Quebec group proposes that advisors deal with single MGA

By Alain Thériault | May 22 2012 04:17PM

A working group of managing general agents in Quebec is proposing that the province’s registered insurance advisors submit their business to a single managing general agent. In the group’s opinion, their proposal would allow for more effective supervision of distributors.This is the essence of the paper that the working group submitted to the two Quebec financial services regulators, the AMF and the Chambre de la sécurité financière, as well as the Canadian Life and Health Insurance Association (CLHIA), at a recent meeting in Montreal.

“Our intention is to share our expertise with the regulator by suggesting a model that creates a balance between its concerns and the current business model for managing general agents,” said Yves Gosselin, spokesman for the Working Group of Quebec MGAs in an interview with The Insurance and Investment Journal.

Initially, the Working Group proposes to transform the managing general agent into an “agent firm”. This firm would become a corporation with a license to act as intermediary between suppliers and advisors.

Under this new model, an insurance-licensed advisor would only do business with a single agent firm, as is already the case in the mutual fund business. The Working Group, however, refuses to use the term “tied” where individual insurance advisors are concerned. It prefers the word “partner”. Mr. Gosselin explained that the “tied” concept is better suited to an advisor who has more of an employer-employee relationship with his agency.

For example, an advisor could do his life insurance business through one managing general agent and his mutual fund business through another investment dealer.

Group insurance brokers, however, could transact business with more than one agent firm, or directly with the insurers. Mr. Gosselin says that the Working Group did not want to change the traditional model, which has proven itself.

The Group does not wish to integrate financial planning into its model. The Working Group’s report points out that most financial planners are already licensed to do business in other regulated areas.

Easier supervision

This convergence of business would make supervision easier, says the Working Group. “This makes it easier to identify problems related to representative’s debts, systematic replacements, and bad business practices, while at the same time making it easier to monitor the representative’s training,” reads the document.

The agent firm would oversee advisors according to the requirements set out by the insurer or the regulator. As for professional conduct, the Group proposes that the responsibility lies with the representative.

The model preserves the notion of an associate agent partner. An agent firm could be associated with another one in order to have access to the suppliers with which it has no direct contract.

In order to become an agent firm, it would be enough to hold a contract for direct distribution with one product supplier. However, any agent firm should have at least ten advisors in each regulated area.

The Working Group proposes several other eligibility criteria. If a company wishes to become an agent firm, its business practices should conform to the LD8 guidelines on the selection of agents and reporting of irregularities, as set out by the CLHIA.

It should also have a standard contract that governs its relationship with advisors, as well as a code of ethics, professional liability insurance, the required licenses, and a team of at least three compliance officers.

To be eligible, the candidate should also have a place of business that is accessible to clients. It should have an organizational chart and back-office software. Finally, the Group would require the agent firm have a business model that is founded on customer service and consumer protection.