Advocis cautions against seg fund ‘rules’

New guidelines on the sale of segregated funds, issued by the Life Insurance Council of Saskatchewan, have met a cool reception from Advocis, which calls the guidelines “tantamount to more rules,” at a time when many jurisdictions are moving toward principles-based regulation.

“In our view, the guideline is essentially an elaboration of existing bylaws in the form of more regulatory requirements and policies to which our members must now comply,” reads an open letter to the council. “While Council states that its intention is not to create new regulation, we believe it has in effect done so by adding another layer of requirements and increasing the compliance costs of those involved in the marketing and sale of segregated funds.”

The letter was signed by Advocis president and CEO Steve Howard, and Roger McMillan, chair of the Advocis national board of directors.

“It is not clear to us why Council believes that this proposed guideline is necessary,” the letter states. “We believe that segregated fund investors in Saskatchewan are currently well served under the existing regulatory framework, including Council’s principles-based bylaws.”

Advocis argues that by borrowing from a rules-based regulatory system, such as the MFDA, the insurance industry would lose its flexibility. To define principles that are already accepted effectively transforms them into prescriptive rules.

The proposed guidelines were released in July and call for regulation of seg funds to mirror that of mutual funds. The insurance council points out that the products are “similar in design and performance.”

“Council is obligated to regulate in the interests of the consumer, and it is not appropriate to have significantly less oversight in the marketing of segregated funds than is mandated in the marketing of mutual funds.”

The guidelines essentially tell Saskatchewan insurance brokers and managing general agencies that the Life Insurance Council will use MFDA rules as a best practices template when assessing alleged misconduct.

Such an idea is hardly new, however. The courts already hold advisors to the highest standards of best practices, regardless of the regulatory silo in which they work (see Related Articles, at right).

Advocis recommends that new policies be developed only to address a particular and clearly identified problem.

“We are not aware of any major consumer problems in the area of sales and marketing of segregated funds,” the letter states. “Furthermore, to the best of our knowledge, other provincial jurisdictions are not contemplating new requirements for segregated funds.”

That assertion stands in contrast with one made by the Life Insurance Council in its guideline announcement.

“There is currently an initiative by federal and provincial regulatory authorities to bring the marketing disclosure requirement of the two products into harmonization,” the Council said in the guidelines.

Filed by Steven Lamb, Advisor.ca, steven.lamb@advisor.rogers.com