Re: “Group targets regulatory imbalance,” by Glorianne Stromberg (IE, mid-February, 2007).

This letter is to correct the record further to Stromberg’s erroneous characterization of sales practices with respect to insurance products, particularly segregated funds.

Citing recent market conduct problems related to other investments, Stromberg focuses her comments on sales practices related to segregated funds — an area in which there have been no such difficulties.

A reason for segregated funds’ track record may be because they differ from other products to which Stromberg refers. Segregated funds are contracts between the consumer and an insurance company under which the consumer has a right to invest in a variety of funds and is protected by guarantees.

These contracts can be issued only by closely regulated financial institutions that are subject to extensive prudential and corporate governance requirements. And the marketplace regulation framework for segregated funds requires extensive disclosure of the product’s features at the point of sale.

The life and health insurance industry’s protocol includes point-of-sale disclosure of the advisor’s relationships with insurers, how the advisor is paid, addition-al compensation and incentives, and conflicts of interest. Disclosure in the last area is reinforced by regulatory requirements in some provinces.

Stromberg is repeating the myth, first set out in her 1995 report recommending regulating investment funds in Canada, that the regulatory framework for mutual funds is more effective than for segregated funds.

Greg Traversy, president
Canadian Life and Health Insurance Association.
Ottawa