and buyers.

“New supplemental commissions may just be contingency fees in drag,” he warned.

While conceding that “transparency is a given–clients should know what brokers make on their accounts,” he said that “it is impossible to have an intelligent conversation about this” while a handful of major brokers are prohibited from taking contingency fees, but the vast majority can do so and keep that fact from the buying public.

“It's obviously a high point of frustration for us,” he added.

“On the retail side, it's a bit absurd and even surreal,” said Ted Devine, CEO of Aon Re Global. “Contingencies have not gone away, except for three or four firms.”

He predicted there would be “a lot of innovative thought on remuneration”–with future brokerage fees perhaps following the “transaction-based capital markets model.”

“When we're in a bake-off with a broker who does not have to disclose their compensation plans, it is fundamentally unfair,” complained Norman Brown, managing director and head of product development at Marsh. “We need to level the playing field.”

As I mentioned the other day, New York is moving to do just that, with a draft regulation due soon that would require all retail brokers to reveal all compensation schemes to buyers.

The three brokers on yesterday's panel were clearly steaming about their competitive disadvantage, but I detected little sympathy among attendees–one of whom caught my eye and pantomimed someone playing a violin to mock the panelists' laments.

As for me, I would quote the street savvy TV detective Tony Baretta, who said, “Don't do the crime if you can't do the time.”