Independent advice remains a necessity

By Alain Castonguay | February 20 2018 07:00AM

Photo: iStock

Some insurers have recently acquired MGAs. What will be the impact of this on financial advisors? They will be able to remain independent and they will remain a necessity, agreed members of a panel discussion at The Insurance and Investment Convention held in November in Montreal.

iA Financial Group was one of the first insurers to buy MGAs, including the acquisition of HollisWealth in 2016. Pierre Vincent, Senior Vice-President, Individual Insurance and Sales at iA said the insurer found it important to have access to advisors and strengthen its distribution network.

Technological solutions

 By making these acquisitions, the insurer can implement the best technological solutions to serve customers more efficiently in wealth management, he said.

“We have always believed and still believe in independent brokerage," says Stéphane Rochon, president and chief executive officer of Humania Assurance. Distribution costs are getting higher. MGAs no longer only serve as back-offices for insurers. They also want to use MGAs for marketing products. Humania says it wants to make them real partners while allowing them to keep their independence.

"At our company, we are continuing to invest and we are helping new startups, such as Gestion FTM or Insurance. This ensures us of having succession when it comes to brokers. This is the best approach for independent advice," says Rochon.

Financial Horizons Group was purchased by insurer Great-West Lifeco in May 2017. James McMahon, president, Quebec Region, of Financial Horizons, said that when the MGA was put on the market in 2016 it attracted a great deal of interest. "We had negotiations for a year with potential acquirers. There were 52 who came to see us. The group was then reduced to seven potential buyers, then three. The best offer came from Great-West," he says.

The insurer’s interest in investing in the distribution network is simple: the insurer wants to offer its products to consumers, no matter where they are. "It’s the customer who decides where he buys his products. The insurer wants to be present in each of the networks, be it captive, semi-captive or through an MGA. It wants to be present everywhere to serve all types of consumers," says McMahon.

Distribution channels

Michel Kirouac, vice president and general manager of Groupe Cloutier, agrees with McMahon’s view. "Insurers have their career network and brokerage network. The direct network will soon operate via the Internet,” Why would they not invest in MGAs as they are currently doing? he asks. The channel accounts for at least 50 per cent of the distribution in Canada, he observes. “(Insurers) must multiply their distribution channels,” he underlined.

Despite its shareholder status in some MGAs, Humania does not require them to reserve a minimal proportion of their business volume for the company and has never done so, says Stéphane Rochon.

On the other hand, when it comes offering training to advisors, the closeness of the distribution network with the insurer makes things easier, he says. He does not see why the insurer would impose rules on distributors.

"It’s up to us, as a manufacturer, to find innovative solutions. It’s the role of the insurer to release new stuff, like HuGO," he says, referring to the platform developed by Humania.

Since the Great-West transaction, James McMahon has been to Financial Horizon’s head office in Kitchener three times. "We do not even have a contract with Great-West. We have an agreement with Canada Life. It’s the same as that of Groupe Cloutier.” John Hamilton is still president and James McMahon is one of four regional presidents. They are the ones who run the business completely independently, he says. The insurer does not sit on the board. However, they approve budgets and track financial results, says McMahon.

At iA Financial Group, an independent advisor can all products available on the market. For equal products, the insurer/investor can express his preference to the MGAs. However, the insurer cannot impose anything on the MGAs. The insurer certainly wants to make a profit as a product manufacturer. It also wants to make a profit from its investment in the distribution network, says Pierre Vincent. If the MGA makes a profit by selling the products of other insurers, the shareholder benefits anyway. “It nicely complements our service offered," he says.

"The goal is to provide the distribution network with good tools and to strengthen it," says Vincent. “The growth of the independent advisor network is a necessity in Canada, as many consumers do not yet have access to advice," he adds.

Michel Kirouac says insurers have been careful until now. Independent advisors want to maintain their status. To pressure them into concentrating their business with a single insurer would not be constructive, he says. If an insurer offers special conditions to independent advisors to increase sales, it may even become unfair to other advisors with whom it has business relationships, he adds.

If a company starts to favor its own distribution network, it is likely that other insurers will eventually do the same. This fear prevents them from running into problems, he says.

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