Compensation disclosure. The approaching storm in settlements?

I've found over the years that I am often quite prescient on investment and business trends, so much so that my problem is i'm often way early, if not ultimately right. In investing this is called "being wrong for a long time and eventually getting it right once".

In much that same vein, but hopefully not with the same way early timing, I'm going to be kicking off a summer long series on the issue of compensation disclosure in our industry. Why you might ask, when there is hardly a ripple on the subject when you are in a gathering of industry insiders, life markets and settlement professionals? The answer is that events outside our little niche, under the radar industry, are going to force changes in how we work, whom we work with, and how we disclose to our clients the compensation we receive from various sources for the services we perform. One little noticed settlement that I mentioned a few weeks back, was the action settled by Hartford Insurance Group with the AG's of CT and NY over the undisclosed compensation they paid to brokers in their group annuity business. The link to that post and the settlement are here.

We have also run an interview I did with Jack Meligan on the opinion letters being circulated among trial lawyers, nominally known as the Chemerinsky and Saltzburg opinions, which depending on your interpretation seems at the very minimum to create an obligation for trial lawyers to inform their clients of any split fee arrangements between defense and plaintiff brokers. That segment is available here.

 My point is, that  when coupled with dramatically ramped up disclosure rules for registered reps, The Merrill rule, increasing state insurance and securities regulation and investigation, and an every increasing sense of awareness of the inner workings of the settlement business by trial lawyers, is going to bring about the necessity of a higher level disclosure on our fee and compensation practices.

So, as part of our discussions on this, I'm going to start with a basic question that most settlement professionals don't comprehend.
That question is, are you an agent, a broker or an advisor?  Your answer to that, when and if the insurance department, SEC or state AG's office comes calling, might make all the difference in the world. So, be looking for our first interviews and podcasts on the concept of Agency, who your client really is, and who you owe allegiance to when you sign your GA or agent contracts. Remember, ignorance of a law or basic legal concept is neither a good defense or a good business practice.


Posted on June 9, 2006 .