While advisors are supportive of greater transparency in group benefits and retirement services, some say the Canadian Life and Health Insurance Association’s proposed amendments to its compensation disclosure guideline last week still presents a conflict of interest.
The suggested changes to G19 included requiring the disclosure of both the percentage and dollar value of direct compensation and the total dollar value for in-kind compensation when it exceeds more than $5,000 per advisor per year. The CLHIA also suggested percentage and dollar values wouldn’t be required for indirect compensation, though it noted advisors should be required to disclose their eligibility for participating in indirect compensation.
The proposed change for in-kind compensation allows for conflict of interest, says Dave Patriarche, president of Mainstay Insurance Brokerage Inc. He notes that in-kind compensation used to be a suggested amount of $500, but with the guideline specifying $5,000, it allows for more extravagant compensation, such as trips to sales conferences and cruises that smaller brokers don’t qualify for.
“Now they’ve made it so that you can hide the trips and all the things that create the conflict of interest in the first place,” he says. “We should all be disclosing conflict of interest. And I’m all for any even and fair process that will make conflicts go away or be even from side to side. If we’re all in the same boat, it’s no big deal.
“This creates a situation where now you can game the system. You can structure everything so you end up hiding a lot of it and getting stuff. In my mind, there should be no bonuses. The only reason a bonus is paid is because you want a broker to place a piece of business with you that’s in their best interest and that’s it. It’s not in the client’s best interest, it’s in the broker’s best interest.”
Todd Stephen, president of OMG Benefits Consulting Inc. and chair of the Benefits Alliance Group’s task force, says organizations in the group are supportive of disclosing compensation to clients. But he also says one could argue that elements of the disclosure information are meant to create a rift between employers and advisors. “Some of those have been corrected in terms of how they’re choosing to disclose the payments from their own incentive program.”
The Benefits Alliance Group is also concerned about the CLHIA representing itself as a regulator. “It’s a very self-serving approach to a disclosure that wouldn’t meet the principles that have come before this policy or guideline within the financial services industry,” says Stephen.
Patriarche agrees, noting this type of guideline should be handled by a government regulator, such as the Financial Services Commission of Ontario, not the insurance industry.
The CLHIA’s update also included changes to the timeline by which the compensation disclosure would be required. Those providing group retirement services will be required to disclose compensation for new sales from July 1, 2019, six months later than was previously suggested. Annual compensation disclosure in group retirement services would still begin in 2020. As well, the timeline hasn’t changed for group benefits services, with the CLHIA proposing the disclosure of direct compensation for new sales will be required beginning Jan. 1, 2020, and renewal compensation disclosure will begin in 2021.
The timeline still presents issues, says Stephen, as well as how advisors are going to adapt to the changes. “All of the CLHIA members that we’ve spoken to have no ability to push out the information that they’re talking about requiring in disclosure.”
The indirect compensation facet is the key change to the guideline, according to an email from Erica Hiemstra, assistant vice-president of market conduct policy and regulation at the CLHIA. “Indirect compensation varies from year to year and is not linked to a specific client,” he wrote. “As such, concerns were raised about how useful dollar amount disclosure for indirect compensation would be for clients in order to manage conflicts of interest. We believe this change in approach will address advisor’s concerns while still providing relevant information to clients.”