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The general agents are preparing for the disclosure requirements applicable to segregated funds


Susan Yellin

February 20, 2018 07:00

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The publication of the recommendations on disclosure that apply to segregated funds will allow advisors life insurance to have a similar experience to that of their counterparts on the side of mutual funds are known upon entry into force of the second phase of the client relationship Model-adviser (MRCC2) relating to the disclosure of investment performance and the cost of advice.

General agents, particularly those acting as brokers in mutual funds, preparing to face this change and to glean in the experience acquired through the entry into force of the MRCC2 in organizing tours, providing recommendations and explaining to the consultants what they can do to add value to their proposal.

In December, the canadian Council of regulators of insurance (CCIR) has published a position statement strongly expected on the arrival of the obligations of information regarding the total cost of the segregated fund. The responsible of the regulation of insurance has pointed out the shortcomings of the information currently provided to those who invest in segregated funds, compared to the information provided for the purchase of mutual funds. They have also requested more transparency in the face of the requirements of increasingly high investor as well as the implementation of the MRCC2 on the disclosure requirements applicable to mutual funds.

“Consumers want to understand the products that are available and be able to compare” notes Patrick Déry, president of the CCIR.

The position statement takes more or less the two sectors at the same level. According to some, it would however be more far-reaching than the regulations provided by the sector of the mutual fund to its advisers.

Regulation additional

“The CCIR has almost tipped the balance in favour of the mutual funds by imposing segregated fund regulations additional absent of the sector mutual funds,” says Aly Damji , who, as vice-president, wealth management, Financial HUB , and HUB Capital, is responsible for the sales of mutual funds and segregated funds.

The brokers mutual funds had until mid-July of last year to communicate to investors their reports on the investment performance and the cost of the advice. Now, customers can know the performance of their investments in dollars and as a percentage, all as a function of several periods. In addition, they can know how much they cost their accounts in dollars and the cost which is associated under the management expense ratio. They may as well know how much the investment brokerage firm has received.

According to the position statement of the CCIR, Mr. Damji says that the responsible of the regulation of insurance have not only broken down the ratios of expenses of management to clarify the compensation of the broker ; they went a step further in specifying the operating expenses and the management fees of the signatory of the product. “There is nothing of the kind on the side of mutual funds,” he says.

The thing, however, could very well not last. Theinvestment funds Institute of Canada (IFIC) announced, in fact, there are nearly a year that its members wished to discuss a “plan of enlargement of disclosure requirements” (commonly called “phase 3 MRCC” or ” MRCC3 “) in order to take fully into account the ratio of management fees. The vice-president, public affairs, IFIC, Jan Dymond, has explained that l’Association canadienne des courtiers de fonds mutuels (MFDA) has now taken leadership of this project, according to which we would disclose the costs related to the management of the fund, as well as those of the broker. The consultant’s compensation would still not be specified, because the compensation model differs from one firm to the other, she says.

A report of costs to complete

The MRCC3 is not yet associated with any timeline, is Karen McGuinness, senior vice-president, regulatory members, and compliance at the MFDA. “This year, however, we intend to move forward and collaborate with the other regulators to continue the discussion on the implementation of a full disclosure of costs,” says-t it.

Aly Damji said it was concerned by the breakdown of costs provided in the proposal to the CCIR relating to the ratio of expenses of management ; he believes that this could encourage the signatories of the products to facilitate those who are associated with a management expense ratio the lower, the better to attract the customer. However, these are less good safeguards. He mentions in this respect the segregated funds guaranteed 75/75, with a 75% guarantee on the maturity benefit and 75 % at death. The contract is among the most recent, of products put on the market there are five or six years and especially sought after these days, precisely because their ratio of management fees is low, ” says Mr. Damji. The downside is that investors also get a capital guarantee on death a lot less.

Needs assessment

The advisors in the segregated fund will also begin to conduct a needs assessment, an approach that many of them have already begun, he adds. In addition, the industry as such will follow, and now meet the new requirements in its fund facts. It will also establish a classification of risks uniform approach to segregated funds, the promotion of a standard of care equivalent to the brokers in segregated funds as mutual funds and consider the harmonization or the adoption of the rules of the program, knowledge of products currently in force in the sector of mutual funds.

Mr. Damji believes that, even if regulators have good intentions by disclosing more information to the customer, a too great abundance of information could be a source of uncertainty.

A risk of creating confusion

“When one says too much, it may create confusion in the customer. To tell you the truth, I find that it starts to dilute what the regulators are trying to do by sending the client information in which it can draw to and then act. It is actually in walnut essential information in a too large flow of information. “

Eric Wachtel, national leader of compliance with the insurance Network IDC Worldsource, for its part, has been able to participate in some of the discussions of the CCIR as president, compliance and litigation, thecanadian Association of independent agencies for brokerage of life insurance (CAILBA).

Whereas, in fact, everyone knew that the insurance industry would have to make like mutual funds in terms of disclosure of information, certain organizations, including the CAILBA, insisted that all the costs should be disaggregated, ” he says.

A good reminder

“We had the belief that, if there is a disclosure of costs, it is necessary to disclose it in full. This is probably a good reminder for the customer who purchases a segregated fund and that, with time, does not remember may not be of the safeguards and protections built in. “

Many stakeholders of the insurance sector have no objection to see these new rules on disclosure in the works for a few years.

Mr. Wachtel believes that they will not come into force this year. “I find that we advance not cautious and measured. It is clear to me that they want to proceed with caution and make things right by leaving. “

A weighted approach

“I agree entirely ! says Christopher Dewdney, in Dewdney & Co. I applaud this change. I think that it had to be done to create a level playing field between mutual funds and segregated funds. I am pleased to see that he will have to disclose more information. “

Mr. Dewdney said that he is already carrying out a needs analysis when recommending a type of fund rather than another. Usually, customers understand that the death benefit and the guaranteed maturity cost more expensive because of the insurance coverage. In addition, as the segregated funds are an insurance product, they bypass probate and the rules of succession and may be eligible for protection from creditors.

He adds that, depending on the type of fund and the broker-dealer, there is a difference of about 50 basis points between a mutual fund and a segregated fund. In the case of an account to a million dollars, a difference of 50 basis points is equivalent to about $ 5,000 per year, which can give a good boost to those who can’t obtain coverage in traditional insurance. “I would say that it is the responsibility of the advisors to have conversations that are needed with their customers. They should present the advantages and disadvantages in order that they understand what is recommended, and, in the end, the product they buy. “

He calculates that the new recommendations of the CCIR are necessary to ensure a more level playing field between mutual funds and segregated funds and that they will support a better customer experience.

“If we do our work and we offer an added value to the clients, I do not think that there is reason to fear the expansion of disclosure requirements. I believe that advisers should welcome him with open arms. “

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