Financial advisors retiring or downsizing their books of business may be en route to a happier, more laid-back lifestyle after years of working in the industry. But they also may be leaving behind a growing number of orphan clients.
While there are no definite statistics on how many clients are deemed orphans and without a regular advisor and service in Canada, numbers have been estimated to be as high as 36% of personal life policyholders.
But those in the industry say they hope to get a handle on the situation before it causes too much trouble.
“We see these types of things happening all the time,” says Jim Virtue, president and CEO of managing general agency PPI Solutions. “To say: have I seen more happening recently? I honestly don’t think so. However, with an aging advisor force, we are going to see more and more of this.”
Regulators and the industry alike are aware of the situation and the importance of ensuring that all clients receive adequate service on an ongoing basis.
Ensuring ongoing service
In a recent report, entitled Insurance Distribution in Canada: Promoting a Customer-focused System, the Canadian Life and Health Insurance Association (CLHIA) recommends that regulators and the industry at large work together to ensure clients have ongoing service “with the objective of developing an industry guideline that will reflect those commitments.”
Internationally, standards point to insurers who should service policies until all obligations have been satisfied.
“Sometimes, ongoing service will be provided by the selling advisor, but in other cases, the advisor has left the business or retired,” states the paper. “And sometimes, clients will request a new advisor if they are not satisfied with their existing advisor. When companies have exclusive sales forces, these issues are more readily addressed… Where companies deal with independent sales forces, there can be more challenges.”
One of the problems in dealing with this issue is that different carriers have different practices and procedures, says Greg Pollock, president & CEO of Advocis, The Financial Advisors Association of Canada. Carriers, he says, are doing their best to identify orphan clients and ensure all receive ongoing service related to their policies.
“I don’t think it’s a huge issue but I also think it is a concern,” says Pollock. “There is no doubt there are a lot of insurance agents who are an average age of 55 who clearly have books of business and a number of clients and they are retiring. Are they properly working with the carrier in order to assure continuous service for their client? We would hope that in fact they do.”
But Pollock says insurers have different degrees of success, adding he has heard stories from regulators that proper servicing might not be happening 100% of the time.
Virtue says two of the larger insurance companies, who he preferred not to identify, raised the issue with PPI recently and suggested the two groups work together to solve the problem as best they can.
“There is general awareness in the industry that we all have to be more proactive on this, for sure. I don’t think there is any question about that,” he says.
He says PPI has for years worked with its advisors to help them make an orderly transition out of the business when they want to sell their books. As the advisor force ages, he expects to see this workload grow.
Other MGAs also help to create a valuation for advisors to assist in selling their book of business and some insurance companies assist advisors with financing to buy out another advisor. “So there is a pretty good support system now to help advisors who want to transition to find somebody to take over their book.”
Properly planned transition
In the fall, PPI will enhance its program by providing a type of online matchmaking service to help advisors identify advisors interested in buying books of business as well as those who want to buy.
Virtue says in a properly planned transition, the advisor who is leaving the business will contact the client either in writing or verbally and inform them that a new advisor is taking over. As part of the handoff, a meeting is often arranged between the clients and the new and previous owner. Clients don’t have to accept the new advisor.
In addition to advisors who retire from the industry, orphan client accounts may also result when an advisor decides to no longer work in a certain line of business, or when they deem that a client’s portfolio isn’t large enough to be worth their while.
“I wouldn’t be surprised if in some cases when an advisor is buying a book of say, 1,000 clients, that there might be a couple of hundred of those where there is a loss experienced by the purchasing advisor. It’s complicated,” says Pollock.
The Canadian Council of Insurance Regulators (CCIR) says the responsibility for ensuring ongoing service lies with the life insurance company that is servicing the policy. A spokesman says the insurer can assign the policy of an orphan client to another agent or have the policyholder serviced by staff at its head or regional offices.
The CCIR itself has not directly addressed the issue of transition and reassigning responsibilities but expects all insurers “will treat all customers fairly, regardless of the status of the policyholder’s representative.”
Only two provinces have addressed the issue within their jurisdictions – the Autorité des marchés financiers (AMF) in Quebec and the Insurance Corporation of British Columbia (ICBC).
In May 2013, the AMF issued a notice stating that both advisors and insurers are responsible for making sure a client who has purchased a product receives service once the selling advisor is no longer available. These “sound commercial practices” are expected to continue until the contract expires, is cancelled, terminated or replaced.
After the publication of the notice, the AMF sent a letter to insurers operating in Quebec asking for their policies on orphan clients and measures they use to deal with any shortcomings, said an AMF spokesman.
In an email, the spokesman said the AMF raises awareness of orphan client situations to advisors if it receives calls to its information centre. “Finally, when it is aware of a situation involving representatives, the Autorité can send letters to the concerned insurers notifying them about the situation and asks that measures be organized so that every policyholder has access to a representative.”
Remuneration policy
The CCIR says the AMF has started to revise advisors’ remuneration policy to do away with those situations that can lead to increased orphan clients.
Meanwhile, British Columbia’s insurance industry Code of Conduct outlines that either the insurer or an MGA can take an active role in informing clients that their agent of record is no longer available. If they opt to take up the offer from the insurer or MGA, clients first need to be notified by letter. Alternatively, clients can turn down the offer and find their own financial advisor.
If the orphan client situation is deemed to be a “growing concern for the consumers’ interests,” CCIR may evaluate the issue as it develops its strategic plan and initiatives for 2017-2020.
Manulife agrees that advice and ongoing service is important and works with its distribution partners to ensure clients find a new advisor, including using its in-house licenced advisors, says Graeme Harris, vice president of public relations at Manulife.
Harris also says Manulife supports CLHIA’s recommendation that regulators work with the industry to promote consistency of service.
A spokesperson for Great-West Life and London Life says the insurers are also not seeing an increase in the number of orphan clients and have been helping advisors who plan to leave the business create client transition strategies to ensure client needs are met by a suitable replacement.
The companies will transition orphan clients who don’t want to be aligned with any particular advisor to their Customer Service Centre.
“I feel that this is something easy we can deal with – we just need to, as an industry, start dealing with it,” says Virtue of PPI Solutions. “It’s an important issue because clients deserve to be serviced.”
