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 compliance review on our firm conducted by one of our insurance distribution partners. They were keenly interested to learn about our firm’s compliance organization, the screening of representatives, their sales practices, and our licensing and monitoring process. They further wanted to know how we monitor advisor suitability to distribute insurance products, the documentation advisors leave with their clients to fully disclose how they hold themselves out to the public.
In discussion with some regulatory leaders, they appear to want to gain a better understanding of current business models and the relationship between insurance company supplier, their distribution offices and the licensed advisor. Questions being asked are what are the relationship between advisors, MGA’s and insurer? What responsibilities do insurers delegate to MGA’s? What supervision do MGA’s conduct? Is there consistency in our industry with all MGA’s or does it vary significantly?
It hasn’t helped when articles get produced such as MGAs thrive in Industry’s “Wild West.” MGA’s, the middlemen in the sales process, are unregulated, but no one seems to care.
As advisors we are responsible for the overall sales presentation and appropriateness of the insurance recommendations. We as MGA’s 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 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, and objectives. Besides, the advisor is in the best position to access what coverage is appropriate for the client based upon 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 circumstances, goals, and objectives. As well advisors must fully and accurately complete all required documentation, disclosure forms, etc., in addition to following the code of conduct of their individual licenses, their MGAs code on conduct and as well as adopting a Best Practice process such as the one from Advocis at all times.
As MGA’s we must make sure we review applications for insurance to ensure they are complete and accurate, and 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 MGA’s believe it is not necessary to impose additional responsibilities on neither life insurance advisors nor MGA’s, we must not lend reason to send off alarm bells. Only our actions and time will tell if Mutual Fund type guidelines are necessary in the Canadian Life Insurance world too. Are you doing your part in all your actions and procedures to comfort the regulatory authorities or are you playing just lip service and as a result, your bad actions will result in more rules based regulation in our industry too.
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