25th August 2000

Fee Transparency

Traditionally, Account Directors and Account Executives have thrown in a risk management service as an inducement to the client when quoting for the transactional business. Nothing wrong with this, surely? Well, for a start the risk management component is rarely based on professional estimates by the risk management consultants themselves and so is usually both misdirected and inadequate for the amount of work the client actually needs and will probably expect. The risk management consultants are then pressured into trying to do 20 days work in 10 i.e. skimping. Not much due diligence and attention to good governance here from the very same people who tell clients it is so vital! Alternatively, the breakdown of work during the year is not costed, not monitored and not controlled, thus resulting in brokers' risk management functions probably running probably at low margin or even a loss.

In the Turnbull era, these quite extraordinary hallowed practices will have to stop. The professional approach (if only to reduce E&O exposures) requires the risk management consultants to be writing the proposal, identifying the skills required and making the estimates for the work they will have to deliver. Clients will need to be weaned off their addiction to 'free' risk management from the broker and realise that there is no such thing as a free lunch. Transactional fees and risk management consulting fees need to separately budgeted by the client. Brokerage fee transparency is, in any event, a long overdue requirement.

For Further Information Please Telephone:
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(+44) 208 351 7457

Facsimile:
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For Further Information eMail:
waringa@cytanet.com.cy
waringa@awa.demon.co.uk

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