Study predicts Spitzer investigation will lower broker earnings 25%

The decision by the world’s largest brokers to discontinue using contingent commissions could chop upwards of 25% off their bottom line, according to a new study by investment firm WFG Capital Advisors.Many large brokers voluntarily chose to stop accepting contingent commissions following an investigation by New York Attorney General Eliot Spitzer which resulted in a civil suit against broker Marsh.WFG says its study of the top seven global brokers shows the absence of contingent commissions will have an impact on after tax net income representing more than 25% of composite earnings.”This astounding statistic underscores the vital nature of contingents and the presumed impact to the industry’s leading segment. At a time when product rate declines are severely punishing most firms’ organic growth, the relinquishment of this significant revenue stream presents an ominous outlook to the economic welfare of leading brokers,” says Steven Wevodau, managing principal of WFG. He says that if publicly-traded brokers see earnings drop, the resultant blow to shareholder confidence could cause “severe deterioration of market capitalization” which “will have a significant impact on the viability of many firms” The need to boost income could prompt a rise in acquisition activity in the near future, Wevodau adds.