Regulators are conducting negotiations to revise, or even lift, the 2005 ban on contingent commissions for the three largest brokers as measured by revenue, according to a report in The Wall Street Journal. Since the ban took hold, the large firms have complained that they have been disadvantaged because it hasn’t applied to smaller competitors.

Beginning in 2004, then-New York Attorney General Eliot Spitzer and several of his colleagues in other states conducted a campaign against contingent commissions. After a series of investigations of what Spitzer and the others called bid-rigging and client-steering allegations against a handful of insurers and mega-brokers, settlement agreements were negotiated. Some called for outright bans on the payment of contingent commissions, while others proscribed a disclosure regime.

Instead of being applied just to those suspected of wrongdoing, these agreements were applied to all Main Street agents in all jurisdictions nationwide. But Main Street independent agents – who were never under any suspicion – did not do anything wrong.

Meanwhile, mega-brokers who signed the settlement agreements immediately began seeking to have the restrictions on receiving contingent commissions loosened – for themselves, but not for Main Street agents and brokers. They claimed that doing so would provide a “level playing field,” but PIA pointed out that loosening the restrictions for the mega-brokers while leaving them in place for independent agents would create an uneven playing field favoring the mega-brokers.

On September 15, 2006, PIA National filed an amicus brief in the U.S. District Court for New Jersey, opposing one of the proposed settlements. Subsequent court decisions over the next two years affirmed that contingent commissions are not illegal.

Big Brokers Want Fees Reinstated (The Wall Street Journal 9/19)

September 22, 2009