Sound Business Practices for Life Agents to Stay Compliant (print version)

MeContinuing Education for Financial Service Professionals

Sound Business Practices for Life Agents to Stay Compliant

J-P BERNIER

Sound Business Practices for Life Agents to Stay Compliant

Sound Business Practices for Life Agents to Stay Compliant Copyright 2012 CLIFE Inc.

All rights reserved. Any reproduction of parts or all of this book and its contents by any means electronic or mechanical is prohibited. & The information in this book is provided for educational purposes only; it should not be construed or interpreted as providing advice. Agents and advisors should always seek guidance from their principals and compliance experts in regards to informing themselves and others about details of the products they sell and other considerations of their business. & We welcome all feedback and suggestions for additions to the book. Please send your comments to info@clifece.ca.

CLIFE INC. 1595 Sixteenth Avenue Suite 301 Richmond Hill, ON L4B 3N9 www.clifece.ca

Sound Business Practices for Life Agents to Stay Compliantprovides continuing education credits upon satisfactory completion of an online test. Please see the website for details or email info@clifece.ca.

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Sound Business Practices for Life Agents to Stay Compliant

INTRODUCTION

J-P Bernier has been in the life insurance industry for over 25 years dealing with policy development and financial reforms at the international, national and provincial levels. He has a unique perspective on the importance of creating a foundation of compliance in which doing the right thing and acting ethically are intertwined. J-P knows that a compliant business is a successful business because the elements of compliance are at the root of good business practices.

In this course, J-P reviews the fundamentals of compliance and gives practical instruction on how to implement these fundamentals. The agent/advisor gets both the benefit of “why-to” and “how-to” in logical, easy-to-follow instructions and advice.

Sound Business Practices for Life Agents to Stay Compliant provides the life agent and financial advisor with a checklist of practices and protocols.

They will arm him or her with a set of guiding principles that will form the basis for greater success and reputational excellence.

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Sound Business Practices for Life Agents to Stay Compliant

J-P: Let’s begin the discussion of sound business practices for life agents with a short real-life story.

Based on the recommendation of an experienced life agent, a retired client of modest resources and limited income moved a portion of her retirement portfolio, that was invested relatively conservatively and which contained some guarantees, to an exempt market security. These are sometimes known as an “alternative investment” and for which the seller is not required to hold a securities registration. The investment turned out to be a scam and, although the life agent was duped himself, he should never have recommended the investment to his client, who lost money she could not afford to lose.

A: How does this relate to life agents?

J-P: This story alone encompasses many of the points I want to raise in this course, in particular, the confusion clients may have about life agents and their licensing.

Clients often consider their life agent to be their financial advisor and, therefore, knowledgeable about all financial products, not just insurance. Consequently, a client may presume that when a life agent recommends an alternative investment, the recommendation is based on the life agent’s knowledge and experience.

Without sufficient disclosure, a client may falsely believe that a life agent’s license validates the sale of exempt market securities, which is not the case.

A: What is the responsibility for life agents in such a situation?

J-P: Life agents have a duty to exercise due care when engaging in their profession. As a result, if they act unethically, illegally or simply incompetently, they could be found to be unsuitable to act as a life agent.

A: So, it is fair to say that life agents must be compliant and exercise due care. But, what precisely is compliance in your view?

J-P: Knowledge, trustworthiness, integrity, good faith, competence and client relationships are the factors that serve as the basics of best practices and professionalism. Therefore, the most practical definition of compliance is simply acting according to certain accepted standards. There needs to be an up-to-date awareness of any legislative and regulatory requirements and they must be incorporated into good and prudent business practice.

Compliance is not rocket science, and agents/advisors know very well the consequences of compliance failure or non-compliance.

A: How does compliance enhance an agent/advisor’s reputation?

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Sound Business Practices for Life Agents to Stay Compliant

J-P: Reputation is by far the most valuable asset an agent/advisor has in business. Being compliant protects your reputation. Related to this is the fair treatment of customers. This is the “golden rule” of life insurance distribution; your reputation depends on it.

A: What is a common compliance issue in Canada today?

J-P: Failure to hold the appropriate license for selling insurance is a common agent-related violation cited by the insurance licensing and discipline authorities from coast to coast to coast. One of a life agent’s most important responsibilities is to be legally and properly authorized to sell the insurance products being offered.

This means obtaining and maintaining as valid the required license for the types of insurance being sold in all of the provinces and territories of Canada in which the agent/advisor does business.

If the deadline for renewing

the license has been

missed, the agent is not

authorized to sell until

the

Therefore, as an agent

license

is

renewed.

you must make sure you hold good standing.

A: Are there other aspects of should be aware of?

EVEN IF YOU LIVE IN A

a license that is in

JURISDICTION THAT DOES NOT MANDATE E&O, DON’T GO

licensing that an agent

WITHOUT IT.

J-P: There are two more

requirements related to

licensing.

One, life agents must hold the proper errors and omissions insurance, better known as E&O insurance, where mandated. E&O insurance helps protect the agent/advisor and his or her business from claims relating to a mistake in providing professional services that can lead to a lawsuit.

An error or omission can occur on almost any transaction. It doesn’t matter how long you have been in business or how good you are. Without E&O insurance you are at risk. So even if you live in a jurisdiction that does not mandate E&O, don’t go without it. Manage your risks.

In a lawsuit between a client and a life agent, E&O provides finan-cial protection for costs, even if you did not do anything wrong. Bear in mind that a court will tend to side with the client where there is doubt that an agent fulfilled ethical obligations.

Secondly, as a condition of licensing, life agents are required to pursue continuing education in most jurisdictions and also as a condition of maintaining professional designations like a CLU.

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Sound Business Practices for Life Agents to Stay Compliant

As you are fully aware, clients rely on your knowledge. Accordingly, competence is a factor of success. In turn, incompetent conduct can result in significant prejudice to clients. It follows that you should not undertake to perform any insurance or other services beyond your level of competence. You must continue your education in insurance and related matters to remain current in your skills and knowledge.

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Sound Business Practices for Life Agents to Stay Compliant

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