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Life insurance agents in Canada’s most populous province are facing a new oversight regime after a pair of conduct reviews held last year unearthed 105 illegal actions, the Financial Services Regulatory Authority of Ontario (FSRA) announced Tuesday.
The new framework represents a shift from reactive to proactive supervision of the roughly 55,000 life insurance agents subject to FSRA regulation. It also comes as the provincial agency prepares to announce a list of authorized credentials – and credentialling organizations – governing the use of the financial planner and the advisor titles after those rules received government approval last week.
“More needs to be done to protect customers and make sure they have the right product,” says Huston Loke, FSRA’s executive vice president of market conduct, of the two pilot programs conducted in January and June of 2021 that laid the basis for the new supervisory framework.
Instead of using random samples, the two programs examined the work of a combined 57 life agents with a history of compliance issues. From a total of 240 client files, FSRA investigators discovered 105 contraventions of the Insurance Act and 334 instances of life insurance agents not following industry best practices.
An example of an industry best practice would be conducting a full needs analysis to ensure clients end up with the right product, Mr. Loke says.
“We expected to find some issues because these had been situations in which there had been previous complaints,” he says, “That said, it was disappointing to see so many contraventions.”
FSRA said in a 47-page report that its dedicated life agent unit will be conducting “more proactive examinations” in the coming years as the outcomes of the two pilot programs “suggest that life agents need to improve their overall business practices.”
Connection to new title standards
The increased oversight comes as FSRA faces criticism for moving ahead with all-encompassing minimum standards for the financial planner and financial advisor titles.
Laura Paglia, chief executive officer of the Investment Industry Association of Canada (IIAC), says the new rule would be more appropriately focused on the insurance industry alone.
FSRA’s Financial Professionals Title Protection Act, which came into effect on March 28, is “akin to an unnecessary tax that is ultimately going to be born by investors,” says Ms. Paglia, a longtime securities lawyer.
“In order for these credentialling bodies to become one, there’s a fee that they will need to pay to FSRA,” she says, suggesting advisor members may need to raise their prices to clients to cover the costs.
There is “an entire regulatory regime already dedicated” to oversight of advisors and financial planners on the securities side, Ms. Paglia says, referring to National Instrument 31-103 that addresses titling specifically.
“If they are talking about harmonizing standards between the securities and insurance regimes, removing regulatory arbitrage, so to speak, then harmonize the standards between those regimes,” Ms. Paglia says. “But this is not doing that.”
Responding to those claims, Mr. Loke says there are no rules either on the securities or insurance side right now that set a minimum standard for calling oneself a financial advisor or financial planner. This rule closes that gap.
“When we went and did consultations, very broadly, almost everyone said that there was a need for this type of regulation,” Mr. Loke says. “Until now, anyone could call themselves a financial advisor.”
Qualifying credentials still unclear
The vast majority of industry groups that participated in FSRA’s consultations told Globe Advisor that they were generally supportive of the new titling regime. Many continue to await confirmation on whether their applications to become credentialling bodies have been approved.
“The criteria was very difficult and it was not an easy review to pass,” says Keith Costello, CEO of the Canadian Institute of Financial Planning (CIFP) in Burlington, Ont. The CIFP submitted a 200-page application to have its registered retirement analyst and registered retirement consultant designations approved as advisor and financial planner credentials, respectively.
“[With that] amount of due diligence, we were really quite impressed,” Mr. Costello says. “If the organization was approved and their designation was approved, the consumer has no worries.”
Greg Pollock, CEO of the Financial Advisors Association of Canada – known as Advocis – agrees that, until now, it has been very unclear to the public what the standards are with respect to holding the titles of financial advisor or financial planner.
While there may have been “some understandings within the industry” on the securities side, Mr. Pollock says, “certainly, the public is really not clear in terms of which standards apply and which ones don’t.”
Advocis has submitted its professional financial advisor and chartered life underwriter designations for FSRA approval, although Mr. Pollock says he does not expect the life licence qualification program (LLQP) – currently used by life insurance agents – to meet the regulator’s new standards.
To address that, Advocis has applied to FSRA with a third credential called the life insurance professional’s certificate.
“We are proposing that upon completion of this post-LLQP certificate that individuals will be allowed to hold out as financial advisors,” Mr. Pollock says.
National harmonization is an ongoing concern
Tashia Batstone, CEO of FP Canada, which has applied to be a credentialling body via its certified financial planner and qualified associate financial planner designations, says other jurisdictions were waiting to see how things shaped in Ontario before moving ahead with their own minimum standards for the titles.
Now that Ontario has spoken, Ms. Batstone thinks other provinces and territories will soon follow.
“You don’t want a patchwork of different regulations across the country,” she says. “It will be important to get harmonization so consumers have the confidence of knowing there’s a standardized approach across the country.”
Meanwhile, Jacquie Skinner, certified financial planner and former president of the Institute of Advanced Financial Planners, which is also applying to be a FSRA-approved credentialling body with its registered financial planner designation, says one of the challenges with the current framework is the distinctions between the financial advisor and financial planner titles are “very nuanced.”
“The consumer is still going to have to do a fair bit of work to understand if the person they’re dealing with is acting in a financial advisor capacity, a financial planner capacity, or acting in a sales capacity,” Ms. Skinner says. “We believe there are a number of weaknesses in the framework and, hopefully, those will be addressed over time.”
Meanwhile, FSRA’s Mr. Loke says the regulator intends to continue consulting with investors and consumers to get their thoughts on whether there is a good level of understanding of what the titles mean.
“If it needs to be revised down the road then that is something we will be open to,” he adds.
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