Although the review of the regulation of managing general agencies by the Canadian Council of Insurance Regulators is still ongoing, the insurance industry is making it clear that it is dead set against the implementation of any restrictions on an advisor’s ability to transact with MGAs.

In a paper published in Feb-ruary, the CCIR had dedicated a quarter of its 26 questions directed at the insurance industry to understanding the relationship between MGAs and financial advisors.

The CCIR paper asks stakeholders if “unsuitable representatives” are more difficult to monitor in the independent channel, in which advisors can contract with multiple MGAs. (This is in contrast to advisors in the “career channel,” who are restricted to selling their employer’s insurance products.)

The paper also asked stakeholders to comment on the extent to which an MGA should be monitoring the businesses of the reps it works with. The comment period for the CCIR paper ends April 8.

The Toronto-based Canadian Association of Independent Life Brokerage Agencies has responded that detecting or reporting unsuitable reps isn’t any more difficult in the independent stream than it is in the career stream. It’s also unnecessary for MGAs to monitor all of a rep’s business because each MGA does its own checks on the advisors it works with, says Casey Brandreth, CAILBA’s regulatory affairs chairman, and vice president of business development with Mississauga, Ont.-based MGA Daystar Financial Group Inc. : “MGAs already have a due diligence process in place before agreeing to a contract with an advisor. They already follow a ‘know your advisor’-like requirement.”

Having an advisor contract with multiple MGAs is in clients’ best interest because the advisor can offer clients better rates on products as well as more products overall, adds Brandreth: “Not all MGAs carry the same products, and a potential restriction on the advisor/MGA relationship would hurt the consumer.”

Greg Pollock, president and CEO of Toronto-based Advocis, is in agreement with CAILBA’s position that advisors should not be restricted in how many MGAs they deal with. “We believe there should only be new regulation where warranted,” says Pollock, “Restricting advisors to deal with a certain number of MGAs isn’t in consumers’ best interests.”

Although working with several MGAs may make sense for advisors, it also means that no single insurer or MGA has the full picture of an advisor’s business. Information about an advisor’s business is in “silos” because of the way in which the industry is structured, says Byren Innes, senior vice president and director of insurance industry consultancy NewLink Group Inc. in Toronto: “The insurer knows some of an advisor’s business; the MGA knows some of an advisor’s business. But no one has the full picture — except for the advisor.”@page_break@This makes it very “tricky” for regulators, he adds, because no one can account for the quality of the rep’s business. Quality is often captured in the “persistency rate” — the rate at which a client renews a policy year-over-year. “If a persistency rate is low, it means an advisor could be selling [clients] policies they don’t need,” says Innes. “With information in silos, there is no way to determine the quality or quantity of that business.”

Regulators want to know that an advisor’s business is in clients’ best interests. As the CCIR paper states: “It is unclear who would be primarily responsible to report misconduct in the absence of a[n exclusive] one-to-one relationship” between an advisor and an MGA.

The mutual fund and securities industries don’t have this problem because advisors in those fields are required to run all of their transactions through a specific dealer’s back office. This is why, says Innes, restricting the number of MGAs that an advisor can deal with could be a possibility for insurance regulators.

The need for better supervision had driven Toronto-based DundeeWealth Inc. to do away with its advisors’ freedom to do business with multiple MGAs in September 2008. DundeeWealth is one of the few firms that have switched from allowing its dual-licensed advisors the freedom to process insurance business wherever they pleased to mandating that all insurance business be handled by one MGA — in this case, Dundee Insurance Agency Ltd.

As DundeeWealth’s MGA is one of the largest in Canada and offers a full suite of products, advisors’ businesses didn’t shift too much in terms of the products available to them.

Ultimately, the advisors understood the change was in clients’ best interests, says Richard McIntyre, executive vice president and head of retail with DundeeWealth. In addition, he says: “When you had advisors contracting with multiple agencies and something went wrong elsewhere, it exposed DundeeWealth to that risk.”

However, says Pollock, if regulators or all firms followed DundeeWealth and forced advisors to commit to a single MGA, the consequences would rupture the current MGA industry. “It would cause advisors to go to [one of the bigger] MGAs that carries all the products on its shelf,” he says, “and leave the smaller MGAs behind.”

The goal of regulators is not to consolidate the MGA industry, Innes says, but to find a way to account for the full picture of an advisor’s business. “The bottom line,” he explains, “is that regulators want enough checks and balances in place to catch the few bad apples.” IE