I'm working on a deal where we need to get a particular type of insurance. Since this is not a field where I am up to date, we need to engage a broker. The way in which remuneration works in this world reminded me of what I term the paradox of the broker: he's officially acting for you, but does the remuneration model stack up?

The broker most people know best is the estate agent. You are probably familiar with the deal-the estate agent tells you your house is worth £1m, for the sake of illustration. You instruct him to sell, and he gets 2% of the proceeds, in this case £20k. The estate agent comes back to you after a few weeks and tells you that the market has changed (or whatever), and that you should accept £950k.

What does this mean for the parties? You are out of pocket by £50k, but have saved 2% of £50k (£1k) on agent's fees. So you're down £49k. The agent gets £19k not £20k, a nice deal for him on a quick sale. Was he motivated to put in the extra effort to get to the original price? I'd like to think so, but probably not in all cases.

I once put this to an estate agent: "I'll pay you 1% on the first 90% of your indicated selling price, and and 10% on anything over that. That way, if you get to 100% you're quits, and you make 10% of everything else". Did he accept? No. I wonder why?

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