Regulator proposes cease and desist order against Greatway Financial

The Financial Services Regulatory Authority of Ontario (FSRA) has followed up a recent announcement about its review of three multi-level-marketing managing general agencies (MGAs), with the latest – a proposal to make a compliance order against Greatway Financial Inc. In the proposal, FSRA alleges the firm is committing acts that could result in unfair or deceptive acts or practices in its treatment of consumers.

The multi-jurisdictional review of the three MGAs in question – Experior Financial Group Inc., Greatway Financial and World Financial Group Insurance Agency of Canada Inc. – was first announced at the end of September 2022. The review is unusual in that it was conducted by FSRA on behalf of six jurisdictions and the Canadian Council of Insurance Regulators (CCIR). The review is also unusual in that it specifically names insurance companies that it intends to investigate in the future, including ivari and Industrial Alliance Insurance and Financial Services Inc. 

The first enforcement action related to the review, initiated in October and announced October 24, proposes to impose a compliance order requiring Greatway to cease training agents using its existing training and practices. The proposed order would also require all agents, contractors, employees and recruits of the company to return or destroy all copies of the training. The firm would additionally be required to develop and operationalize new training “that could not reasonably be expected to result in agents engaging in an unfair or deceptive act or practice,” and provide remedial training to all existing agents.

Under the proposed order the firm would be required to cease selling new universal life (UL) and cease hiring, contracting or employing new agents until the above changes are completed to the satisfaction of FSRA’s director. More, existing clients must also be provided with appropriate information such that they can assess the nature of the UL policy and the insured retirement plan (IRP) strategies they’ve been sold before the firm can resume hiring or contracting with new agents.

Greatway has 15 days from the publication of the notice to request a hearing.

According to the notice of proposal to make a compliance order, Greatway in 2020 had revenue of approximately $42.8-million. The proposal adds that 92 per cent of Greatway’s gross income comes from the sale of permanent life insurance products, of which 99 per cent is from the sale of UL insurance products. FSRA adds that approximately 95 per cent of Greatway’s gross income comes from ivari.

Networked, multi-level business model 

The proposal alleges that Greatway uses a networked, multi-level business model which encourages, compensates and promotes agents based on the recruitment of others. “As new agents recruit further, a multi-level structure develops and those at the top are compensated for sales of agents below them,” the proposal states.

The proposal goes on to say Greatway has grown rapidly in recent years. “In 2018 Greatway had 1,400 licensed agents across Canada and sold approximately 13,000 policies. In 2021 Greatway had 3,490 agents across Canada and sold approximately 25,000 policies. Approximately 95 per cent of these policies were written by ivari.” They add that approximately 93 per cent of the agents contracted work on a part-time basis. The proposal further alleges that Greatway delegates the monitoring and supervision functions of the business to upline agents. “If there are no special circumstances, Greatway does not review policies sold or otherwise supervise the insurance business conducted by its contracted agents,” FSRA states.

The training the regulator specifically objects to is also spelled out in the proposal. Although IRPs are a complex strategy that is dependent on continued and retained contributions, borrowing eligibility and permitted tax deferrals, among other factors – the cost of insurance premiums also reduces the amount of money an insured is able to save and the cost of insurance also substantially increases over time as the insured ages – Greatway’s training reportedly teaches agents to sell the overfunded UL policies to all consumers, regardless of their financial circumstances. FSRA also alleges that agents are encouraged to misrepresent the UL policy and IRP strategy as a savings vehicle, not insurance, and to avoid communicating the important risks and characteristics of the strategy. The training also reportedly instructs agents to upsell consumers, regardless of their circumstances and needs.

Greatway’s agents, the proposal states, are specifically instructed to minimize, downplay and avoid disclosures that detail critical risks and characteristics of the strategy. In one example they say the UL policies and the IRP strategy is sold on the basis that the policy could be used as a collateral for a loan or line of credit in the future or in retirement. Despite this, ivari’s disclosures include that the company does not guarantee the continued availability of a collateral lending program, the loan of line of credit may be called, and that tax rules may also change.

“These are critical risks and it is essential for any purchaser of a UL policy and IRP strategy to understand them and make an informed decision. However the training material marks this page with DO NOT HIGHLIGHT in red letters,” they write. “Greatway is creating a situation in which agents are likely to mislead consumers by selling a product to the consumer while omitting any mention of key risks.” 

Greatway Financial has released a statement responding to FSRA’s proposed order. Click here to read the article on this topic.