IFB welcomes disclosure guidelines for life agents

(December 23, 2004) The Independent Financial Brokers of Canada (IFB) is happy with new compensation disclosure guidelines produced by the life insurance industry association and has sent a sample disclosure document to all its members.

The new standards, released on Tuesday by the Canadian Life and Health Insurance Industry Association (CLHIA), require that all sales intermediaries send clients a disclosure document describing how they are compensated, including possible eligibility for non-monetary incentives, such as travel, and whether there are any conflicts of interest.

“We think this is good,” says IFB executive director John Whaley. “Something needed to be said. We’re in this process where FSCO [Ontario’s insurance regulator] has asked for compensation information from all the various companies which they are going to weigh over the holiday season.”

“So I thought it was good for us an industry to get something out to say that there may be a perception of a problem,” he adds.

Whaley says the new guidelines won’t make much of a difference for IFB members, since they’ve been working with the Joint Forum of Financial Market Regulators on conflict of interest and disclosure since 2003. “So we were supposed to be disclosing anyway. The only real change is that now it has to be writing.”

Advocis, the country’s largest advisor association, has not yet formulated an official response to the CLHIA’s guidelines. However, Dennis Caponi, chair of the association’s public affairs committee, notes that disclosure and conflict of interest requirements are already included in a suggested engagement letter for advisors and clients, which is part of Advocis’ Best Practices Manual released earlier this year.

“This is not far from our official position,” Caponi says. “We disclose to the public how we are getting paid, either by commissions, fees or fees plus commissions. We’ve always told people how we get paid.”

But Caponi says Advocis, as a national organization, has to decide whether to go further on the disclosure guidelines, which currently only apply to Ontario, and wants to wait to see what FSCO comes out with in the new year.

Some advisors have expressed concern about the level of disclosure that might be required, considering the complexity of some insurance compensation arrangements. But CLHIA is simply asking agents to put in writing that they are compensated by way of commission and other incentives, Whaley says. If clients ask, agents can get into further detail, but that’s not part of the CLHIA’s requirements, he points out.

IFB’s sample disclosure document, sent to members on Tuesday along with a letter explaining the guidelines, reads in part:

“Please be advised that agents and brokers in the life insurance business are compensated by commissions, bonuses and other inducements from the companies we do business with. From time-to-time, some companies may offer specific incentives such as travel rewards, for a limited number of agents/brokers in recognition of sales made over a specified period of time. Incentive-based compensation is an industry-wide practice and has been the normal form of payment to agents who sell such products for many years.”

In its letter accompanying the sample disclosure document, IFB notes that although the new requirements may appear on the surface to be just another regulatory burden for life agents, they can also be used to build business.

“This is an excellent opportunity to distinguish yourself to clients as a broker who can offer them a wide range of products, from a wide range of companies — which only an independent can do. It’s a great sales tool, and one that you can use to your advantage and that will help distinguish you from the “captives”.”

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