There’s a difference between insurance advisors and other financial services professionals and the two should not be lumped together automatically with identical regulations, says the head of one of Canada’s largest managing general agencies (MGAs).
“I think that when the conversation switches to the insurance side of the business we need to remember that insurance advisors are different than investment advisors with different skill sets and that they need to be treated differently,” Jim Virtue, president and CEO of PPI Solutions Inc., told a November symposium of Advocis.
For example, said Virtue, much has been made of banning embedded commissions, but so far at least, this has only been discussed on the mutual fund side of the industry.
As well, the reason for banning commissions in countries like the United Kingdom and Australia was because of inappropriate sales practices on the mutual fund side, a situation that has not occurred in Canada, said Virtue.
“I don’t think regulators are seeing that that is a strong situation in Canada, so I think that has to be taken into account here,” said Virtue. “Maybe we have a solution looking for a problem.”
CRM2, an initiative of the Canadian Securities Administrators that provides increased transparency and disclosure of fees and performance of mutual funds, is also an investment issue.
But in March the Canadian Life and Health Insurance Association (CLHIA) released a paper calling on mutual fund and insurance regulators to work together on cost disclosure. However, while the mutual fund industry’s disclosure involves outlining dealer (distribution) costs, the CLHIA recommended that the life insurance industry’s segregated fund fee costs be broken down further into administration, distribution and insurance.
“I actually applaud what the insurance companies are doing because what they’re doing is improving the disclosure in CRM2,” said Virtue. “I do believe that both industries need to work together and along with politicians get some meaningful changes that make sense to consumers and advisors.”
Best interest standard
Another issue that has come up in both the mutual fund and insurance industry is the implementation of a best interest standard.
The Ontario Securities Commission, for example, released its latest statement of priorities in June, announcing its intention to introduce a best interest standard, a view that has not been held by all provincial regulators, including British Columbia, which has come out against introducing the standard.
Anatol Monid, executive director of the licensing and market conduct division of the Financial Services Commission of Ontario (FSCO), told the symposium that his department is working on a number of projects, including its role with the Canadian Council of Insurance Regulators on whether harmonization should take place between the mutual fund and insurance industries.
FSCO issued a comment paper earlier this year and received a number of comments, he said. Its goal is now to find a proposal for regulators “that is not equivalent to the mutual fund regulatory model because we believe that they are different products. They need to be regulated differently but that consumers should have a similar experience about disclosure and understanding their products when both products look the same.”
Greg Pollock, president and CEO of Advocis, said issues such as creating a best interest standard and banning embedded commissions should only be decided in forums that include the direct involvement of financial advisors.
Pollock said Advocis members already adhere to a best interest standard as part of its code of professional conduct and supports an industry in which all advisors are held to that standard.
“However, we do not support a standard that is applied and interpreted by a regulator that does not include advisors in its membership,” added Pollock. “This lack of voice from financial advisors – the very individuals who are at the heart of the advisor-client relationship – is unacceptable and must be addressed.”