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.

Read: CLHIA changing timeline for G19 compensation disclosure

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.”

Read: Compensation disclosure guideline making waves in benefits, retirement market

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.

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

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.”

Read: CLHIA announces tweaks to advisor compensation disclosure guideline

Copyright © 2020 Transcontinental Media G.P. Originally published on benefitscanada.com

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Marc R Brazeau:

It still baffles me how a variety of reasonable answers have yet to come forward yet we are again presented with a revised timeline reset 6 months further. The CLHIA can’t even get some of the finer points correct yet pushes forward on a very flawed market conduct requirement. Note the comment of bonuses not being client specific, yet with every major insurer the count of each client is calculated towards a new sale or even a retention bonus . . . there is a specific link! If these types of ill informed statements do not concern advisors as a whole by whom is promoting G19, then I must be really missing something.

In the end, we can debate the value of commission disclosure but when we look at what CRM2 did and it offered very little upside, versus ONE more discussion piece and often a detraction to more important dialogues, ANY new changes SHOULD and MUST result in a meaningful result to the client and our environment. If we insist that every new regulation should offer real value to clients versus added compliance to the mountain in front of us already, doesn’t that bring us in a better direction?. . . Seems like we never learn real lessons from past mistakes in this industry. Make note, a knowledgeable group retirement and/or benefits advisor knows to simply look at the target loss ratio to make a very close assessment of the compensation if one wants to engage in such area with a prospect…..and aren’t we all here professing to be knowledgeable and professional with the prime focus, the client… but then allowing this G19 become the new battle ground amongst advisors. Since this adds one more discussion piece as an annual review requirement moves the focus off the insurer and induces a race to the bottom on compensation amongst advisors since the Walmart mentality of purchasing takes over. If someone presents me a real need for this disclosure, why not one at onset and respected as long as the relationship is in place with such advisor. Otherwise, logic dictates that by asking the same question annually over and over again with end up with a different answer by the client.

Just my two cents worth…in the end, I think that the group retirement launch is simply the CLHIA trying to softly put this boat into the water. Once its there, good luck pulling it out.

Monday, November 26 at 2:46 pm | Reply

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