Insurance companies may be slowly realizing that implementing a compensation disclosure document for group benefit and group retirement services advisors is more difficult than originally predicted, say some who attended recent advisor meetings. But some brokers are heartened by what appears to be a slight shift in insurers’ attitudes towards brokers’ roles in the disclosure process.
“It’s more complicated than the insurers thought,” said Heather Freed, a Toronto-based independent advisor who consults and sells group benefits and who attended a recent advisor meeting. “But I think they’ve been listening to advisors.”
Under a Canadian Life and Health Insurance Association (CLHIA) guideline issued in January, insurers will disclose to plan sponsors anticipated direct compensation for new sales for group benefits and group retirement services advisors beginning Jan. 1, 2019 (extended from July 1, 2018). All compensation, including bonuses and sales trips, will be tracked starting the beginning of January 2019 and disclosure will be made by insurers beginning Jan. 1, 2020.
Three main issues
The CLHIA says it developed the guideline, known as G19, as a response to international and Canadian regulations that focus on three main issues: managing conflict of interest risk, providing disclosure to customers and treating customers fairly.
Rather than wait for regulators to get a handle on disclosure transparency, the CLHIA says its members are proactively identifying and addressing market conduct risks themselves.
But G19 has raised the ire of some advisors who feel they have been left out of the original discussions that led to G19 and that they are being taken out of the loop by insurers who intend to go directly to plan sponsors to reveal brokers’ compensations rather than allowing their “partners” – advisors – to do it themselves.
Since the G19 guideline was released in January, the CLHIA has held a number of meetings across the country with advisors, partly in light of advisor reaction. Freed attended a late February CLHIA-sponsored meeting north of Toronto.
While the original G19 guideline stated insurers would go directly to the end-user clients with compensation statements, “they implied at the meeting that at the very least advisors are going to see the statements being sent to the end users before they actually go out to make sure they’re correct,” said Freed. But she said the insurers couldn’t say for sure that that would happen because they need to get the entire CLHIA on board first.
Overlooked role of MGAs
Insurers also agreed at the meeting that they unintentionally overlooked the role of MGAs and TPAs in the disclosure statement, said another advisor.
A number of benefits advisors already disclose how much they charge, but they say it’s only possible to do so in percentage amounts, not in dollars, as required under G19.
Dave Patriarche, president of Mainstay Insurance Brokerage Inc. and founder of the Canadian Group Insurance Brokers Inc., has been disclosing his charges on his website since 2005.
But Patriarche said it’s difficult to outline what he will get in dollar amounts. “For a new group sale we can say this is the commission level times the annual premium. It’s only an estimate because throughout the year the cost is fixed on the rate they pay – but the number of employees may go up or down or there might be a design change in the plan, or the company may merge with another one.”
Fear of commoditization
He also said some brokers feel they have to be the cheapest in the marketplace, but at the same time fear that an extremely low commission rate will put them out of business. Patriarche said some advisors are advancing the theory that this “commoditization” will allow insurers to cut out advisors entirely and set up web-based direct sales.
But at least two insurers at the late February CLHIA meeting said they weren’t equipped to go direct, said one advisor, who asked not to be named.
Freed added that while the industry needs a deadline to work toward, she doesn’t believe the ones the CLHIA has given will necessarily be final.
Meanwhile, about 85-or so advisors have volunteered so far to be part of an advisory group to continue meeting with the CLHIA and its member companies to finish hammering out the details of G19.
At the same time, close to 200 advisors have signed up to be part of a new advisor group called the National Coalition of Benefit Advisors (NCBA), prompted by the introduction of G19.
The group is being spearheaded by a number of Canada’s benefits firms, including TRG Benefits and Pensions Inc. in Vancouver. Robert Taylor, managing director at TRG, said the brokers are in favour of disclosure, but added that advisors need to have a seat at the table.
“We don’t really have a voice,” said Taylor. “So we thought maybe it’s high time the benefit advisory sector of the financial services industry get together and formalize a united voice.”
While the CLHIA has a mandate to protect the interests of insurers, he said the NCBA would act for both consumers and advisors.
Meanwhile, both group benefit and group retirement services advisors will need to either dust off or create value propositions for themselves in light of G19, said Patiarche.
“If we don’t start to explain what our value is, then we are going to be left behind,” said Patriarche.
“I’m interested in protecting my clients,” added Freed. “You have to differentiate yourself from everybody else. It’s what you do in life. You sell yourself.”