Image

Compliance Guidance for Quebec Managing General Agencies MGAs

CAILBA

Compliance Guidance for Quebec Managing General Agencies (MGAs)

This guidance covers the unique requirements for MGAs doing business in Quebec under the Act respecting the Distribution of Financial Products and Services and its regulations (the “Act”) and other requirements imposed by the AMF.  It is to be read and used in conjunction with the CAILBA Compliance Toolbox, which covers the compliance requirements across Canada, the majority of which apply to Quebec MGAs.  We attempt to avoid duplication. If a topic is not covered here, check the Toolbox. Note, this document does not cover topics specific to financial planning. 

In Quebec, MGAs are regulated as “firms” under the Act and are authorized to do business in the “insurance of persons” (individual insurance) and/or “group insurance of persons” sectors.  Consequently, we will use the term “Firm” throughout this document.  

Requirements that Apply to the Firm Directly

Registering with the AMF
Errors & Omissions (“E&O”) Insurance for Advisors and Firms
“Holding Out” in advertising, representations and client solicitation
Record Creation and Retention
Maintaining Client Files for Firm, Attached Representatives and Representatives under Close Supervision3
Maintaining a Commissions Register
Maintaining a Separate Account
Complaint Handling
Privacy
Business Continuity Plan (best practice)
Incentives and Rules for Contests

The Firm’s Oversight of All Advisors

General Requirements
Code of Ethics of the Chambre de la Sécurité Financière
Dual Employment and Incompatible Occupations
Compulsory Professional Development
Business Card Rule and Holding Out
Client Solicitation and Representation
Advisor Disclosures and Notices to Clients
Written agreement for Group Insurance
Financial Needs analysis
Client File
Leveraging
Policy Replacement
Product Information
Handling Orphan Clients

 

Requirements that Apply to the Firm Directly

 

Registering with the AMF

The Firm must apply to the AMF to register as a firm and must:

  • Complete the initial application form for registration. See 

https://www.lautorite.qc.ca/files/pdf/formulaires-professionnels/distrib/dci-inscription-cabinet-soc-auto-a.pdf

  • Annually provide the AMF with:
    • Proof of E&O coverage for the Firm and any non-employee Advisors.  (Employees typically are covered under the Firms’s plan).
    • An updated list of attached representatives associated with the Firm.1
    • Declaration of any changes to information provided previously. See https://www.lautorite.qc.ca/files/pdf/formulaires-professionnels/distrib/DCI_file-update-firm.pdfw
    • A maintenance of registration form, an update of the information already submitted.
    • Pay all annual fees to the AMF, the Fonds d’indemnisation and the Chambre de la Sécurité  Financière.

See: https://www.lautorite.qc.ca/en/firms-application-for-registration-pro.html for information on registrations.

Errors and Omissions (“E&O”) Insurance

The Firm must acquire both corporate insurance for itself and ensure that all Advisors, including independent Advisors, maintain the required E&O insurance.   Note that E&O insurance typically does not cover acts of fraud and non-compliance. See http://www.lautorite.qc.ca/en/professional-liability-insurance.html.

Coverage for the Firm must provide for the following:

  • Minimum coverage of $500,000 per claim
  • Minimum coverage of $1,000,000 per year for Advisors
  • Minimum coverage of $1,000,000 per 12-month  period for Firms with three or fewer Advisors
  • Minimum coverage of $2,000,000 per 12-month period for Firms with greater than three Advisors
  • Deductible may not exceed $25,000 for Firms with more than three Advisors
  • Coverage for liability arising from fault, error, negligence or omissions of the Firm by mandataries, employees or trainees (regardless of whether they are still engaged at the time of the claim)
  • Coverage extends for five years from the date the Firm’s registration with the AMF is suspended/cancelled for acts committed during coverage.

Coverage for individual Advisors must provide for the following:

  • Minimum coverage of $500,000 per claim
  • Minimum coverage of $1,000,000 per year for Advisors
  • Deductible may not exceed $10,000 for Advisors
  • Coverage for liability arising from fault, error, negligence or omissions of the advisor or by their mandataries, employees or trainees   (regardless of whether they are still engaged at the time of the claim)
  • Coverage extends for five years from the date the Advisor(s) ceases activities for acts committed during coverage. 

1 Note that in this document and throughout the Toolbox, we generally refer to “Advisors,” rather than representatives. This is the common usage within the MGA community and also reflects the fact that Independent Advisors do not represent the MGA in any way. Where necessary, we refer to “attached representatives.”

Important Considerations:

As a matter of self-protection, the Firm should ensure that Advisors who cease their activities for any reason are covered for the 5-year period.  In addition, if the Firm or an Advisor wishes to purchase a block of business, they should do due diligence to ensure that the selling Advisor maintains the appropriate coverage. 

 “Holding Out” in advertising, representations and client solicitation 

In Quebec, as in many provinces, the Firm may only use its AMF-authorized name in advertising, representations and any form of client solicitation and may not use trademarks, slogans, symbols or any other thing that is likely to cause confusion or mislead. The Firm must use the title under which it is registered with the AMF. Consequently, a documented process for reviewing stationery, business cards, the Firm’s banner, website and any advertising must be established, with clear accountability laid out.   This same process can be used for reviews of how attached Advisors hold out.  In addition, the Firm should consider putting in place a process for review of any marketing material prepared by non-attached Advisors in relation to products they place through the Firm.  

See the AMF’s Rules respecting representations, banners and business cards http://www.lautorite.qc.ca/files/pdf/publications/professionnels/assurance/guide-cartes-affaires-an.pdf

Record Creation and Retention

A Firm must keep accounting and files relating to its clients in Quebec and make them available to the AMF upon demand.2
It must retain the books, registers, client files and supporting documents used for their preparation for at least five years from the latest of the date when: 

  • The client record is closed,
  • The last service was rendered to the client, and
  • The last product sold has expired, not been renewed or replaced.

Under Quebec rules, subject to some limitations, the Firm may destroy client records and remove transaction records related to their sales from the books and registers after the expiry of the five-year period.  However, this is subject to the records-retention requirements of the individual insurers with which the Firm has contracts and to certain legislative requirements including the Taxation Act (Quebec), which has a longer retention period.   

At this time, insurers have not shared their record retention policies and procedures with Firms.  We expect this to change over the next few years. 

Maintaining Client Files for the Firm, Attached Representatives and Representatives under Close Supervision 3

The Firm is required to keep a client file for each of “its” clients, including those of attached advisors, orphan clients that have not yet been reassigned for servicing and clients in any book of business purchased by the MGA. The information is to be retained “in Quebec”, subject to comments made previously about being able to produce them immediately upon request by the AMF.  For MGAs located outside of Quebec, who maintain electronic files that can be produced anywhere immediately, along with records of dealings and transactions with clients, this is important.  

2 Note that Quebec now allows insurance companies and other firms such as MGAs to retain electronic records and other records outside of Quebec, as long as they are available for inspection immediately when demanded by the AMF.

3 See Statement Regarding Supervision, attached, which must be completed for all Advisors who are under close supervision.

Required information for the file includes:

  • the client’s name;
  • the client’s address, telephone number, and facsimile number or electronic mail address, if any;
  • where the client is a natural person, his date of birth where such information is obtained by the representative;
  • the amount, object and nature of any product sold or service rendered;
  • the policy number, contract issue dates and the date of the signature of any proposal or request for services;
  • illustration with all required information no later than policy delivery;
  • the name of the representative of remuneration for each product sold/service rendered to the client;
  • the method and date of payment of the products sold or services rendered;
  • a copy, in any medium, of the needs analysis prescribed in section 6 of the regulation. (Chapter D-9.2,r.10) (Note that needs analyses must be dated and should be signed by the purchaser and Advisor, with a copy provided to the purchaser no later than the date of policy delivery).
  • a copy of any completed and signed replacement form, presented at or before the time a proposal is made if a replacement is contemplated (art 18 to 27 Chapter D-9.2,r.10);
  • a copy of the documents prescribed in the Regulation respecting the pursuit of activities as a representative.

All other information or documents concerning products sold or services rendered to the client and obtained from him must also be inscribed on or filed in the client’s record by the firm, the independent representative or the independent partnership.

In the course of recent Firm audits, the AMF has reiterated the requirement that Firms oversee attached representatives and those under close supervision to ensure that the client has received and acknowledged receipt of delivery of all required documents at the appropriate time.  Firm files must be able to demonstrate this. Note that document delivery can be done by fax, electronically, or by having the client sign off. Regardless of the means of delivery, the AMF insists that MGA retain “proof” that the client has received the material.  

If the documents are delivered by fax or electronically, the Firm must ensure that it has a procedure in place to acquire the “proof” from the representative.

If the attached representative or Advisor under close supervision uses paper signatures, the Firm records must include either:

    1. Each required document signed and dated by the client (needs analysis, illustrations, disclosures, replacement forms for individual insurance and needs analysis, risk profile, Fund Facts and any addenda and Information Folder); or 
    2. A separate acknowledgement form signed and dated by the client no later than at time of policy delivery that lists all material provided to the client.  As a best practice, the Firm should add any and all other forms that might be required to a template (such as a privacy statement and disclosure form), so that everything that needs to be delivered and acknowledged is covered.  

Additional Records for Group Insurance – in addition to the above, the following must be retained:

  • the name of the holder of the group insurance policy;
  • the name of the person designated as the policyholder’s contact person;
  • the calls for tenders and the proposals submitted;
  • a copy of the mandate and report. (See sections 8.1 and 9.1 of the Regulation respecting the pursuit of activities as a representative).

Applicability to Independent Advisors

These same file maintenance rules apply to Independent Advisors, who must be able to demonstrate to the AMF that they have provided all required information to customers.  It does not appear that the AMF expects Firms to maintain such records for Independent Advisors.

Maintaining a Commissions Register

In Quebec, a Firm is required to maintain a register that contains:

  • Identification of each commission or other remuneration received by the Firm.  This is essentially a detailed record that allows for easy identification and tracking of payments.  It must include the contract number and/or client name, the name of the insurer and the name of any other person or entity that has paid a commission to the Firm.  See http://www.lautorite.qc.ca/en/payment-remuneration-representatives-registrants.html. 
  • If commission-sharing is involved, commissions cannot be paid in cash, but the sharing arrangement this must be recorded in the register promptly along with the following:
  • name and business address of each person sharing the commission
  • any sectors in which these individuals may be registered with the AMF
    • names of the parties to the transaction, the nature of the transaction and its date 
    • Percentage or fixed amount of the commission allocated among the parties.  

See http://www.lautorite.qc.ca/en/sharing- commissions.html .

If the Firm uses a backroom administration system such as WealthServ, WInsurance, it should embed this information in its system, or be able to generate it for AMF review by way of a fixed or ad hoc report.  If the Firm does do not have an administrative system, it must keep a paper register that meets all of the above requirements. This might consist of all commission statements sent by insurers, along with records created by the Firm to cover commission-sharing that it facilitates without the insurer’s involvement.

Maintaining a Separate Account

According to the AMF, “firms, independent representatives and independent partnerships that receive or collect sums of money on behalf of others must keep a separate account open with a financial institution.”  Although the AMF indicates that the account may be used “to make remittances to insurers,” this generally does not apply in life insurance sales, where virtually all payments are directed to the insurance company in the first instance.  The practice of maintaining a separate account applies to the general insurance business, but there may be instances, particularly involving travel insurance, where a Firm may be required to set up a separate account.  

If the Firm collects amounts from third parties that do not go directly to the insurer, it must maintain a separate account and make a declaration to the AMF on the form available on the AMF Website.  See http://www.lautorite.qc.ca/en/separate-account.html and http://www.lautorite.qc.ca/files/pdf/formulaires-professionnels/distrib/DCI_Annexe-ouverture-compte-separe.pdf.

If the Firm stops using a separate account or does not intend to use one at time of registration, it must make a declaration to the AMF on a schedule they provide.  See http://www.lautorite.qc.ca/files/pdf/formulaires-professionnels/distrib/DCI_annexe-absence-compte-separe_A.pdf.

If the Firm needs to update the information regarding its separate account, it must make a declaration to the AMF on their form.  See http://www.lautorite.qc.ca/files/pdf/formulaires-professionnels/distrib/DCI_Annexe-maj-compte-separe.pdf.

Complaint Handling

Quebec is the only province that specifically requires MGAs and Independent Advisors to have complaint management processes in place and to report complaints to the regulator. However, insurers often impose these requirements on MGAs as well.  See http://www.lautorite.qc.ca/en/complaint-examination.html.

Quebec’s requirements are more specific than those of other provinces.   In order to equitably resolve complaints, the Firm must have a policy to examine and resolve complaints and claims made by individuals who have purchased a product through an Advisor.  See CAILBA Toolbox, Section, 8, Doing Business in Quebec.  We provide you with a complaint-handling protocol template that can be used in Quebec and all other provinces, which we base on the sample provided by the AMF.  

See http://www.lautorite.qc.ca/files/pdf/professionnels/obligations/Complaint- examination-policy.pdf.  

Since the Firm has complaint reporting requirements in Quebec, it is critical that a formal, documented policy and procedures be put in place and that a person is made accountable for responding to complaints and maintaining the register and reporting.  The policy should be posted to the Firm’s website and provided to all employees and Advisors.

If the Firm does business in a number of provinces, it is sensible to use the Quebec policy process for all of its business rather than to have a different policy and process in place.  The policy must contain the following information:

  • The fact that it is a complaint handling policy
  • The name of the person accountable for complaint-handling
  • The definition of a complaint
    • The complaint receipt process
    • What should be included in a complaint file
    • The complaint- handling process
    • Transferring complaint files to the AMF
    • The process for preparing and sending the complaint report
    • The effective date of the policy

Complaint-Handling Procedure

  1. Acknowledge receipt in writing within five business days, including a copy of the Firm’s complaints policy and notify the complainant that if he or she is dissatisfied with the handling of the complaint, he/she may request that a copy of the file be sent to the AMF.
  2. Immediately log the complaint in a complaints register.
  3. Create a complaint file.
  4. Deal promptly with the complaint.
  5. Provide a “final answer” within a reasonable period that is consistent with the rules laid out in the complaints policy.

Reporting Complaints Data to the AMF

The Firm’s complaints register must include all complaints against it and its attached representatives. It must be forwarded electronically to the AMF no later than July 30 (for data collected between Jan. 1 and June 30) and January 30 (for data collected between July 1 and December 31), indicating the number and nature of complaints filed.  

Independent Advisors and Firms with only one attached representative are not required to file a report if no complaints were received during any period.

Privacy

Quebec was the first province to promulgate a privacy law.  Quebec’s Act Respecting the Protection of Personal Information in the Private Sector is considered to be “substantially similar” to PIPEDA.  The Digital Privacy Act (2015) has made substantial amendments to PIPEDA, which will affect MGAs wherever they do business.  See below. (Note, the differences between the amended PIPEDA and the Quebec Act are not so great as to prevent an MGA from using the CAILBA privacy guidance and tools, with slight additions and modifications).  

Consent 

In Quebec, an Advisor must obtain the client’s express, free and informed (generally written) consent in order to establish a file on him/her and to communicate or use the personal information.  The consent is only valid for as long as the purpose for which it was requested exists. Note that under PIPEDA (as amended by the Digital Privacy Act), these requirements are part of “valid consent.”  In both cases, individuals must fully understand the purposes to which their personal information will be put in order to provide “valid” or “enlightened” consent.

Because the Firm typically does not deal directly with the client, this means that the Advisor’s consent must be very specific and must also include sharing personal information with the Firm. 

In the event that a Firm reaches out to a customer for consent (as, perhaps, in the case of reassigning an orphan policy), the Firm must ensure that Advisors have access to and can only use the information necessary for them to perform their functions unless they obtain specific consent from the customer.   In this instance “specific consent” means consent for the Firm to allow an Advisor to have access to information on the customer that the MGA holds. In seeking this consent, the Firm must advise the client that they may revoke consent at any time.  

Breach Notifications and Reporting

The federal DPA includes new requirements to notify affected parties in the event of certain breaches and to report to the OPCC.  Only Alberta had such requirements in place prior to this time. While Quebec’s privacy law was deemed to be “substantially similar” to PIPEDA prior to introduction of the DPA, it is imperative that MGAs doing business in Quebec be aware of the DPA and the implications for them in the event of a breach.  

As the law firm Fasken Martineau has pointed out, passage of the DPA “means that organizations subject to the Private Sector Act are not subject to the provisions of PIPEDA with respect to the collection, use and disclosure of personal information when these activities are carried out within the province.  These organizations must nevertheless continue to comply with PIPEDA when they engage in interprovincial or international business activities (e.g. customers outside the province, outsourcing of personal information to third parties situated abroad, etc.). Private sector businesses under federal jurisdiction established in Quebec (banks, telecommunications companies, etc.) remain subject to PIPEDA. It is therefore important for many Quebec companies to keep abreast of the recent amendments to the federal legislation.”

Note as well that insurers will have policies to which they will expect MGAs to adhere, including being notified of any breaches that affect their customers.  These same insurers may decide to make voluntary reports to the OPCC or in Quebec and most certainly would want to assess the need to notify affected customers.  See the CAILBA Toolbox, Privacy.

Business Continuity Plan (“BCP”)

While all businesses should have a BCP, contrary to instructions provided by some insurers, there are no specific regulatory requirements for Firms in Quebec to have a BCP.  The AMF Guideline “Business Continuity Management” applies to financial institutions such as insurers, but not to intermediaries. With that said, the guideline provides the regulator’s view on why BCPs are important and the elements that should be included.  This guideline is consistent with OSFI’s guideline on the same topic. See CAILBA Compliance Toolbox, Section 10, for a copy of Canada Life’s BCP template for MGAs.  This is a very useful tool and we encourage all MGAs to use something along these lines.  

Incentives and Rules for Contests

The Firm is required to keep a register of the incentives that it introduces. The register must include a description of the terms and conditions of each incentive introduced, including its duration, related benefits, applicable products or services, a description of the group of representatives concerned and the names of the winners.

(Chapter D-9.2, r.2 art. 28.1)

Since, according to regulation, “no representative may, in pursuing activities, take part directly or indirectly in a contest or a promotion providing benefits, as an incentive to promote or sell a product that does not meet the specific needs of his clients,” it stands to reason that no Firm should be holding such contests or promoting such contests run by insurers, if the Firm believes that the contest violates the regulation.  

Regulation does allow for an Advisor to be reimbursed “for the direct costs incurred by attending a conference or a convention, provided that the main purpose of the conference or convention is to provide training on activities governed by the Act respecting the distribution of financial products and services (Chapter D-9.2, r.2 art 11.1 and Chapter D-9.2, r.10 art. 5)”

The Firm’s Oversight of All Advisors

General Requirements

Quebec is the only province to date to outline MGA accountability in detail.4   Consequently, Firms doing business in Quebec must ensure that the level of documented screening and oversight they do is sufficient to ensure compliance and to mitigate risk.  

While Firms have greater accountabilities for the activities of attached representatives and those under close supervision, they must make every effort to implement the procedures below for all Advisors, including independents, consistent with CCIR and CLHIA expectations. (Note that AMF is a member of the CCIR and that CLHIA practices are presented to that body).  Oversight should include such things as:

  1. Careful on-boarding of Advisors to be satisfied that:
    • business cards, advertising, social media and communications demonstrate that the Advisor holds out correctly and does not misrepresent;  
    • If the Advisor is independent, ensuring that he/she has documented AML, privacy and complaint management and reporting program prior to offering a contract;
    • the Advisor uses a consent for collection and use of personal information that includes enlightened and valid consent (compliant with Quebec and federal rules) that specifically mentions information-sharing with the Firm;
    • the Advisor has an appropriate disclosure document and that he/she provides this to all applicants;
    • the Advisor is aware of the various codes of ethics and conduct that apply, including that of the Chambre de la Sécurité Financière. 
    • processes and accountabilities are in place in the Firm for each of the above processes.
  • Use of CLHIA screening process is required as a starting point.  See CAILBA Toolbox.

4 However, British Columbia has published its expectations and Saskatchewan has rewritten its insurance act to include regulation of MGAs and will develop MGA accountability through regulation.

  1. Careful oversight of all Advisors, including:
    • Risk-based reviews of applications and change forms, in an effort to detect patterns.  This is particularly necessary for any Advisor who has been identified as a higher risk or for any transactions that represent a higher risk such as senior clients, leveraged policies, higher risk policies for ML-TF purposes and replacements;
    • selected reviews of Advisor files and sales practices to ensure that Advisors engage in appropriate activities and maintain an appropriate level of documentation;
    • ensuring client files are maintained in Quebec at a location that is registered with the AMF and are available for AMF audit;
    • monitoring for outside activities in an effort to detect and prevent Advisors from engaging in incompatible occupations; and  
    • establishing written procedures for the above activities, including for documentation of individual file reviews.

Use of CLHIA instructions on risk-based monitoring is required as a starting point.  See Toolbox.

  1. Ongoing support of the Advisor’s compliance, including:
    • Providing training for attached Advisors and at a minimum, providing information about training opportunities to independent Advisors.  (Ideally, the Firm will provide training to all Advisors);
    • documenting Advisors’ attendance at such training events; and
    • wherever possible, providing compliance information and updates via push communications and the Firm’s website.

Code of Ethics of the Chambre de la Sécurité Financière

This Code is actually a regulation that is binding on all representatives in insurance of persons, all group insurance representatives and all financial planners and their employees and mandataries, regardless of the classes of sectors in which they practice.  Consequently, it is critical that Advisors and Firms are aware of the Code and receive some degree of training on its contents and the potential for and implications of non-compliance. See http://www2.publicationsduquebec.gouv.qc.ca/dynamicSearch/telecharge.php?type=3&file=/D_9_2/D9_2R3_A.HTM.  

Notably, the Code requires the Advisor to promote education and information in the practice.  This is quite consistent with recent regulatory initiatives, including the Fair Treatment of Customers, to ensure that Advisors work to educate their clients.

The Code also requires the Advisor to avoid rather than merely disclose conflicts of interest.  In fact, the Code provides very specific prohibitions on certain conflict-ridden activities.

Advisors are required to avoid over-reaching.  “In the practice of his profession, a representative must take into account the limits of his knowledge and the means available to him. He must not undertake or continue a mandate for which he is not sufficiently prepared without obtaining the necessary assistance.”

Advisors are prohibited from offering any rebates without the insurer’s knowledge. (Art 36 of the code of ethics of the La Chambre de la Securité Financière)

An Advisor must report unsuitable Advisor to the Authority in possession of “reasonable grounds to believe that another representative is unfit to practice in this capacity, is practicing incompetently or dishonestly, or is contravening the provisions of the Act and its regulations. (Art 45 of the code of ethics of the La Chambre de la Securité Financière)

Dual Employment and Incompatible Occupations

Under the regulations, the following activities and occupations are incompatible with the pursuit of activities as a representative: (Chapter D-9.2, r.10 Art 2)

  • judge;
  • police officer;
  • minister of religion;
  • funeral director or any other similar duties in the funeral services industry;
  • bankruptcy trustee;
  • health-care profession governed by the Professional Code (chapter C-26);
  • lawyer or notary;*
  • public accountant;*
  • real estate broker, except in connection with brokerage activities relating to loans secured by immovable Hypothec;
  • Management of a union, other than a union formed of representatives, or the management of a professional association, or employment by any such organization.

*However, these professions are not incompatible with the activities of a financial planner.

Compulsory Professional Development 

Under the “Regulation of the Chambre de la Sécurité Financière respecting compulsory professional development,” for any reference period (24-month period beginning on 1 December of an odd-numbered year), a representative must accumulate at least 30 PDUs from a list of topics provided in the regulation.  Every 2 reference periods, the regulation requires 3 PDUs “related to a training activity developed by the Chamber and provided by it or in partnership with it in the subjects of compliance with standards, ethics or business conduct or on changes in the legal rules governing the activities covered by the authorization he holds.”

http://www2.publicationsduquebec.gouv.qc.ca/dynamicSearch/telecharge.php?type=2&file=%2F%2FD_9_2%2FD9_2R13_1_A.htm. 

The regulation also covers Financial Planning.  

Business Card Rule and Holding Out 

The advisor is required to give the client a document, such as a business card, at the first meeting, which includes:

  • Advisor name;
  • Main business address, business telephone number and any electronic mail address;
  • Name of the firm or independent partnership if the Advisor is attached or the title “independent representative,” as the case may be;
  • the titles under the Act that the representative is authorized to use.

(Art 10 Chapter D-9.2 r.10)

The document or business card may contain other information, but this information must be related to the Advisor’s insurance activities, cannot be incompatible with those activities and should not cause confusion.  Examples of such allowed information are:

  • education and qualifications and any titles held based on such education and qualifications;
  • years of experience in each sector 
  • description of the products and services offered.

(Art 11 Chapter D-9.2 r.10)

If the Advisor is dealing with the client from a distance, he must communicate all of this information to the client during the first contact and provide the business card or other document when he sends other documents, if the client requests. (Art 12 Chapter D-9.2 r 10).

Other Client Solicitation and Representations

If an Advisor uses statistics in his written representations, he must indicate the source of the statistics.  

An Advisor must avoid engaging in any client solicitation or representation that may cause confusion or that:

  • states the advisor’s income or financial performance;
  • appears to promise results that the advisor is unable to obtain;
  • uses a visual image or phrase that is likely to cause confusion, such as a trade mark, slogan or symbol.

Advisor Disclosures and Notices to Clients 

Advisors are required by the Act and regulations, to disclose to the prospect prior to “offering a product” the “business relationships” it has with insurers whose products they promote.  An employee or exclusive agent of an insurer must also disclose their relationship with the insurer to the prospect.

Advisors must disclose to the prospect any direct or indirect ownership of their business by an insurer or by the Advisor in the insurer and any benefits granted by the insurer.  See the Act and Regulation respecting information to be provided to consumers.  http://www2.publicationsduquebec.gouv.qc.ca/dynamicSearch/telecharge.php?type=2&file=/D_9_2/D9_2_A.html.  This regulation covers a number of important topics, including notices required for segregated fund sales and rescission rights, most of which are covered under industry guidelines.  

Note that there are a significant number of disclosures required over and above those required in Quebec.  The Canadian Life and Health Insurers Association (“CLHIA), which represents the life insurers, has developed guidance documents to facilitate compliance by Advisors. Note that insurers have agreed and promoted their material with provincial regulators, who have endorsed the use of the material.  Effectively, these types of disclosures are required across Canada.  

Specifically, in addition to the requirements of the Quebec Act and regulations, Advisors are required to disclose any real or potential conflicts of interest and the manner in which they are compensated.  

See CLHIA documents on Managing Conflicts of Interest and Advisor Disclosures in the CAILBA Compliance Toolbox.  

The Firm should endeavor to include a copy of signed disclosures in the client files it maintains.  

Written Agreement for Group Insurance

An Advisor dealing in group insurance must enter into a written agreement with the policyholder which, at a minimum, includes:

  1. names of the policyholder and the contact person;
  2. a mandate that is dated and signed by the representative, laying out the nature and scope of the mandate that includes, at a minimum:
    • the needs analysis;
    • in the case of calls for tenders pertaining to one or more insurance products, a comparison of guarantees, including costs and any differences noted;
    • for a contract renewal, description of the existing plan and an analysis of group experience.
  •  

No agreement entered into may oblige the policyholder to purchase a financial product or service.  The representative must always give a copy of the mandate to the policyholder or the person designated as his contact person.

Financial Needs Analysis

Although needs-based selling is required generally by all of the provincial insurance acts and is a requirement under CLHIA guidelines, only Quebec has specific (and very recent) requirements for financial needs analyses.  Under the regulations, the Advisor must analyze the needs of the purchaser (or insured, if different) before he/she completes an insurance proposal or offers an insurance product that has an investment component, including a segregated fund.  In particular, depending on the product, the Advisor must ask about, document and analyze:

  • insurance needs;
  • investment objectives;
  • risk tolerance;
  • financial knowledge;
  • existing policies or contracts (features, names of the issuing insurers);
  • income;
  • financial situation;
  • number of dependents;
  • personal obligations;
  • family obligations.

The AMF recognizes that the depth of the analysis will depend on the situation.  However, the documentation maintained must demonstrate that the analysis determined that the product/recommendation was suitable to the client. The representative in insurance of persons must record the information gathered for such analysis in a dated document. A copy of the document must be given to the purchaser no later than on the date the policy is delivered.

The Firm’s role is to ensure that a copy of the written needs analysis evaluation is housed in the client file. 

Note:  the CCIR, of which AMF is part, has stressed that needs-based selling should take place regardless of what type of product is ultimately recommended.  Consequently, CLHIA’s document on needs-based selling holds Advisors to this broader standard.  Many insurance companies are likely to expect a needs analysis for all product recommendations.

Client File

According to recent decisions by the AMF, “financial needs analyses, risk profiles and financial data in client files are key to the duties of a representative.”  A number of Advisors have been censured for failing to maintain these items in their files. At a minimum, the Firm should make every effort to ensure that Independent Advisors are aware of the obligations and have the necessary tools in hand in order to maintain appropriate client files.  See “Maintaining Client Files.”  Because the Firm is required to maintain such records for attached representatives, material discrepancies between the Advisor’s files and the Firm’s files should not exist.

Leveraging 

Like Ontario’s insurance regulator, FSCO, the AMF has taken a strong stance on leveraging and has issued a bulletin.  Note that even if a province does not issue specific rules regarding leveraging, the recommendation to leverage is a suitability issue.  As with all such issues, the Advisor must ensure that he or she can demonstrate via appropriate documentation that the recommendation was suitable when made and remains suitable.  The Firm should make every effort to receive this documentation and include it in the client file. See the CAILBA Toolbox.

See http://www.lautorite.qc.ca/en/borrowing-to-invest.html and Avis de l’Autorité des marchés financiers concernant les prêts à effet de levier lors d’achat de titres d’organismes de placement collectif et de fonds distincts).

Replacements

Life insurance policies (including disability insurance and critical illness but not annuities and segregated funds) should be amended rather than replaced unless replacement can be demonstrated to be in the client’s best interests. The Advisor’s file must demonstrate that the replacement is suitable and justified.  Advisors may not encourage a client to cancel, cause to lapse or abandon one insurance contract in favor of another unless the procedure below is followed.  This applies as well to the replacement of a group policy or certificate by an individual policy. 

The attached representatives’ client records kept by the Firm must include a duly completed and signed copy of the prescribed prior notice of replacement, with proof of the date of sending of the prior notice of replacement to insurers or notice of replacement by a different product. 

Required Procedure for Replacements

Where the purchase of an insurance contract is likely to result in termination, cancellation or reduction in benefits of another insurance contract, the Advisor must:

  • complete the mandated replacement forms, prior to or at the same time as the insurance proposal, if it is in the interests of the policyholder or the insured to replace one contract with another;
  • explain the content of the form to the policyholder by comparing the features of the current contracts with those of the proposed contract and by describing the advantages and disadvantages of the replacement;
  • sign and give the policyholder a copy of the completed form within 5 working days of the signing;
  • send the signed and completed form to the head offices of the insurers who issued the contracts likely to be cancelled, by any means providing proof of the date of sending, within 5 working days of the signing of the insurance proposal;
  • send a copy of the completed form, within the same time limit to the insurer that the Advisor intends will place the new contract.

No Advisor may prevent an insurer who issued a contract that is likely to be replaced from contacting the insured or the policyholder to attempt to dissuade replacement or from offering an equivalent contract.  In fact, it is a violation to interfere.

The procedure above must be followed (with only the necessary modifications) when a signed proposal that meets any of the following criteria is to be replaced:

  • the premium has been paid in full, in cash or by cheque (but not if the medical examination was not conducted within the period stipulated on the conditional receipt);
  • the proposal signatory has given either a bank authorization or written authorization for salary deduction or a written authorization to transfer funds from one policy to another issued by the same insurer;
  • the temporary insurance premium has been paid for temporary coverage of not more than 1 year.

Where an insurer is prepared to issue a contract in accordance with the proposal, subject to payment of an additional premium, the Advisor must follow the replacement procedure before obtaining a similar contract without any additional or extra premium from another insurer.

Replacements must be monitored closely, with special attention to the suitability of each replacement.  An Advisor who tends to replace an appreciable amount of insurance (20% or more by some calculations), should be treated as higher risk and monitored more closely.

Product Information

The Advisor must explain to the client how the proposed product meets the needs identified and the nature of the coverage offered.  The intention here is to ensure that the client understands and accepts the suitability of a recommendation prior to making an application.   

The Firm must ensure that attached advisor provide clients who purchase individual life or annuity policies (including segregated funds) a document describing the product (e.g., policy illustration, information folder) which contains the prescribed information.  Note that if the insurer does not provide such information in its marketing and other material for use by the Advisor, the Advisor must create the material and provide a document no later than the date of policy delivery that includes:

  • whether the insurance costs payable under the contract are guaranteed and, where applicable, for how long, and whether such amounts may fluctuate;
  • whether the return on the amounts invested through the insurance product is guaranteed or not;
  • whether the face amount of the insurance is guaranteed or may fluctuate;
  • any specific exclusions contained in the contract;
  • if a surrender fee or a penalty is payable if the contract is surrendered

The Firm should ensure that a copy of the signed illustration or other document is maintained in the file.  

Handling Orphan Clients

In 2013, the AMF published “Notice relating to obligations of representatives and insurers with respect to service offered to clients under insurance of persons contracts” to outline the obligations of Advisors and insurers toward clients.  

When the relationship between a client and an Advisor ends, for whatever reason, both the Advisor and the insurer must ensure that as long as a policy is in force, it must be assigned to a qualified Advisor provides service to the client.  An Advisor who no longer meets his obligations pertaining to the follow-up on a policy he sold must ensure that another Advisor assumes these obligations and continues to provide service to the client. 

Insurers are required take the necessary measures to ensure that all policyholders receive ongoing adequate service from the time of policy issue to when the contract expires or is cancelled, terminated or replaced. 

An Advisor who has left the profession and therefore no longer holds a representative’s certificate might continue to receive deferred payments of commissions for policies sold while licensed only if insurers properly inform the persons being offered a product or service of this arrangement and act fairly in dealings with them. Insurers are required to establish overall remuneration strategies that are in line with ongoing fair treatment of clients. 

Firms know only too well the difficulties of ensuring that proper services are rendered to orphan clients.  At this time, it is important to know each insurer’s rules pertaining to the topic and ensuring that clients are assigned a new Advisor whenever the previous Advisor exits the business.