How can brokers with appointed representative arrangements deal with partners undergoing M&A activity? John Rusby explains.
The market is expecting another round of broker consolidation and restructuring in the next 12 montha. Poor economic conditions and further regulatory control will undoubtedly force the pace of mergers and acquistions but little is heard of the impact on those ancillary relationships that surround many brokers.
Many experienced practitioners have found a safe haven in the form of an appointed representative arrangement with a known broker where they can continue to trade in the manner they have been accustomed to. They rarely tend to have formal agreements in place with their broker partners preferring to rely instead on ‘gentlemen's agreements'.
What happens to those individuals who have worked alongside a directly authorised broker in good faith who then finds the broker sells from under them? What happens to their book of business and the client relationships they've worked hard for years to build? Will that individual be forced to work for the new owner with little or no control over the future direction of the business or indeed his own clients? The crunch question becomes whose business it actually is. At times of M&A activity the perceived safe haven becomes a rather unsettled outlook.
For those who have chosen to take this route a formal agreement should be in place with a legal framework protecting all parties and their future interests. Whilst these agreements are not mandatory, each party will benefit as it would identify client ownership, decision-making authority, trading protocols, remuneration, dispute resolution and any termination process. Gentlemen's agreements are all well and good until a dispute arises when inevitably the minor party will suffer.
For those who face the threat of consolidation or are concerned that their current arrangements may not give them the protection they need should think carefully as to their future. Individuals should be satisfied that the agreements they have with their employers or broker partners are fit for purpose and don't leave their futures exposed and out in the cold. This wealth warning is intended to avoid an underclass of insurance professionals appearing as a result of future M&A activity.
John Rusby, director, Ten Insurance
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