Commission splitting should remain restricted, IFB says

(March 22, 2004) The rules on commission splitting in the insurance industry should be eased, but restricted to those who are regulated financial services providers, says the Independent Financial Brokers of Canada (IFB).

Earlier this year, the Canadian Council of Insurance Regulators (CCIR) released a concept paper on referral arrangements, floating the idea of either lifting entirely, or partially lifting, current rules on commission splitting, now limited in most jurisdictions to those with a life insurance licence.

The IFB says there should be no prohibitions on flat fees for basic referrals, noting that “networking is an important aspect of the life insurance industry.”

“However, in the situation where there is an arrangement for a split of the commission on a contingent basis for more than a nominal amount, our members believe that such activity should be restricted to those who are regulated financial services providers,” says IFB executive director John Whaley in a written response to the CCIR paper.

Lifting the prohibition on commission splitting entirely is a non-starter for many insurance agents, who argue that arrangements between life agents and other non-licensed professionals, such as accountants and lawyers, create a conflict of interest.

“People go to accountants and lawyers for a second opinion, an independent view, and they pay them on an hourly basis for that,” says independent insurance advisor Lawrence Geller. “If that professional is participating in a sale, on the basis of commission, it strikes me they would be hard-pressed to give an independent view.”

Geller says he’s not even sure that anything beyond commission splitting between licensed life agents should be permitted.

“It seems to me the CCIR wants to make a new rule allowing [regulated financial services providers with no life licence] to receive commissions, even though the law says that they shouldn’t,” he says.

“They say this is in the best interest of the consumer, but I can’t see how that can be the case.”

The CCIR also asked for industry feedback on referral fee amounts. IFB says percentage fees and other payments based on the sale of a policy should be allowed, but should also be capped.

What do you think of the IFB’s stance on this issue? Share your thoughts about this topic with your peers in the Talvest Town Hall on Advisor.ca.

Filed by Doug Watt, Advisor.ca, doug.watt@advisor.rogers.com