Big changes afoot for life agents?

Although some of the proposals would be a challenge to implement, the overall pursuit of creating a more transparent and consumer-friendly distribution channel is being well received by advisors such as Cameron Foley, financial advisor with Hartry Foley Financial of Oakville, Ont., which operates under the umbrella of Markham, Ont.-based Worldsource Financial Management Inc.

“These recommendations were made from the perspective of what’s best for the client,” says Foley. “It might mean more paperwork or more hoops to jump through, but, at the end of the day, if it’s best for the client, it’s going to be best for the industry.”

The CLHIA’s recommendations are outlined in a recent report entitled Insurance Distribution in Canada: Promoting a Customer-Focused System. The report is based on a review of distribution practices, motivated by the growing focus on market conduct among insurance regulators around the world, says Leslie Byrnes, vice president, distribution and pensions, at the CLHIA.

“This was a proactive [step], recognizing the general environment out there,” says Byrnes.

The recommendations range through basic proficiency standards (such as the adoption of an industrywide code of conduct and continuing education (CE) criteria) and mandatory errors and omissions (E&O) insurance coverage for insurance agents Canada-wide to specific requirements as part of the sales process.

For example, the CLHIA recommends that insurance agents in all jurisdictions be required to conduct a needs analysis prior to recommending an insurance product to a client. Agents should provide clients with a copy of this analysis, the report states, as well as a one-page written explanation of why the recommended product is appropriate for the client.

Many insurance agents already conduct needs analyses regularly; however, Quebec is the only Canadian jurisdiction with regulations requiring agents to complete this step. Expanding this rule across the country would ensure all insurance advisors understand of their clients’ circumstances before recommending products, according to the CLHIA.

“I think there is recognition that these are best practices,” says Byrnes. “Many advisors do this. They may not all document it as well as they could, so this [proposal] will really contribute to better documentation, and consumers will end up having a much clearer written record of what they bought and why, and how it meets their needs.”

Those requirements will mean extra paperwork, which will be an adjustment for insurance agents who aren’t in the habit of taking these steps already, says Eric Wachtel, national chief compliance officer with IDC Worldsource Insurance Network Inc. in Mississauga, Ont., and regulatory director with the Canadian Association of Independent Life Brokerage Agencies.

“For some advisors, particularly those who have been in the business for decades, if they find themselves having to do this, it can be a bit bumpy at the beginning,” Wachtel says. “There can be a little bit of a learning curve back to fundamentals.”

Despite the additional work, Foley says, the needs analysis and additional documentation are beneficial for advisors and clients alike.

“The paperwork is necessary,” he says. “Once you make it a part of your procedure, it becomes a habit.”

The prospect of these types of standards being harmonized across the country is an element of the proposals that also will be beneficial for advisors, says Susan Allemang, head of regulatory and policy affairs with the Independent Financial Brokers of Canada in Mississauga, Ont.

“People are licensed in more than one jurisdiction in a lot of cases,” says Allemang. “Having harmonized standards would be nice, so that you don’t have things that vary from jurisdiction to jurisdiction.”

The CLHIA also proposes changes to the industry’s regulatory structure. Specifically, the report recommends that all jurisdictions adopt an insurance council model of regulation, like those in Alberta and B.C. Under this model, Byrnes says, regulators have dedicated resources and strong industry expertise.

“In some jurisdictions, making sure that [regulators] have dedicated resources to the licensing and standards and disciplinary oversight of advisors can be difficult,” she says. “With an insurance council, you know that you have those dedicated resources.”

The prospect of completely revamping the regulatory structure in many provinces across the country, however, will not be a simple undertaking, says Allemang: “These regulators already exist. Do you start upending everything? I’m not sure how realistic that is.”

The CLHIA also suggests enhancing the powers of provincial regulators in situations involving client complaints against insurance agents. Specifically, the CLHIA recommends that in addition to ordering sanctions, regulators should be able ask insurance agents to pay restitution to consumers when appropriate.

E&O insurance already provides a mechanism for consumer restitution, however. Allemang says further study is necessary to determine the need for an additional source of restitution.

“Independent advisors already pay for their own E&O at a fairly considerable cost,” she says.

In Wachtel’s opinion, greater amounts of restitution are best left to the courts. “In many minor cases, these situations are dealt with at the carrier level,” he says. “For the big offenders, if there was a large restitution ordered by a council, and the advisor had ill intent, collecting might be hard outside the court system.”

Other topics addressed in the CLHIA’s report include: segregated fund disclosure, with a recommendation that the insurance industry develop more detailed disclosure of seg fund costs; the issue of access to advice or service in the years after a client has bought a insurance policy, with a recommendation that regulators work with the industry to develop a guideline for ensuring clients have access to ongoing advice and the right to appoint a preferred advisor; and perceived conflicts of interest associated with sales incentive trips. (See story at right.)

The CLHIA has presented its proposals to the regulators, and plans to work with other industry players to explore next steps.

SALES CONFERENCES NIXED

Life insurance companies are moving to eradicate lavish, all expenses paid, sales-recognition conferences for independent life insurance agents, in a bid to extinguish any perception of a conflict of interest associated with these trips.

In recent weeks, more than half a dozen life insurers have announced plans to discontinue or tweak their volume-based sales incentive conferences. The conferences, typically held at coveted vacation destinations around the world, are used by insurance carriers to reward advisors who meet certain sales targets.

These changes follow a proposal by the Canadian Life and Health Insurance Association Inc. (CLHIA) in a recent report on insurance distribution. The CLHIA proposes that insurers change the parameters of their sales incentive programs to avoid perceived conflicts of interest.

“There certainly has been a lot of discussion over the years around whether or not travel incentives are contributing to a conflict of interest,” says Leslie Byrnes, vice president, distribution and pensions, at the CLHIA.

The CLHIA’s report recommends that independent insurance agents pay their own costs to attend insurers’ conferences, and that conferences include “reasonable professional content.” This approach would counter any perception that advisors are placing business with a specific insurer to qualify for a trip.

“We think that advisors are doing their jobs and putting the customers’ interests first,” Byrnes says. “Nonetheless, there’s a perception out there. We have seen other industries tackling this, so we felt it was time that our industry took a look at this as well.”

Insurers such as Mississauga, Ont.-based RBC Life Insurance Co. had been considering cancelling their incentive trips for some time, given the perceived conflict of interest, says Gopal Bansal, RBC Insurance’s spokesman. That company recently notified its advisors that it will discontinue its recognition conferences after 2016.

“Once the CLHIA recommendations came out, [that] was the right time for us to say, ‘Yes, this will be our last one’,” says Bansal. “We think there’s a better opportunity here to put on some educational events for the independent advisors rather than a travel incentive-type program.”

Advisors who are accustomed to qualifying for these trips are likely disappointed by this change, says Eric Wachtel, national chief compliance officer at IDC Worldsource Insurance Network Inc. in Mississauga, Ont., and regulatory director with the Canadian Association of Independent Life Brokerage Agencies.

“I know that advisors appreciated conferences,” says Wachtel. “[Advisors] are in a world in which they’re constantly looking after their clients, and educational events or conferences away can be ‘me time’ for advisors and a chance for companies to honour [their advisors] and the work they do.”

However, financial advisors such as Cameron Foley, with Hartry Foley Financial of Oakville, Ont., which operates under the umbrella of Markham, Ont.-based Worldsource Financial Management Inc., say eliminating sales incentives is a positive step because it protects clients: “There could be a conflict of interest. The decisions we make with our clients, based on their needs, should have nothing to do with our personal goals or company travel incentives – or anything like that.”

The CLHIA notes that distribution firms, as well as insurance companies with dedicated sales forces, could continue to host travel incentive programs, since those agents would have no incentive to recommend one carrier’s products over another.

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