IFB goes after Dundee on new insurance regime

Independent Financial Brokers of Canada (IFB) is “outraged” at Dundee Wealth Management, for dealership policy it recently announced that will ban advisors from using external managing general agencies to conduct new insurance business.

The new policy, which was announced in September and goes into effect in January, will require Dundee advisors to process all new insurance business through Dundee’s in-house insurance dealership, Dundee Insurance Agency Ltd. (DIAL).

The Mutual Fund Dealers Association (MFDA) already requires registrants to consolidate all of their mutual fund business with their dealer. However, dual-licensed advisors who can sell insurance products may use external insurance MGAs.

For affiliated advisors, Dundee will now be the sole dealer for all new individual life insurance, segregated fund policies, living benefit policies, GICs, Guaranteed Income Annuities and registered investment plans.

Dundee wanted this practice to stop, since it creates liability risk for the dealership if something goes wrong with off-book business. Jilted clients more often than not go after the dealer as much as they do the affiliated advisor. As a dealer, Dundee takes on extra compliance risk for advisors who work with external firms, with little or no added revenue. If past cases are any proof, the dealer can very well end up paying a hefty price in both fines and, more importantly, reputation, for shady off-book business.

For example, off-book transactions were how notorious Victoria-based advisor Ian Thow was able to bilk clients out of millions of dollars, selling non-existent securities. His firm, Berkshire Investment Group, was eventually fined $500,000 by the MFDA, even though none of the fraud he perpetrated was processed through the firm.

IFB is countering that Dundee is creating a de-facto captive agency that will stifle the independence of advisors in their insurance product recommendations. It argues that a key component of consumer protection is the advisors’ ability to choose the product that best meets their needs and not the “best available from within a narrow selection.”

The organization is surveying its 4,000 life insurance and mutual fund advisors to determine if they agree.

Early responses suggest they do, says John Whaley, the IFB executive director. Whaley says members are expressing “deep concern” that the Dundee policy represents a return to the captive agency system and sets the precedent to create an “MFDA model” of governance in the life insurance industry.

“IFB has long been vocal in its opposition to the intrusive and prescriptive approach that the MFDA has taken with the mutual fund side of the business,” Whaley says. “We, and the members we represent, feel very strongly that this model has no place in the life insurance industry.”

Apparently, the majority of respondents to the IFB survey work with at least two MGAs. The IFB also says early survey results suggest many IFB members would in fact leave their MGA or dealership should it adopt a model similar to what Dundee is enacting — some respondents are even vowing to quit the business before they would place all their business through a single MGA.

In an industry where carriers differentiate their products very subtly, DIAL does offer a fairly robust selection, with 18 life insurance supplier company agreements. The company has stressed in the past that DIAL is not a sideline business to the company’s investment dealership — it has identified its insurance business as a key area of growth.

The IFB nevertheless wants to prevent similar business models from popping up across the country. It says it’s looking to establish a national database of MGAs who are “committed to supporting independence and who are willing to make that commitment to brokers”.

“Brokers need assurance that their MGA won’t try to turn them into captive agents, and they need alternatives if and when that situation does arise,” Whaley says.