It's not a huge problem. So why increase costs to ensure bust brokers are covered, asks Andy Cook
So the FSA is set to ask insurers to guarantee brokers that they use.
This measure is not going to be popular with insurers that will be forced to scrutinise their relationships with brokers more closely. This will, inevitably, mean more paperwork all round and will bring more pressure to bear on management to formalise audit trails and so forth.
The alternative, it seems, is that brokers will have to have separate accounts for each client.
Again it is an administrative nightmare for most. And for some, especially with large international accounts, where money will be held offshore, it will force a radical change in account economics.
The FSA, it seems, will take away the ability of brokers to practice cash management.
For many, cash management is a way of generating income. So take away the ability for brokers to earn on the cash as it meanders through their accounts on the way to the underwriter and you will dent profits. Brokers will be forced then to increase their fees or commission. And the customer pays more.
Who wins? Bearing in mind that few brokers go bust leaving clients in the lurch, the answer is probably not the customer.