Some life insurers are drastically cutting back on the number of independent financial advisors they do business with – a move that will reduce the number of products those advisors can sell and could put pressure on advisors to concentrate their business among fewer insurance carriers.
In late 2016, at least two life insurance companies – Toronto-based ivari Canada ULC (formerly Transamerica Life Canada) and Winnipeg-based Great-West Life Assurance Co. (GWL) – embarked on a significant culling of their rosters of independent advisors. The result was that thousands of advisors received letters from these firms indicating that their contracts either had been terminated or were converted to “service only” accounts, which enables advisors to continue to service existing policies, but prohibits those advisors from selling new policies.
The move is unusual, according to advisors such as Richard Gilbert, president of Mississauga, Ont.-based managing general agency (MGA) Megacorp Insurance Agencies Inc. One advisor at Megacorp received a letter from a carrier indicating that the advisor’s accounts had been converted to service-only status.
“Over the years, I have seen carriers cancel a broker’s contract if [that broker] hasn’t done any business for a considerable time,” Gilbert says. “I have never heard of a cancellation such as this one, where the broker can still service existing clients.”
Any move to reduce the number of products that independent advisors can sell is negative for both advisors and clients, says Lawrence Geller, president of Campbellville, Ont.-based L.I. Geller Insurance Agencies Ltd.
“If you can only deal with a limited number of companies,” Geller says, “then suitability goes out the window immediately.”
In the case of ivari, the changes affect advisors who have not recently been active with the firm. The firm terminated 5,600 contracts with advisors who do not have any in-force policies coded to them, and the insurer also converted several thousand advisor contracts to service-only accounts. These advisors can continue to service and facilitate conversions for their ivari clients and will continue to receive their vested compensation.
The goal of ivari’s initiative is to focus the company’s distribution efforts on advisors who regularly do business with the firm, according to a statement ivari emailed to Investment Executive (IE). ivari estimates that the changes will reduce its advisor base to 35% of its previous size.
“We will be doing [business] with a smaller, more aligned group of advisors who know us, our process, products and people,” the email states. “Advisors who sell our product on those merits and not just on price.”
Deactivated advisors could be reinstated with ivari without the need for a new contract, the company says, as long as they meet certain “alignment criteria.” That includes being active, full-time advisors focusing on middle-market Canadians, interested in working closely with a few carriers and being knowledgeable about ivari’s products and processes.
In the case of GWL, the company will no longer distribute individual insurance products through independent insurance advisors in the MGA channel. Instead, GWL will focus distribution on its Gold Key advisor channel, which includes about 1,700 independent advisors. These advisors receive a higher level of support from the insurer compared with other independent advisors; however, they also have the freedom to sell other products.
As a result, the company recently notified approximately 10,000 independent advisors who have GWL broker contracts that they can no longer sell GWL policies except for group insurance products. Only about 50 independent advisors were actively selling policies under these contracts, partly because GWL’s sister company, Toronto-based Canada Life Assurance Co., has become the parent organization’s primary product brand that operates in the MGA channel, according to Steven Fitzhenry, executive vice president, product sales and marketing, with GWL.
“We continue to be fully committed to independent advisor distribution, but we do it under the Gold Key channel arrangement, in which an advisor chooses to have a more direct relationship with us, and to do that probably means they’re a little more committed to GWL products and services,” Fitzhenry says. “Through the independent broker universe in Canada, we really operate there under our Canada Life banner.”
Since Canada Life products are very similar to GWL products, Fitzhenry says, the change won’t have a significant impact on advisors: “As far as the customers of independent advisors are concerned, in no way would they be disadvantaged.”
The cuts reflect a pragmatic step by insurance carriers to focus their resources on advisors who generate a meaningful amount of business, says Jim Ruta, formerly an executive agency manager and now a career coach with Toronto-based www.JimRuta.com and a video columnist for IE.
“From a practical perspective, it’s expensive to maintain contracts, to do all this bookkeeping and all this accounting,” Ruta says. “[Insurers] are rationalizing their business to [focus on] the people they can count on and support. I think this is a trend that will continue.
Compliance is one factor that presents challenges for insurance companies with thousands of broker contracts, says Kelly Morris, partner with Borden Ladner Gervais LLP in Toronto: “The insurers are responsible for the activities of the advisors acting on their behalf. So, the insurers may not want to be carrying a lot of advisors who aren’t doing much [business] if they’re just going to increase [the insurers’] compliance obligations.”
Having fewer carrier contracts is not necessarily negative for advisors, Ruta says, as it lets them focus on products that they know well: “If you have three or four contracts, I think that’s probably plenty for most advisors.”
Joe Pignatelli, an insurance advisor with Smart Insurance Solutions in Cambridge, Ont., whose contracts have been deactivated by both ivari and GWL, says that because he rarely places business with either insurer, he’s not too concerned by the change. However, he likes having access to a variety of insurers in order to meet clients’ needs: “I hope I don’t get any more letters.”
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