Perks of the job

Some years ago, I wrote an article for Professional Broking on the subject of brokers receiving hospitality and how they should consider their own hospitality programmes for key clients. I certainly did not envisage then the whole new way in which broking firms would have to consider their relationships with insurers, beyond the transactional.

A key aspect of good regulatory practice is the ability of a firm to recognise where a potential conflict of interest may arise, and so called 'inducements' are an area in which the potential exists. The Financial Services Authority rules accept that conflicts of interest can arise, but the requirement for firms is to demonstrate that they recognise such situations and have in place procedures to manage them properly.

As far as hospitality is concerned, there is no doubt that time spent with opposite numbers helps to develop relationships, mutual trust and respect and can add value both for the firm and its clients. However, it would be wise to create a log to record all such events, noting who attended, the type of event, etc.

As with all regulatory issues, record keeping is a key element. The log will show who has been entertained by whom and from that will flow your firm's own view of how the time spent is appropriate given the flow of business between the organisations. It will enable the formation of a corporate view that the acceptance of such hospitality is appropriate to the relationship and is in no way detrimental to the interests of your clients.

Profit-share agreements are another area of potential danger. Again, you must demonstrate that you have recognised the potential for conflict of interest and carried out an evaluation of that risk. For instance, how many people within your organisation are aware of such agreements? Are those who are aware also in a position to influence where business is placed? What is your company's policy should such an insurer's service standards slip to an extent that they hamper your ability to fulfil clients' needs?

There are other topics, such as the provision of 'free' training and the availability of funds at preferential rates to fuel an acquisition policy. Insurers themselves are of course reviewing these areas. Nevertheless, it is the responsibility of the senior management of your firm to consider all areas in which there exists a potential for conflict and to determine policy going forward.