CRTC makes financial advisors subject to telemarketing rules

By Alain Thériault | September 19 2011 08:26PM

The Canadian Radio-television and Telecommunications Commission's (CRTC) recent decision to make investment and financial advisors subject to telemarketing regulations has raised the ire of a number of advisors and associations.

The CRTC has ruled that investment and financial advisors are no longer exempt as far as telemarketing regulations are concerned. The commission concluded that the rules governing unsolicited telecommunication apply to the investment industry, as was already the case for the insurance industry.

From now on, the regulations will treat all unsolicited phone calls from members of these two industries to their clients as telemarketing calls and therefore they will be subject to the Do Not Call List (DNCL) rules. This applies to both sales as well as to the promotion of products or services. However, advisors may still communicate with existing clients who are on the DNCL if it they have an ongoing business relationship.

This about-face surprised the industry. Advocis, The Financial Advisors Association of Canada, says that taking away the exemption enjoyed by financial advisors is not in the public interest. CEO Greg Pollock says that the reinterpretation of the rules is a blow to advisors and clients alike, and suggests that it treats financial services professionals as little more than window washers.

A. M. Best raises ratings for Canadian insurers
The American ratings agency A.M. Best has upgraded its outlook for Canadian life insurers, revising their financial strength ratings from negative to stable. By doing so, the rating firm says it wants to emphasize that the entire industry has successfully weathered the financial crisis.
However, A.M. Best says that this improved outlook for the sector does not reflect individual changes at specific insurers. Instead, the ratings firm indicates that it was the sector’s overall performance that it wishes to reflect with this rating action.
A.M. Best lowered its rating outlook for the life insurance industry in March 2009. At the time, the financial crisis was the main reason behind the ratings agency’s decision to assign a negative outlook to Canadian life insurers, but it also considered the impact of low rates interest, stock market volatility and rising credit defaults. A.M. Best says it now believes that the industry is well capitalized. The ratings firm also notes that players who are primarily active in Canada have successfully weathered the financial crisis.
However, in a press release issued on Aug. 31, A.M. Best analysts said that the industry still faces some challenges and suggest that the Canadian economy will not recover as quickly as had been forecast earlier in the year. “The overall strength and shape of the global economic recovery, and specifically that in the United States, remains uncertain, and the potency of this recovery will continue to impact Canada,” they commented.
The ratings agency also notes that even if the results of insurers in Canada have improved, they remain well below those reported before the crisis. “Sales in certain segments remain sluggish, and companies with outsized product exposure to equity market risks likely will remain under pressure,” say the A.M. Best analysts.
Despite these constraints, A.M. Best has improved its outlook for the sector since it does not expect major fluctuations in the ratings for Canadian life insurers. Over both the short and medium term A.M. Best says it foresees a stable environment during which the number of downgrades will equal the number of upgrades. The agency also says that, given the current short-term volatility in the stock markets, reductions in capital and earnings will be viewed negatively.
-Sophie Boltz

Mr. Pollock is upset that the CRTC would make such a ruling without even demonstrating that the exemption was harming consumers in some way. He is particularly concerned about restrictions that will force advisors to telephone clients between specific hours, without taking time zones into account. As a result, an advisor in Toronto would not be permitted to contact a client in Vancouver about a drop in the Toronto stock market until it was 9 a.m. in British Columbia.

The CRTC's change was made after the insurance industry petitioned to have the same exemption that had been previously granted to investment and financial advisors extended to their own relationships. The result was that the CRTC agreed that both groups should be operating on the same playing field but instead of expanding the exemption, it revoked it for the investment industry.

"Everyone was completely surprised when they got rid of the whole exemption. We just didn't see it coming," says Susan Copland, Director at the Investment Industry Association of Canada (IIAC).

Besides the associations, there was strong reaction to the decision from individual participants of For Advisors Only (FAO), an online discussion group. One member wondered if errors and omissions insurers would still protect advisors if they were prevented from helping a client because of the CRTC rules. Another FAO participant, expressed concerns about having to write to clients yet another time in order to obtain their permission to stay in touch by telephone. Several other discussion list members called for political action.

FAO member Harley Lockart, who is also a member of Advocis' board of directors, encouraged advisors to support Advocis in its lobbying efforts, while David Barber, Vice President, Insurance of The Independent Financial Brokers, recommended that advisors telephone their Members of Parliament.

The CRTC says it was simply being responsive. "This was a request from the industry. We found that the competitive issue had not been dealt with and a level playing field would not be present in the marketplace. That's something we concern ourselves with," says Chief Telecommunications Enforcement Officer, Andrea Rosen.

Certain calls are exempt from the DNCL rules. These include: calls to a consumer who has an existing business relationship with the organization; calls to a consumer who has given express consent to be called; calls to business consumers.

If an advisor's calls don't already fall into one of these exempt categories, they must follow the DNCL rules.