Compliance demands continue to growBy Susan Yellin | February 24 2015 09:00AM
Are MGAs and advisors prepared to meet the industry’s new standardized compliance practices?The guidelines, called MGA Compliance: A Risk-based Approach for Compliance Programs in the MGA Channel, were released in October and went into effect January 1, 2015 (See The Insurance and Investment Journal, October 2014).
It brings into one set of documents compliance regulations dealing with everything from anti-spam legislation to privacy laws and everything in between to ensure that both MGAs and advisors are meeting the rules.
The latest practices, set out in a reference document by the Canadian Life and Health Association in collaboration with the Canadian Association of Independent Life Brokerage Agencies (CAILBA), outline the roles and responsibilities of both managing general agencies (MGAs) and insurers.
“The absolute hardest thing for advisors is to stay current on everything,” said Jim Virtue, president and CEO of PPI Solutions Inc. “Between the privacy legislation, the do-not-call legislation, the anti-money laundering legislation, it’s very difficult for them to stay current and know what their obligations are.”
Specifically, the documents include material on the initial screening of advisors for suitability, reporting and investigating advisors, managing conflicts of interest, compliance on new regulations, as well as an insurance review questionnaire.
The larger MGAs have been ensuring these regulations have been kept for some time now. They have been aware of increased compliance measures coming down the pipe and the need for MGAs to become more involved, said Virtue.
PPI, for example, has had a national compliance officer for some time, as well as compliance leaders in each of its 10 offices who, in addition to non-sales administrative work, can provide compliance help to advisors, he said.
He suggested that those feeling the brunt of the new CLHIA compliance practices will probably be the smaller MGAs.
“This is a much more difficult thing for the smaller MGAs to do,” said Virtue. “It’s hard to have dedicated compliance resources unless you have scale. The compliance officer can’t be someone who is also involved in sales. In order to have those dedicated resources you need to have scale.”
Qualified Financial Services (QFS) has also ensured that its advisors are made aware of any new legislation, said its national compliance officer Diana Di Renzo.
Di Renzo said while compliance issues have taken centre stage over the last few years, some advisors still aren’t on board with the idea.
“You have the go-getters who are the first ones on board and really worry about their practices and really do what is expected of them,” said Di Renzo. “And then there are those who feel ‘It’s never going to happen to me,’ so they’re taking a little bit more of a lax approach. I think we’ve come a long way, but I definitely think there is still work to do.”
While some advisors see compliance as a negative that translates into more work and increased barriers for their business to overcome, Di Renzo said part of her job is to change the way the naysayers think. “Compliance pays off in many ways – it gives advisors a competitive advantage and helps them protect and uphold their reputations. When clients meet with an advisor and see that they have all their ducks in a row they are going to trust the advisor a lot more.”
And while many advisors have been overwhelmed by the volume of compliance measures they need to take, Di Renzo said there is talk of even more compliance requirements in the near future.
More stringent rules
“We don’t do mutual funds here, but in that world their regulations are more stringent and they are already following a much stricter process,” she said. “The buzz is that the insurance industry is going to head that way too – a lot more compliance.”
Arnold Scheerder, compliance officer with MGA R.G. Packman & Associates and compliance chair for CAILBA, agreed, saying many MGAs have already introduced tighter compliance measures if they own or are associated with a mutual fund dealership.
“A lot of things that are happening on the MFDA dealer side are sort of carried over to the insurance side [of some MGAs]. I’m not surprised that some of them say that they’ve already [incorporated]…a lot of these measures.”
As well, recently, the Autorité des marchés financiers (AMF), also openly discussed the possibility that insurance and securities regulations be harmonized (See The Insurance and Investment Journal, January 2015).
PPI collaborated in putting together the new set of standardized practices and Virtue said there was little disagreement among the MGAs as to what to include in the package. “The hardest thing to sort out was whose responsibility would it ultimately be to do some of these things – between the MGA and the insurance carriers – and how the MGA and the insurance carriers would work together to share information.” At the end of the day, said Virtue, the two sides came to a good understanding.
Di Renzo said she is constantly speaking to advisors, encouraging them to come to talk to her about questions they might have. In addition, she says the insurers themselves are a great resource and want to help advisors with their compliance obligations.
The QFS back-office system has a page dedicated to compliance – templates and other resources, in addition to compliance sessions two to three times a year, plus email broadcasts with links to different documents and resources.
PPI has had a compliance toolbox for a number of years now with similar material and also holds seminars on different compliance-related topics.
PPI is also involved in a new organization called APEXA Corp. to assist in the compliance and contracting process with advisors. Also taking part in APEXA are HUB Financial, Financial Horizons Group and IDC Worldsource Insurance Network, as well as insurers Manulife Financial, Canada Life, Sun Life Financial, Industrial Alliance and Empire Life. (See The Insurance and Investment Journal, October 2014)
The purpose of APEXA, said Virtue, is to standardize information and create a central database of compliance information that will also make it simple for an advisor to add a contract with an MGA. Advisors would go into the APEXA system and put in information such as their E&O insurance and licences, which would automatically go to the MGAs the advisor works with.
Big step forward
“It’s a big step forward in ease of doing contracting, looking after licensing and E&O,” said Virtue. “One of the roles APEXA is going to play is to help us with the compliance function. So it will be much harder for an advisor who has a problem with one MGA to leave and go to another MGA because there is going to be a central database.”
The system is expected to be launched in early 2016 and all other MGAs and insurers will be invited to join the system, he said.