Compliance January 1, 2007

Insurers Settle Up at Year-End

On the last day of 2006, two more financial services firms announced settlements with regulators about their insurance business practices.
Reported by
Insurance brokerage Arthur J. Gallagher & Co. said on Friday it will pay $36.9 million to settle a class-action lawsuit accusing it of accepting improper “contingent commissions” for steering business to particular insurers. On the same day MetLife Inc., the largest U.S. life insurer, said it agreed to pay $19 million to settle an investigation by New York State Attorney General Eliot Spitzer into fees paid to insurance brokers.
The Gallagher settlement includes payments of $28 million to current and former clients who used brokers to buy insurance from 1994 to 2005, as well as $8.85 million of legal fees. Gallagher did not admit wrongdoing, but said it settled the two-year-old lawsuit to avoid the costs and burdens of litigation. The complaint accused the firm of conspiring to steer business to insurers that paid hidden fees, rather than those offering the best coverage, Gallagher has said in regulatory filings. The settlement still requires approval by the U.S. District Court in New Jersey.
Spitzer’s Last?
The MetLife settlement, likely Spitzer’s last as attorney general (he took office as New York governor on January 1), involves the payment of $16.5 million to policyholders and $2.5 million of civil penalties.
The firm admitted no liability, but agreed to stop paying so-called “contingent commissions” to insurance brokers for life, disability and other group products, and to change other business practices. Spitzer and others have said such commissions amount to kickbacks, and result in brokers getting worse prices for companies seeking insurance (see Spitzer Takes On Contingent Commissions).
In Practice December 30, 2006

Merrill to Offer Better Bonuses to Advisers

Merrill Lynch has launched a new 2007 Focus on Growth bonus program for its 15, 700 financial advisers, through which its advisers will be eligible to receive payouts equal to as much as 30% of their revenue.
Reported by

The firm’s new bonus program works in addition to the firm’s current incentives for advisers, in which bonuses are predominantly based on a growth in client assets and fee-based business, according to published reports.

 

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2007 Focus on Growth will allow for bonuses of 10%, 20% and 30% of commissions and fees earned over the prior 12 months. This production-based incentive plan, therefore, offers reason for advisers to increase all business but, according to published reports, advisers must continue to grow their fee-based work.

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