In 2012, Quebec’s financial markets regulator, the Autorité des marchés financiers (AMF), was not receptive to MGAs’ viewpoint that they should have a place in the regulatory framework. The AMF now says that any initiative designed to improve advisor supervision deserves close attention.
MGAs in Quebec have been jockeying to become legal entities governed by provincial distribution legislation – the Act Respecting the Distribution of Financial Products and Services, since 2012. They want to see their responsibilities recognized in the distribution chain, including advisor oversight.
Central to the model proposed, one MGA – the agent firm – would be an advisor’s unique home base in individual life insurance business dealings. The mutual fund firm would be another base, and may belong to a rival agent firm chosen by the advisor. Lastly, advisors would not be bound by the same obligations in group insurance, where the free market would prevail.
At the Rendez-vous de l’Autorité in November, Eric Stevenson, superintendent, Client Services and Distribution Oversight at the AMF, spoke of the vagueness shrouding the concept of MGAs. “Despite its important place in current business models, the managing general agent does not explicitly exist in our regulatory framework. This concept is not defined uniformly by all,” he explains.
Michel Kirouac, vice-president, executive officer at Groupe Cloutier, says that it may be challenging for an entity to supervise advisors without being empowered to do so. “Today, independent advisors and the firms we deal with think our requirements have nothing to do with them. They say they are governed by the AMF, and monitored by the Chambre de la sécurité financière and by their contract with the insurer,” he says. “Advisors recognize the role of the managing general agent in handling their sales and providing services, but not to supervise their business. They are mostly right about this.”
Stevenson agrees. “Managing general agents have responsibilities and do not wield real supervisory authority over their advisors. Formal recognition and more centralized oversight could help them. We have to think about this. Putting this recognition in place goes hand-in-hand with increased compliance, while taking fair treatment and consumer protection into account.”
Nathalie Sirois, senior director, Supervision of Insurers and Control of Right to Practise at the AMF, explains that if her organization concludes that creating a registration category is the best option to protect consumers, the legislation and regulation will have to be amended. The alternative to including MGAs’ responsibilities in the law would be to shrink the latitude of the distribution network, which includes mutual agreements between managing general agents and insurers, she cautions.
Michel Paquet, assistant vice-president and chief counsel - Quebec Advisory at Manulife, sympathizes with Michel Kirouac’s concerns. However, he thinks the industry must give the Canadian Life and Health Insurance Association (CLHIA) guidelines a chance to prove themselves.
Paquet says that Manulife may support the creation of a registration category for managing general agents “if it reinforces fair treatment of clients.” Yet this type of change must ensue from concerns raised by consumers, be consistent across Canada, and prompt in-depth consultations, he adds.
Insurers delegating more to MGAs
Vague responsibilities have their disadvantages, Kirouac argues. “Companies are always adding to our responsibilities,” he says. These responsibilities were previously limited to administration of advisors’ business and advisor compensation. Over time, obligations of support, training and supervision were also included in contractual agreements.
Things have changed again since the CLHIA guidelines, Kirouac adds. On top of that, there were the recommendations of the British Columbia regulator after its 2012 report on managing general agents, and money laundering compliance requirements from the Financial Transactions Reports Analysis Centre of Canada (FINTRAC), Kirouac says.
Insurance companies now require much more MGA involvement for selection and contracting of advisors. This includes investigation and credit reports, complaint and permit suspension checks, criminal record search, supervision and advisor activity oversight, Kirouac points out.
“It is now very hard for us to understand the responsibilities that insurers want to transfer to us, in a legislative model where advisors are independent and should be responsible for their actions, and where the managing general agent is not recognized as a legal intermediary,” Kirouac says. “Several grey areas persist; the distribution network would gain from more clarity.”
Kirouac mentions that if it is not up to him to examine financial needs analyses and recommendations made by advisors, MGAs still monitor “dubious cases.” These would include advisors with many replacements, who always sell the same product or who make their clients buy coverage or premiums that are much too high relative to their needs, he explains.
Michel Paquet says that the insurer generally relies on the professionalism of the representatives and their firm. “We are ultimately responsible for contracts sold.”