Bulloch: Warding off the spectre of regulation

As a principal heading up a Managing General Agency (MGA) in Canada, we are starting to see more regulatory interest in the Canadian Life Insurance industry. This includes the increasingly popular Segregated Fund product too.

Recently our firm’s compliance officer and I participated in a review of our firm conducted by one of our insurance distribution partners. They were keenly interested in learning about our firm’s compliance organization, the screening of representatives, their sales practices and our licensing and monitoring processes. They wanted to know how we monitor advisor suitability to distribute insurance products and the documentation advisors leave with their clients to fully disclose how they hold themselves out to the public. In discussions with regulatory leaders, they wanted to gain a better understanding of current business models and the relationship between the insurance company supplier, their distribution offices and the licensed advisor.

Their main points of interest were:

• What are the relationship between advisors, MGAs and insurer?
• What responsibilities do insurers delegate to MGAs?
• What supervision do MGAs conduct?
• Is there consistency in our industry with all MGAs or does it vary significantly?

Their questions brought up some interesting points for us to consider. As advisors we are responsible for the overall sales presentation and appropriateness of the insurance recommendations. We as MGAs cannot be expected to monitor the prudence of an advisor’s recommendation given that we did not speak with the client directly and are seldom apprised of what was discussed. In addition, as advisors we are allowed to deal with more than one MGA, even with the same client, an MGA would have no way of knowing a client’s needs, goals or objectives. Besides, the advisor is in the best position to access what coverage is appropriate for the client based on their discussions.

So that the regulatory authorities feel more comfort in our roles and responsibilities, it will be critical that advisors demonstrate a sufficient fact-finding needs assessment to properly access the client’s needs. As well, advisors must fully and accurately complete all required documentation, disclosure forms, in addition to following the code of conduct of their individual licenses. This includes their MGA code of conduct and as well as adopting a Best Practice process, such as the one from Advocis, at all times.

As MGAs we must review insurance applications to make sure they are complete and accurate as well as follow the underwriters guidelines for handling incomplete documentation, while maintaining proper records in a safe and confidential manner. Accuracy of information between the insurer and advisor is critical.

While we as advisors and MGAs believe it is not necessary to impose additional responsibilities on neither life insurance advisors nor MGAs, we must not be wary not to set off alarm bells at any time. Only our actions and time will tell if Mutual Fund type guidelines are necessary in the Canadian Life Insurance world as well.

The question everyone should be asking themselves is: Are you doing your part to reassure the regulatory authorities? If you just paying them lip service, keep in mind that your actions could result in more regulation in our industry too.