Mandatory memos

I’ve just completed drafting our company’s Advisor Disclosure Document, which we will be sending to clients for their signatures starting this year.

The document is required by Regulation 347/04 of the Ontario Insurance Act. Other provinces have similar requirements. The new rule, which updates its predecessor, Regulation 663, introduces a new provision on disclosure of conflicts of interest and also carries forward requirements that agents disclose the insurers and providers of other financial products they represent.

Writing up our firm’s disclosure policy made me realize how important it is to have a client see, read, and then sign a document of this type. In fact, I think its introduction and widespread use will enhance the reputation and professionalism of insurance agents and advisors across the country. Hopefully, it will bolster consumer trust and confidence during what’s become a period of suspicion and uncertainty.

When a prospect is considering buying a life or health insurance product, he or she requires information about not only that product but also about the company offering the product, the advisor who’s making the recommendations, and that advisor’s relationship to the offering company. By providing more written disclosure, the professionalism and goodwill of insurance advisors will be reinforced. It will also provide a measure of consistency in the standards of practice across the country and prove the industry can be self-regulating.

Although specific guidelines may differ in each province, they’re all based on the same general principles. A properly drafted disclosure document should concentrate on several areas. The first is to identify the names of the companies an advisor uses in his or her practice.

Inform clients if there are any special ownership relationships between you and the insurance company, because these will help them understand whether there are any factors that may influence the advice you give. Even though specific dollar amounts are not necessary, they should still have an understanding of how you are paid.

If you’re eligible for additional cash or non-monetary compensation based on the volume of business going to the provider during a specific period of time, then the client deserves to know that. Finally, he or she has the right to request and obtain additional information about qualifications and the nature of business relationships.

Questions about compensation are often on the minds of people who purchase any type of product or service. In many cases, these are questions the client would like to ask but often feels too timid to bring up. But they’re particularly relevant when the product is as complicated and mysterious as life insurance or related financial products.

Case in point: Last week I was talking with a client about increasing either his disability insurance or critical illness insurance plan. He only had enough money available to beef up one or the other. After discussing all the alternatives, he asked me, “Is there any reason with respect to your compensation that you would suggest one contract over the other?”

It was only after working on the disclosure statement that I realized this question would not have come up had he seen the disclosure document. In fact, its content would have put the client’s mind at ease because our position would have been clearly stated at the outset.

Over the years, our industry has matured and developed. I believe the majority of advisors act for the benefit of their clients and put those interests ahead of their firms’. Now it’s time to put that in writing.

I’ve just completed drafting our company’s Advisor Disclosure Document, which we will be sending to clients for their signatures starting this year.

The document is required by Regulation 347/04 of the Ontario Insurance Act. Other provinces have similar requirements. The new rule, which updates its predecessor, Regulation 663, introduces a new provision on disclosure of conflicts of interest and also carries forward requirements that agents disclose the insurers and providers of other financial products they represent.

Writing up our firm’s disclosure policy made me realize how important it is to have a client see, read, and then sign a document of this type. In fact, I think its introduction and widespread use will enhance the reputation and professionalism of insurance agents and advisors across the country. Hopefully, it will bolster consumer trust and confidence during what’s become a period of suspicion and uncertainty.

When a prospect is considering buying a life or health insurance product, he or she requires information about not only that product but also about the company offering the product, the advisor who’s making the recommendations, and that advisor’s relationship to the offering company. By providing more written disclosure, the professionalism and goodwill of insurance advisors will be reinforced. It will also provide a measure of consistency in the standards of practice across the country and prove the industry can be self-regulating.

Although specific guidelines may differ in each province, they’re all based on the same general principles. A properly drafted disclosure document should concentrate on several areas. The first is to identify the names of the companies an advisor uses in his or her practice.

Inform clients if there are any special ownership relationships between you and the insurance company, because these will help them understand whether there are any factors that may influence the advice you give. Even though specific dollar amounts are not necessary, they should still have an understanding of how you are paid.

If you’re eligible for additional cash or non-monetary compensation based on the volume of business going to the provider during a specific period of time, then the client deserves to know that. Finally, he or she has the right to request and obtain additional information about qualifications and the nature of business relationships.

Questions about compensation are often on the minds of people who purchase any type of product or service. In many cases, these are questions the client would like to ask but often feels too timid to bring up. But they’re particularly relevant when the product is as complicated and mysterious as life insurance or related financial products.

Case in point: Last week I was talking with a client about increasing either his disability insurance or critical illness insurance plan. He only had enough money available to beef up one or the other. After discussing all the alternatives, he asked me, “Is there any reason with respect to your compensation that you would suggest one contract over the other?”

It was only after working on the disclosure statement that I realized this question would not have come up had he seen the disclosure document. In fact, its content would have put the client’s mind at ease because our position would have been clearly stated at the outset.

Over the years, our industry has matured and developed. I believe the majority of advisors act for the benefit of their clients and put those interests ahead of their firms’. Now it’s time to put that in writing.