It may be time for the regulators to step in. That’s a statement no one would usually ever want to say.
CLHIA the self-governing association of insurers has built a document called G19 on the guise of producing a more fair and clear landscape for Canadian consumers. Given that all insured products flow throw CLHIA members advisor literally have no choice but to follow any rules they put in.
To be clear, I haven’t talked to an advisor who is not willing to disclose the percentage of commission they collect on either group retirement or group benefits business. In fact, many welcome it as it would level the playing field and expose advisors who are overcharging for their services.
At issue here are two things. First is the in-kind and in-direct compensation rules which have been adopted to clearly allow insurers to maintain practices that are not in client’s best interests. For in-kind by allowing a $ 5000 limit per advisor for agencies before declaring anything they have made it clear they want to maintain the ability to influence where advisors do business. In-kind compensation is trips and cruises and other incentives. In-direct is bonus levels paid to advisors. First of all, advisors have no say if they get paid a bonus or not. Insurers pay a bonus, so advisors will place more business with that carrier. This incentivizes advisors to place business perhaps not where it is in the client’s best interests. Also confusing is they want dollar amounts up front which would be an inaccurate presentation of the numbers, chargebacks happen, advisors don’t know in advance if they will make bonus, firms change sizes and plan designs there are too many variables for anything but a percentage to be accurate.
As Dave Patriarche from Mainstay Insurance mentions “we should all be disclosing at the same levels”. The reality is advisors do business often with insurers they have comfort in, perhaps because the industry has so many nuances it often makes sense to do the bulk of an advisor’s business with two or three carriers simply to know your product requirements, it’s often not to achieve any bonus. Many advisors would be happy with a no bonus system as again that would level the playing field. An unethical advisor who moves their clients every year for cheaper rates (that rarely works out for the client) is not doing the best job yet an advisor who negotiates fair renewals and has good retention and places the bulk of their business with a few carriers may make bonus. The client perception is that the advisor who doesn’t make bonus charges less when in fact they’re doing an inferior job. This is an insurer-controlled situation. It also doesn’t relate to any given client as not all advisors make bonus and yet the bonus is paid from the insurer’s full pool of revenue. Disclosing to only the clients the bonus is paid from when it comes from all is inaccurate. It gives clients a false sense of their actual charges as well.
Compounding the issue here is that the insurers do not feel the need to disclose their compensation to staff on self-directed business yet there is often no change in client rates. While they also want to fully expose fees to MGA’s, TPA’s and all involved in the process they also decline to expose their margins on all things such as large amount pooling charges, often a large expense item on a renewal.
When building a document under the pretense of “clearing up conflicts of interest”, it’s very clear that CLHIA is maintaining their own conflicts of interest. Perhaps we need the regulators to step in and even this playing field.
It’s really “do as I say, not as I do” right now.