Summary
Contingent commissions, if not disclosed, can result in brokerage clients not knowing how much they are paying for the services they receive from their risk brokers. A commission should be viewed as just an alternative to fee-based consulting. In theory the amount of commissions received should equal fees a client is willing to pay as commissions are built into insurance premiums.
Analysis
All commissions (explicit or contingent) are theoretically part of a insurance premium's retention and thus paid for by policyholders. I feel that if brokers accept commissions but do not disclose them to clients, clients end up not knowing how much they are actually paying for the services they receive from their broker/consultant.
Clients need to know how much their broker is being compensated to be able to determine if they are receiving fair value for the commissions they are paying. Some client's have more complex needs and should pay more in commissions than other clients with less complicated needs.
The best way to honestly deal with brokerage clients is to simply tell them how much you are being compensated for the services you provide. If a broker chooses to accept contingent commissions, they should find a way to allocate the commission to each client so the proper disclosure can be made.
