A proposed guideline setting out standards for the disclosure of intermediary compensation in group benefits and retirement services could have a big effect on the market.

Dave Patriarche, president of Mainstay Insurance Brokerage Inc. and founder of Canadian Group Insurance Brokers Inc., is supportive of compensation disclosure and says the Canadian Life and Health Insurance Association’s new guideline makes sense overall. But he notes many brokers don’t agree with that sentiment.

“A lot of brokers go, ‘When you buy a car, you don’t know how much they make. When you buy a set of towels at Walmart, you don’t get a letter sent to you saying how much the towel company makes. Why are we so different?’ But we are, and worldwide, there’s lots of regulations.”

Read: CLHIA launches cross-Canada sessions about compensation disclosure guideline

Under the guideline, insurers will disclose direct, in-direct and in-kind compensation paid to advisors in a written report provided to plan sponsors at least annually. For new contracts, they’ll provide the report on or before the effective date. The CLHIA expects all of its members to conform to the guideline. 

Patriarche feels it should be provincial regulators setting the guideline rather than insurance companies, which make up the CLHIA’s membership. But he notes he understands why the association is taking the lead. “They wanted to get in front of it and do it on their terms, on their timing, rather than [the Financial Services Commission of Ontario] forcing it on them in Ontario, for example. But I think it makes for a very adversarial situation. Depending on how that message is conveyed, a lot of brokers are going to see it as negative.”

Patriarche also believes the CLHIA should have put the guideline out for consultation before introducing it. “They came out with the solution before they told anybody. . . .  As a result, it made the whole thing instantly adversarial,” he says. “As soon as brokers were told, ‘This is happening to you, by your supplier, by the people who you thought of as your partner,’ that raised a lot of people’s backs. If they had involved people from the beginning, it would be great.”

Janice Holman, principal and defined contribution practice leader at Eckler Ltd., says the group benefits and retirement industry has talked about the lack of transparency around fees for a long time, but she notes it is a concern for the advisor industry. “Everyone thinks it’s a good thing to do, but certainly there will be those that will have to change their service model to react to it or change their compensation structures.”

Read: CRM2, actions abroad put fee transparency under the microscope

Patriarche believes the guideline could go as far as pushing some brokers out of the business. “Because they don’t have great relationships, the disclosure could be too much or they’re not doing enough or adding enough value,” he says.

The CLHIA acknowledges that implementing the guideline may require systems and practice changes for insurers and that advisors will also need to prepare for it. As such, it’s phasing in the new approach, starting with the disclosure of new sales as of July 1, 2018. For renewal business, insurers will start tracking ongoing compensation on Jan. 1, 2019, with disclosure beginning on Jan. 1, 2020. 

Holman says it will be difficult to determine the effect of the guideline until more details become available. Indeed, while Patriarche considers the first deadline straightforward, he thinks it will get progressively tougher, since it’s unclear how the CLHIA expects the information to be calculated or presented. “That’s going to be really difficult,” he says.

“Since 2005, we’ve had an obligation for brokers to disclose that they are paid commission and that they are eligible for travel awards and bonuses. . . . For the most part, I think that’s been reasonably well communicated from brokers to clients,” he adds. But disclosure can go further, says Patriarche.

Read: Why leaping to save on benefits premiums may actually cost you

Once the guideline is in place, says Holman, plan sponsors may look to evaluate whether they’re getting value for the fees they’re paying, ask more of their advisor or solicit independent opinions to determine whether the amounts are fair and reasonable. And plan sponsors may become more aware of their advisor’s potential motivations, she adds, noting it will be interesting to see how all of the compensation is disclosed.

“Different advisors would have different arrangements,” she says. “They might get a commission on the asset transfer, they might get a commission based on transfers into the plan, it might be a combination thereof. But outside of those more obvious [arrangements] tied directly to the plan, there’s a lot of other forms of compensation they could receive.”

While the CLHIA will be hosting information sessions across Canada between Jan. 31 and Feb. 14, Patriarche says there needs to be more of them or a webinar that’s available more widely. “It’s got to be something that every broker across Canada is aware of before it happens,” he says. “Right now, it doesn’t seem that that’s going to happen.”

The CLHIA is adding new sessions in response to the demand and it’s also looking into setting up a webinar, according to a spokesperson. “It is certainly our intention to reach as many . . . advisors and brokers across Canada.”

And the association is also establishing an advisory committee, which will involve the benefits advisor community. “It was always our intention to include intermediaries in the guideline development process. The steps involved in our governance process meant that intermediary outreach would begin in January of 2018, which is now underway,” noted the spokesperson.

Patriarche says advisors and brokers should be attending the information sessions and getting involved in the process. “My attitude is if you’re not going to step up and help, get out of the way, because it’s going to happen,” he says.

For its part, the Benefits Alliance Group, which includes more than 150 Canadian benefits advisors, says it’s being cautious and taking a wait-and-see approach to the guideline. “We believe in transparency and we do believe in compensation disclosure but not to the extent that’s being proposed,” said Gil McGowan, the group’s president and chief executive officer.

Read: Consultants closing gap between themselves, plan members

Copyright © 2019 Transcontinental Media G.P. Originally published on benefitscanada.com

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Ami Maishlish:

From my perspective, as a consumer and as the president of a firm that provides group benefits to our team, I welcome enhanced disclosure of all matters that may be material to the decision making process.

With particular reference to this guideline initiative by the CLHIA, it would be interesting to know whether (with the proposed disclosure in hand), the buyer will be able to opt to pay the advisor directly on the basis of a negotiated fee for service, while correspondingly receiving a discount of the full amount of advisor compensation in the same sum as disclosed by the insurer.

Elucidation on this by the CLHIA, of course, would be appreciated.

Tuesday, January 23 at 12:22 pm | Reply

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