woman jumping ship and leaving
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A recent update by one of Canada’s oldest and largest insurers comes as a welcome development among advisors who are increasingly “professionalizing” and going independent: Sun Life Financial Inc. policyholders can officially switch to an independent life agent.

“Clients will now be able to request AOR [advisor of record] changes and conversions between Sun Life Financial Distribution advisors and advisors in the independent channel contracted with Sun Life,” said Stéphane Vigneault, the company’s vice-president  of insurance distribution, in an email to Investment Executive (IE).

The change was effective Oct. 1 and applies to all life insurance policies, including ones in force but no longer offered. The move is meant “to make it even easier for clients to choose the advisor they want to work with,” Vigneault wrote.

When a Sun Life policyholder switches to an independent AOR, will the new advisor get ongoing commissions?

“We are following normal industry guidelines and procedures,” Vigneault wrote.

What’s normal in the industry is that ongoing commissions from a policy sale remain with the original advisor, and the new AOR gets nothing; on a conversion (i.e., when a term policy is changed to a permanent one because a client’s health has deteriorated), the new AOR typically gets full compensation.

With Sun Life’s change, commissions on conversions will be split between the independent advisor (90%) and the Sun Life advisor (10%) if the annual premium is $50,000 or more and the conversion application is made within six months of the AOR change, a document from the insurer stated. (The document also noted that a new commission schedule was effective on Oct. 1.)

When a client submits a request for a new AOR, the Sun Life advisor will be notified and have five business days to contact the client before the request is processed, the document says. Sun Life agents contacted for this story declined to comment or did not respond.

The Financial Advisors Association of Canada (a.k.a. Advocis) stated that, in general, it hasn’t heard concerns from members about AOR change requests related to movement from the dedicated channel to the independent one, but lauded Sun Life’s move.

The change “seems like a positive development that recognizes the growing prevalence of the independent channel,” an email from Advocis said. “It will be easier for clients from the dedicated sales channel to find a new AOR if they are able to access both the dedicated and independent pools of agents.”

Scott Findlay, president of Valley-Wide Financial Corp. in Abbotsford, B.C., and president and chairman of the Independent Financial Brokers of Canada, said the change was overdue.

“For Sun Life to do it, it’s about time,” Findlay said. Other insurers have already implemented such a change, he added.

Harold Geller, an associate with Ottawa-based MBC Law Professional Corp., said Sun Life had been “unique” in its efforts to “frustrate the movement of clients by the old bar of AOR changes.”

Other insurers with captive agents contacted by IE declined to comment on how they handle requests for AOR changes.

Previously, if a Sun Life policyholder switched to an independent advisor, the Sun Life agent “would still be the primary servicing person, and the new advisor would have an immense amount of difficulty securing any information on the policy,” said Brian Shumak of Brian Shumak Financial Services in Toronto.

“It was very frustrating” to explain to a client that you couldn’t access policy information, Findlay said, adding that a Sun Life agent who became independent would face the same difficulty.

With policyholders also challenged to obtain full policy information in such cases, “there’s no way a competent advisor could assess whether what’s in place is what was sold, meets the intended need or [if] the needs have changed,” Geller said.

Previously, any advisor could access their client’s policy information by making a request, Vigneault wrote. “We recognize that this process was not as easy as it could have been” for advisors and clients, his email stated. “A big reason we made the change to our AOR process is to address this […].”

With the ability to be the AOR now, “I’m able to accommodate the policy into [the client’s] overall planning,” Shumak said, and benefit from ongoing opportunities with the client. The change also “allows me to better take care of any client I have who has an older policy through Sun Life.”

Regarding conversions, Shumak described Sun Life’s change as “relevant and very beneficial” to the client and new advisor.

Previously, converting a Sun Life policy sold by a captive agent “force[d] the client’s hand to go back to the original advisor,” Shumak said, because getting coverage from a new insurer would be cost-prohibitive for a client with health issues. Now, “the client can convert [the Sun Life policy] with the advisor they want to work with,” he said.

Shumak said he had yet to observe Sun Life’s change in practice, “so there may still be issues.”

One industry-wide issue is those aforementioned lifetime commissions. While ongoing commissions are relatively small and gradually diminish, when an insurer blocks a new agent from receiving them, the insurer fails to act in the client’s interest, Geller said: “The agent taking over the policy has minimal incentive to service the policy and is motivated to replace the policy.”

In many cases the original agent may be retired or otherwise out of the business, and the insurer is responsible for servicing the client. Yet, the client often receives no advice or suitability assessment — which would be a breach of the insurer’s obligation, Geller said.

When IE contacted the Canadian Council of Insurance Regulators (CCIR) about AOR restrictions, the regulator cited client service and highlighted related issues for insurers to assess, including compensation. “Insurers are expected to service policies appropriately throughout the life cycle of the product,” per the CCIR’s guidance on business conduct and fair treatment of policyholders, the regulator stated in an email.

When a policyholder wants to change their AOR, “the insurer would be expected to ensure the customer has access to an agent that is able to provide them with appropriate level of service,” the CCIR stated. “This may include considerations such as managing potential conflicts of interest, determining compensation arrangements for any advice or service the new agent of record may provide, and ensuring the new agent of record has a contractual relationship with the insurer. It is up to each insurer to determine how to best handle such changes in a manner that puts their customer’s interests first.”

Vigneault said the volume of requests for AOR changes at Sun Life so far has been “within our expectation.”

Conflicts called out

Overall, the compensation structure in insurance is conflicted, said lawyer Harold Geller.

“With the exception of segregated funds, the industry has moved from level commissions, which provided a more stable income and an incentive to service policies post-sale, to mostly upfront commissions, which motivate sales and demotivate servicing,” Geller said.

“All of this,” he said, referring to conflicted compensation as well as AOR restrictions, captive sales forces and lifetime commissions, “is relevant to [those in the] industry refusing to do what is in the best interest of their policyholders. This is a breach of [insurers’] duty of ‘utmost good faith.’”

For captive advisors, level commissions can be problematic too if they prevent the advisor from leaving their firm.

Both level and upfront commissions provide clients with “different advantages,” stated an email from Stéphane Vigneault of Sun Life Financial Inc. “Sun Life is one of the few insurers that offers both a ‘levelized’ compensation system for our dedicated sales force and a more upfront system for independent advisors. We are continuing to monitor the impact for our clients to ensure they are receiving the support and holistic advice from their advisor of choice […].”