In December, the Canadian Life and Health Insurance Association (CLHIA) released a list of "initiatives" that include disclosure requirements affecting advisors. The CLHIA expects advisors’ associations like Advocis and the Independent Financial Brokers of Canada (IFBC) to ensure that their members respect these rules, but these associations say they aren’t in the business of regulating their members.
The CLHIA’s initiatives follow hot on the heels of the Financial Services Commission of Ontario’s Regulation 347/04, announced in November, that requires increased advisor disclosure to clients concerning their links to insurers.
Representing companies that account for 99 per cent of Canada’s life and health insurance business, the CLHIA released its package of initiatives aimed at reinforcing customer information and confidence in late December. This package includes five parts: increased consumer awareness, product disclosure, compensation review, travel incentives and intermediary disclosure.
Advisors will now have to give their clients a document indicating their relationships to life and health insurers, how they are compensated, including eligibility for non-monetary incentives and any conflicts of interest.
The question remains, though, as to how the CLHIA will be able to ensure that advisors are following through with these initiatives. Greg Traversy, president of the CLHIA, says broker associations should take on that responsibility. “The CLHIA is an association of companies and advisors are members of organizations such as Advocis and IFBC, so they should pursue discussions about advisor compliance with those organizations.” He adds that these organizations are also incorporating guidance on these matters in their best practices codes.”
Specifically with respect to the travel incentives disclosure rule, Mr. Traversy adds, “We are working with the advisor organizations with a view to ensure that if an advisor is eligible for a potential travel incentive in association with the product they are discussing with a customer, the advisor must make their customer aware of the potential eligibility. The customer is then in a position to assess whether the potential eligibility was a factor in the advice they are being provided,” explains Mr. Traversy.
When asked if this will be awkward for an advisor to bring-up at the point-of-sale, Mr. Traversy responds, “Well that is the plan. The intermediary organizations feel it is something that should be done, not only for travel but also for other non-monetary incentives.”
These rules affect all provinces he explains. “We have been working very closely with intermediary organizations – organizations such as Advocis and the IFBC, on the disclosure aspect of this package.”
Despite this collaboration, Advocis isn’t sold on the CLHIA’s disclosure rules for advisors. Caroline Spivak, director of communications and media relations for Advocis asks, “Is the consumer really looking for the information? Who is asking for it? We have advisors who have been in the business for 20 to 30 years who had only two clients ask them how they are paid. Consumers are not up-in-arms over this,” she contends.
Ms. Spivak adds, “No one is surprised that salespeople are given incentives to do well. But at the end of the day no Advocis members will present a policy just because an insurer has a big bonus for them.”
As for the matter of travel incentives, Ms. Spivak remarks that everyone seems to be hanging their hat on this one issue. “It is not as if every week an insurance company is giving free trips. It has to be put in perspective. Nowadays when companies do give educational seminars, advisors have to pay for the hotel or flight. It is not a free package like it used to be.”
For its close to 15,000 members, the disclosure requirement was nothing new and not a big shock, Ms. Spivak adds. “Our members have been following the principle of full disclosure to clients for many years. In our best practices manual we have letters for disclosure…advisors disclose that they do receive commissions, or if they have third party relationships,” she remarks.
And like the IFBC, Ms. Spivak says Advocis is a voluntary membership association and it does not plan to regulate its members.
Rather, she says the CLHIA initiatives are an attempt to show the industry and the regulators that advisors are working in the best interest of the client.
A reliable source close to the initiative who asked not to be named, also questioned the need for such disclosure. “Why is it necessary to reveal to the client how much compensation an advisor is receiving?” he asked. Pointing out that retail sales reps aren’t obliged to tell their customers about the commissions they receive, he comments, “So why is life insurance any different? I’m no fool. I know that when I’m buying a car, the salesperson is making a commission. It’s just understood.”
The source adds, “There was no demand from any consumer associations to have advisors reveal their commissions or travel incentives. Consumers were not asking for this.”
John Whaley, executive director of the IFBC, emphasizes that his organization does not plan to enforce compliance to the CLHIA rules among its 4,000 members. “We don’t have the ability to do that, or the wish to do that. We can’t make sure that advisors will disclose, but we can guide them in what they should do,” he states. Mr. Whaley adds, “All we can do is tell our members that it would be wise to comply with what their duties are.”
He explains that the IFBC did work closely with the CLHIA and a disclosure document is available to members, which they can in turn give clients. However, he adds, “Not every broker is bound to use the same document or even ‘a’ document.”
When The Insurance Journal informed the CLHIA that neither the IFBC nor Advocis plan to regulate their members, Wendy Hope, assistant vice-president external relations and events monitoring at the CLHIA, responded that it is not an organization that deals directly with advisors, so it does not fall in the CLHIA’s hands.
So if the CLHIA is not responsible and neither are the intermediary organizations, who is? “The two largest provinces have requirements to disclose – so advisors in those provinces have to abide by those laws,” says Ms. Hope.
“Secondly, this is a public initiative so it is our expectation that there will not be advisors that want to operate outside of this requirement.” She adds that there will also be consumer pressure to ensure advisors are adhering to the rules.
Asked whether the CLHIA initiatives were a reaction to New York’s Attorney-General, Eliot Spitzer’s insurance industry investigation, Mr. Traversy answered that these initiatives were in the works long before Spitzer’s probe.