New regulations regarding total cost reporting for segregated funds, the banning of deferred sales charges (DSCs) and a potential chargeback ban could be cramping the sales style of some insurance agents. But ultimately, those changes are good for the industry, say insurance sales professionals.
“Just the act of selling a policy in general could have been a 45-minute appointment, and now it’s turned into an hour and a half,” said Shannon Tatlock, a financial planner with Kevin R. Williams Financial Services, which operates under the Sun Life Financial Inc. banner, in Moncton.
“As an advisor, it can be frustrating — because it is extra paperwork, extra explanation time. But in the end, it’s a happier customer,” she said.
Andrew Feindel, portfolio manager and wealth advisor with Richardson Wealth Ltd. in Toronto, said the changes mean the days of an insurance advisor making a house call to close a deal are likely coming to an end.
“You could probably make the argument that it eliminates a lot of advisors who were incentivized to drive to that person’s home for a $5,000 cheque or a $10,000 cheque,” Feindel said. “They probably won’t be offering that same servicing experience if they’re not compensated up front.”
Some insurance advisors sell the product that gives them the best commission, said Tatlock, who hopes the new regulations and added transparency will lead to better-educated clients.
“Clients will know exactly what they have and be able to make a more informed decision, which [will], hopefully, alleviate the wrong products being sold,” Tatlock said. “As advisors, we need to ask the question about their lifestyle needs and go from there.”
For example, if you’re dealing with a young couple who has only $50 a month to put toward insurance premiums, and an analysis shows they need $1 million in coverage, then term insurance is probably a better choice than permanent insurance.
In other cases, “I have specifically told clients they don’t have a need for insurance right now,” Tatlock said. “Single people, with a house and a lot of equity, who have some group insurance and no dependants: why do they need insurance? I think if we approached it more in that way, we’d make more sales [and] build more credibility and trust.”
The changes have been a long time coming, in Tatlock’s opinion, and they don’t mean that seg funds are a product to avoid.
“There is a right time to use these products,” said Tatlock, who agrees seg fund regulations should be aligned with those governing the sale of mutual funds.
Too many clients have been caught off guard by a DSC penalty, Feindel said, because they were sold a fund in a “quick and clever way.”
The changes could also lead to a decline in the number of people selling seg funds, Feindel said. That’s because one of the big attractions for advisors in selling them vs. other investments was the upfront payment.
“If you take that away, I imagine [fewer] people will sell segregated funds,” said Feindel, who is not a fan of upfront compensation for any investment.
“If there is, I think the client needs to know that,” he said. “I think you would want to know if you’re buying an investment, that I’m being paid 2.5% up front.”
The chargeback ban also would put an end to the rewarding of bad practices — such as talking a client out of cancelling their insurance solely because the advisor might have to pay back the commission.
“[The chargeback] incentivizes a lot of advisors saying, ‘Well, why don’t you just pay it until the end of this year and we can look at it again?’ just to get through that two-year period,” Feindel said.
The focus on transparency and accountability is a good thing, and the changes aren’t causing Brian Laundry, insurance consultant with Manulife Securities Insurance Inc. in Toronto, to lose any sleep.
“The highest-quality advisors, the good advisors — the ones that do financial planning and actually do their job properly — aren’t worried,” Laundry said.
“Any really good advisors out there don’t care about fee transparency,” Laundry said. “Because they’ll tell you, ‘I’m worth every dollar. Here’s what I get paid.’”