A handful of occupations will now be allowed to be life licensed in Ontario thanks to a new regulation of the provincial Insurance Act which came into effect November 1.
The occupations in question (see inset text for complete list) can now be life-licensed provided they do not engage in any business or occupation that would jeopardize their integrity, independence or competence, explains Grant Swanson, executive director of licensing and market conduct with the Financial Services Commission of Ontario (FSCO). An occupation may then either be prohibited outright or permitted with conditions if the standard has not been met.
Mr. Swanson explains that the list, prohibiting certain professions from holding a life license, was eliminated for a couple of reasons. “The idea of occupations that are distinct from each other is an idea that probably existed 20 years ago. It is really no longer the case. People do business through networking arrangements.”
In addition, “clients have complex needs that may require legal or accounting assistance and the existing rules didn’t even allow them to be in the same office as a lawyer or accountant, much less be engaged in a professional practice with them,” says Mr. Swanson.
But would a doctor selling a critical illness insurance product to a patient be in a potential conflict of interest?
“As a doctor, their occupation is on-the-line if inappropriate behaviour occurs. If they are putting their own interest ahead of the interest of the client, they will be in a conflict of interest,” he says.
However, Mr. Swanson stresses that it is also up to the professional association to see if they will allow their member to hold a life license.
Lisa Reilly, spokesperson for the Law Society of Upper Canada says that it would look at it on a case-by-case basis as to whether a lawyer could also hold a life license. “All lawyers are bound by rules of professional conduct, so there is rule around conflict and they would have to make sure they are adhering to that,” she says.
Ontario now joins Alberta and British Columbia in allowing other professions to hold a life license.
Other provinces such as Quebec still consider most outside professions holding a life license, a no-no. Philippe Roy, media relations manager for the financial regulatory body, Autorité des marchés financiers says that it also has no immediate intent to follow Ontario’s footsteps.
Another aspect of the new Ontario regulation is the conflict of interest disclosure requirement. It is specifically for life insurance advisors and it requires that they disclose more about their financial motivations to clients.
Many advisors are already subject to codes of conduct if they belong to Advocis or the Financial Planners Standards Council, for example. But not everyone is a member, so this new regulation ensures everyone meet certain standards.
From now on, Ontario advisors must now disclose in writing any conflict of interest or potential conflict of interest associated with the transaction or advisor’s recommendation.
However, what falls into the definition of what is a conflict of interest is rather vague.
Mr. Swanson explains that it can be defined as when an advisor places his or her interest ahead of the interest of his or her client. For example, the advisor must disclose if the sale of a particular product would allow the advisor to meet a certain sales target or would qualify them to win a trip.
But how many advisors would admit they are getting a free trip if they sell a particular product? Jim Bullock, veteran advisor and registrar of the Peel Institute of Applied Finance says few will because it just sounds “cheesy,” to say that to clients.
Mr. Bullock is sceptical about the new regulation. He raises the issue that the provincial regulator seldom enforces regulations and that the majority of advisors in Ontario do not even know what the regulations are. “It is irrelevant having rules and regulations if people do not know about them and there is no enforcement,” he says.
For example, many advisors think that the section indicating that they must now disclose the names of all insurers they represent is new. Rather he says it was also part of the old regulation and has been around since 1995.
At the recent fall summit of the Insurance and Financial Brokers Association of Canada, a room full of advisors were informed about the new regulation, and many gasped in astonishment to learn about the conflict of interest requirement.
In actual practice says Mr. Bullock, the regulation will not affect what advisors currently do. However, the regulation can be used against them when a client sues an advisor.
Mr. Bullock also questions whether the new regulation will force advisors to reveal how much commission they are receiving. And, he says, will advisors have to reveal that they will receive a charge-back if a client cancels a policy?
“We have all had the occasion to try to talk a client out of canceling a life policy. We refer to this as saving a policy or conservation. But, do we disclose the conflict of interest that [exists because], if the cancellation goes through, the commission would be charged back?” Mr. Bullocks says. When The Insurance Journal posed the question to Mr. Swanson, he responded, “If in doubt, disclose.”
Servicing without conflict of interest
The following is a list of professions which were previously barred from holding a life license in Ontario. The list was part of Regulation 663 under the province’s Insurance Act. It has now been replaced by Regulation 347/04. These professions can now hold a life license permitting they are not in a conflict of interest. They include:
- An officer or employee of a bank, trust company, loan company or finance company;
-An assessor, tax collector or issuer of building permits;
-Doctor or dentist;
- Lawyer or an employee thereof;
- A person engaged directly or indirectly in the manufacturing, repairing, servicing or selling of automobiles;
-A foreman or payroll agent;
-An accountant, auditor or trustee in bankruptcy;
-A magistrate or police officer;
-A member of the clergy or a minister;
-An officer or employee of an automobile association or club or an agent thereof;
-A mortgage broker who is not also registered as a real estate broker under the Real Estate and Business Brokers Act;
-Full-time employee of the Government of Canada or any branch of any municipal or provincial government in Canada or of a Crown corporation;
-An employee of a brewery, brewery warehousing company or a person engaged in handling or dispensing beer or spirituous liquors;
-An officer or employee of a trade union or trade association;
-An officer or employee of a credit union or caisse populaire;
-A person occupying office space in the office of any person referred to in clauses.