Compliance is becoming a big part of an advisor’s business. For veteran advisors, they may reminisce of a time when there were few requirements other than an advisor report at the back of the application. However, things are changing. As products become more sophisticated, fraud becomes more expensive, and a consumer-first ethos takes the spotlight, compliance has become a “must-do” instead of a “nice-to-have.” Advisors need to pay attention to their compliance processes!
Where to start?
There are a few major components to compliance:
Needs-Based Sales Practice Documentation – For every client application, documentation justifying why the client purchased a certain product (or set of products) is necessary. This documentation includes a “Reason Why” letter, which can be a simple letter to the client explaining why the client is purchasing the agreed upon coverage. A lot of times coverage can easily be justified based on needs analysis. In the event of a coverage shortfall, 90% of the time it is due to budget constraint, and as long as the client signs off and acknowledge that this is a decision they took, that’s all the reason why letter needs to address.
Advisor Disclosure Statement – With every client, the advisor must accurately disclose his or her relationship with carrier and any incentives or compensation that may affect his/her product recommendation. CLHIA has produced a template on this, and it covers many of these areas in detail. Our recommendation at Finaeo is that the advisor use this template as a guideline when drafting his or her own disclosure statement. One best practice is to send this out in the beginning of the client relationship, so the relationship is clear with the client upfront. Also, some advisors send it out with every quote by email so it is well documented. Although it is not required on the insurance side, it is recommended that you have the client sign an acknowledgement that they have read and understand the nature of the relationship outlined in the disclosure.
Advisor’s Financial History – If an advisor is providing a client with financial advice, it is most prudent that that advisor is also prudent with their own finances. That is why advisors who have had issues with finances, including consumer protection proposals, may have a difficult time getting contracted with MGAs and insurance companies.
Anti-Money Laundering Program – Advisors are to ensure that their clients transactions comply with FINTRAC requirements and identify and flag potentials for fraud. Most carriers have an extra form to be completed for transactions over a certain amount of premium, typically $100,000 CAD.
Current Licensing, Individual / Corporate, Jurisdictions, E&O, CE Credits – These seem like very simple requirements, but you’d be surprised how many advisors do not keep track of their CE credits, and the last thing an advisor wants is to be caught a few CE credits short. In terms of E&O, we have heard cases where advisors have canceled it after they sent the certificate to a carrier (so they’re good for the year) just to save a few bucks – HUGE NO NO! That is like driving without car insurance. When it comes to your documentation, you need to stay on top of it. The downsides are dire.
Life Insurance Replacement Disclosure – This requirement has been around for a while. There has to be a reason for the client to cancel previous coverage and get new one. As somebody ages, their insurability and cost of insurance goes up so unless the product and the client’s need was initially mis-matched, there is usually no reason to replace a policy.
What can technology do to help you?
There are ways that a platform can do the above for an advisor to semi-automate compliance with a checklist of documents that they need to upload, before proceeding with a transaction. With the help of technology, in the event of an audit, advisors can easily show the regulators client notes and key compliance documents without scrambling to look into their files and risk fines and penalties.
For example, consider getting a CRM. In order to have full documentation of an advisor’s needs based sales practice, a digital needs analysis tool that feeds into a CRM platform, combined with advisors’ notes, would provide solid backup and documentation that the solutions proposed are based on actual needs submitted by the client.
Likewise, for advisor disclosure, we can borrow a page from the tech industry. Think about the last product you signed up for, which asked you to tab through pages of documentation that the you needed to review, acknowledge, and agree to before accessing the platform. Consider creating a written privacy statement that requires clients to sign off and attaching it to a digital financial needs analysis form, or ask your clients to sign off on it on Docusign. That way, you always have the paper trail.
In terms of tracking your CE credits and ensuring licenses are renewed, we encourage advisors to upload these documents and set up calendar reminders to ensure none of these renewals fall through the crack. Renewing a license and E&O is the easiest thing you can do to ensure it continues, just pay the fee and move on. Having a license drop off requires a tremendous amount of attention just to get re-approved again. I’m sure any prudent advisor would not even think about putting it off once those licence and E&O renewal notices come in.
Overall, then, using technology can really help with compliance. If you’d like to discuss this topic, please reach out to me.