Why disclose?

I was once the director of a provincial broking firm and, from that perspective, can understand why you wonder if the Industry Guidance on Conflicts of Interest, Transparency and Commission Disclosure should apply to your firm.

Although your firm is independent and successful in your chosen geographical area and areas of expertise, never forget that - as a regulated firm - you are part of a wider broking community. The driving force behind the industry guidance is for the profession to adopt the sound business principles within it and to record and be able to demonstrate that implementation when asked.

If we unite when the Financial Services Authority starts to review the success of implementation in 2010-11, it is hoped that it will give the regulator sufficient comfort to allow the status quo and keep mandatory commission off its radar.

As background, there are calls and pressures from elsewhere for mandatory commission disclosure. Certain countries within the European Union have already moved to legislate that insurance intermediaries may only be remunerated by charging a fee. Post-Spitzer, the international broking community has moved almost wholly towards fee-based work and it will protect its own interests rather than lend support to the various national communities. So, as a responsible member of the UK intermediary community, you should adopt the guidance within your firm.

Specialist task

The question of why brokers should disclose their earnings when, for example, Tesco does not divulge its mark-up on a jar of coffee, is simple: insurance broking is unique. We see ourselves as professionals, giving professional and often complex advice to clients, some of whom have quite sophisticated business insurance needs. Yet, as professionals we are then actually paid by the provider of the solution - the insurer - rather than the client.

Given that context, it is not unreasonable for the client to want to know how much that insurer is paying you for spending their money. Most brokers put clients' needs way ahead of how much commission they are going to make on a case and all that the regulator's guidance is doing is enabling you to demonstrate that. One thing that we have not been good at is making clients aware of just how much we do for them - often behind the scenes - in order to earn our remuneration. Again, changes in business practice give you an opportunity to prove your worth explicitly.

Talk to your compliance consultant or compliance manager as appropriate, have a look at your terms of business agreement and other disclosure documents, review how you engage with your clients, and implement and record the changes you need to make.