Courts blur lines between regulatory silos: Geller

In an ever more litigious society, managing general agencies need to improve documentation and communications with advisors and clients to bolster their defence, says one of Canada’s top financial services litigators.

“Fundamentally, good communications is good compliance,” said Harold Geller, speaking at the second annual Advisor Live MGA conference in Collingwood, Ontario. “That’s what the OSC has set up as the KYC standard. That’s what it says about the IDA, the MFDA and the FSCO people, it applies to all of them.”

Never mind the regulatory silos that dictate which best practices to follow based on product. In the eyes of both the public and the courts, “financial services” is all one industry. Advisors and MGAs should apply the very best of their best practices manuals to all aspects of their business, even if they are not currently mandated by regulation.

“Of course, the MFDA and IDA standards only apply to those silos — for now — at least before the regulators,” he says. “Before the courts though, we routinely mix them all together.”

Like may financial advisors, MGAs will often have an affiliated MFDA dealership. Geller suggests they leverage their understanding of MFDA compliance and adapt the same know-your-client regimen to use in their insurance practice.

“It’s not because you aren’t held to those standards in courts, it’s because the regulator hasn’t gotten around to it,” he says. On top of enhanced KYC measures, Geller says insurance professionals need to better explain the risks involved in buying a given policy and how it fits into the client’s overall financial plan.

As the middle man between the carrier and the advisor, the MGA should not expect to be let off the hook should litigation arise. In theory, providing an administrative backbone should be profitable, Geller says, but in reality, the MGA role has become a “liability lightening rod.”

Not only will they need to defend themselves against the plaintiff, but they will also need to defend against either of the other parties seeking to limit their own liability.

Geller says case law points to MGAs being responsible for far more than just what goes on in their own office. They could be held responsible for recruiting, screening, training and supervising all licensed associates and their staff. They should also ensure all proper licensing requirements are met by those associates and work to monitor their activities, including advertising.

Geller says insurance professionals also need to learn when to say “no can do” to a client with unrealistic expectations. Better still, they should develop a professional network so they are able to direct their client’s request to someone who can solve their problem.

There is a caveat, however: never direct a client to one specific individual, offer a list of qualified professionals instead. Recommending a single person for the job can be interpreted as vouching for them, which could leave you liable if they fail meet client expectations.

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