Bill 157: The Insurance Experts Weigh In (UPDATED)

Statue Ivstitia by Jamie McCaffrey (edited)

UPDATE: Since the following article was first published, Bill 157: The Financial Advisors Act has passed its second reading in the Ontario Legislature.

Our article has also been the subject of much discussion and debate on Twitter, including a comment from the Toronto Star‘s Ellen Roseman:

And now, the original article…

A new bill meant to better regulate the behaviour of Ontario’s financial advisors passed first reading in the provincial legislature on February 18, 2014 and while our experts agree with it in principle, they say it isn’t really as effective as proposed.

If passed, the bill would install a Financial Advisors Act of 2014, which would apply to everyone who gives financial advice in Ontario for commission and renumeration regardless of the type of financial products they sell in the province.

The act would lay out clear proficiency standards that advisors will need to meet on a consistent basis, including continuing education requirements, the need to hold errors and omissions insurance and hold themselves to a code of ethics.

Unlike the current system, which is governed by a series of government ministries and is held to a number of disconnected rules from each of these bodies, the proposed legislation seeks to standardize the rules and requirements by putting their administration under what would be the newly-created Office of the Director.

This office would act as a central office for consumer complaints and have the power to levy fines against those who do not uphold these new requirements of the industry in good standing. They can even revoke licenses from the most egregious violators and non-compliers.

Advocis, The Financial Advisors Association of Canada, supports the bill, which was put forth by Liberal MPP Rick Bartolucci.

“I think it’s an excellent piece of legislation to address any concerns that consumers might have about the financial advisor that they’re dealing with across the table,” Greg Pollock, president and CEO of Advocis, told Investment Executive.

“We think this will go a long way to building consumer confidence in the work that advisors do and, in the long term, will address the financial interests of all Canadians.”

Currently, advisors are being suffocated by 50 federal and provincial statues and regulatory bodies and Bill 157 aims to streamline that process.  However, not all players in the financial industry believe the bill really offers true reforms.

Ami Maishlish, president of CompuOffice Software Inc., which provides back office technology solutions for insurance brokers, believes that the exemptions this bill provides ensure it will never have the enforcement teeth it needs and will always provide the loopholes needed to get around it.

“The 8-point broad list of ‘exemptions’ from the proposed Act, that would permit a large number of persons engaged in wide variety of occupations, from lawyers to real-estate brokers and mortgage brokers to hold out as ‘financial advisors’ without having to meet any qualifications and without being subject to governance by the proposed new SRO,” says Maishlish.

Those exempt from the powers of the bill and the proposed act are as follows:

1. Those authorized to practise law in Ontario.

2. Those licensed under the Public Accounting Act, 2004.

3. A member of the Certified General Accountants Association of Ontario.

4. A member of the Society of Management Accountants of Ontario.

5. A registered under the Real Estate and Business Brokers Act, 2002.

6. A mortgage broker as defined in the Mortgage Brokerages, Lenders and Administrators Act, 2006.

7. Those registered under the Registered Insurance Brokers Act.

8. A person or class of persons exempted from the application of this Act by the regulations.

Also exempt are people who deal in securities that are exempt from the prospectus requirement under section 73 of the Securities Act (Ontario) — for example, registered dealers.

Maishlish says that exempting people like registered dealers “leaves the gate open to a 10-lane highway for additional exemptions.”

In light of this, he believes that Bill 157 would not serve to raise the bar; rather it would be an effective vehicle to lower the bar in terms of knowledge and proficiency all the way down as far as it could possibly be lowered by all those being exempted.

Daniel Kahan, the Executive Director of the International Society of Life Settlement Professionals, is also confused by the bill.

“In principle, I think it’s a good idea but can’t understand why a qualified actuary should not be allowed to call themselves a financial advisor?” he says.

Kahan believes that life agents and financial planners should be allowed (and even encouraged) to do what is in the best interest of the policyholder (rather than the insurer) when it comes to allowing them to “monetize” their Term to 100 policy, including donating the proceeds to charity.

In Maishlish’s opinion, Bill 157 doesn’t even go far enough in regulating the financial industry. He had hoped that  the proposed Office of the Director would take over the regulation of mutual fund and investment paper sales from the MFDA and IIROC and that it would take over the regulation of life insurance sales from FSCO.

Unfortunately, this is not the case, which means that the proposed new SRO would be in addition to, and not instead of, the existing regulatory apparatus.

“This means more costs, more bureaucracy, and yet another alley in the regulatory maze that consumers would have to navigate to seek redress,” says Maishlish.

“Now, that alley would be like a flaky GPS: sometimes on and sometimes off depending on whether the alleged transgressor was or was not a member of one of the exempt groups.”

Given all these thoughts, Maishlish’s final impression of Bill 157 is that it will create more problems than it solves.

“It will do nothing, absolutely nothing to enhance consumerism and consumer protection and nothing to raise the qualification and proficiency bar for all holding out as financial advisors,” he says.

“Rather, it just adds to the already confusing and bloated regulatory maze, adds costs to some advisors for those costs to be downloaded to consumers, adds another alleyway to the maze of regulations and regulatory red tape.”

If you’re an insurance broker with more questions about Bill 157, visit Advocis’s FAQ or you can read the actual Bill in its entirety here.

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  • Ami Maishlish
    April 23, 2014 at 12:10 pm

    In reference to this discussion, following are relevant links:

    1. Bill 157: https://www.ontla.on.ca/web/bills/bills_detail.do?locale=en&Intranet=&BillID=2934

    2. The RIBO Act which, IMO, should be viewed as a benchmark for this discussion:
    https://www.e-laws.gov.on.ca/html/statutes/english/elaws_statutes_90r19_e.htm

    3. Advocis’ promotional brochure for Bill 157:
    https://www.advocis.ca/pdf/Advocis-Facts-Bill-157.pdf

    I urge readers to read the material in each of the above links in order to understand the background to the discussion.

    Advisors and consumers should read the material – and in particular the first two references – as these contain the “meat of the matter”.

    Ami

    • LSM Insurance
      April 23, 2014 at 12:30 pm

      Thanks Ami!

  • For Advisors Only
    April 23, 2014 at 11:44 am

    3 comments are below from http://www.foradvisorsonly.com

    Comment#1 I have a specific concern since “Bank employees who are not permitted to hold themselves out as “financial advisors” and are limited to offering advice on simple deposit products such as savings accounts and GICs would also be exempt as these are very common,simple transactions.”

    Given that there are “financial planners” who are employed by banks, why are they not covered within this Bill? They produce financial plans and invest their clients money, just as we do. Furthermore, it is my understanding that they are paid a higher commission to send their own banks’ products…..albeit I am not sure whether or not this is true.

    Comment #2
    I worked for a bank for a couple of years as a financial planner. Financial planners in the bank sell mutual funds so they would not be exempt. many banks also have other employees who are mutual fund licensed. Also not exempt.

    Comment #3
    The objectives and principles put forth in the Advoicis PDF promotional brochure are laudable and positive. I would have hoped that these would have been reflected and specifically provided for in Bill 157… but…

    Just as in anything else being promoted through a brochure the actual, rather than the promotional material, deserves to be carefully read. My primary concern, as a consumer, is that much of what the promotional piece suggests would come to be is not provided for in the language – the wording – of Bill 157.

    For example, Bill 157 does not include provisions for significant and active consumer representation within the governance structure of the proposed additional layer of regulation; neither does it provide for elected representation of the professionals being regulated. The language of the Bill only speaks of delegated administrative authority but NOT of WHO the “delegated authority” will be to.

    Contrast that with the RIBO act, where under sections 6, 7, and 8, of the RIBO act that clearly define the governance structure. (Currently RIBO the board of directors of RIBO is comprised of 9 elected broker representatives plus 4 consumer representatives). Likewise, contrast that with RIBO where the complaints and discipline committees are comprised of brokers and consumers.

    It is noteworthy that RIBO is entirely independent of any and all industry associations and advocacy groups. Just as a judge has to be totally independent of the parties in a case being adjudicated so does a regulator need to be totally independent of any special interest groups.

    Another matter is the matter of exemptions. Bill 157 includes a long list of exempted trade and professional groups, including real-estate brokers, mortgage brokers, P&C insurance brokers, etc. etc. etc. and *without* limiting such exemptions to only when acting in their other regulated professional capacity. Contrast that with the language of the RIBO ACT
    ( https://www.e-laws.gov.on.ca/html/statutes/english/elaws_statutes_90r19_e.htm )
    where, for example, “lawyers, accountants or actuaries (but only when) acting *in their professional capacity* ” are exempted. In the language of Bill 157 the long list of exemptions is not qualified nor limited to only when “acting in their (regulated) professional capacity”.

    IMO, just as the wording of insurance contracts, rather than the promises and fancy pictures on sales brochures, govern – so is the case with matters such as Bill 157. Unfortunately, the Advocis promotional brochure on Bill 157 does not provide a reference to the actual Bill 157, so here it is:
    https://www.ontla.on.ca/web/bills/bills_detail.do?locale=en&Intranet=&BillID=2934

    I urge everyone to read Bill 157 and to also read the comparative RIBO act. If Bill 157 is promoted to be as per the Advocis brochure, then IMO the language of the Bill deserves substantial and fundamental revisions to more closely reflect the Advocis promotional brochure and therefor to be more similar to the RIBO Act.

    The last comment is from Ami Maishlish who was quoted in our article

  • Ami Maishlish
    March 12, 2014 at 1:31 pm

    To expand and elaborate, I would add to the foregoing that the entire regulatory system deserves a close examination, including comprehensive public consultations that would include consumers as well as “players” (aka “interested parties”). Patching an old pair of jeans with a dish-rag doesn’t make those jeans new (though perhaps fashionable in some circles).

    We need to closely examine and improve the current and rather woefully lacking level of open, meaningful and relevant disclosure. No, that doesn’t mean a few obscure words or figures buried in small print on a 30-page document that hardly anyone is expected to read but real, relevant, clear and comprehensible disclosure.

    As a consumer, I am not the least bit interested in reading how much the intermediary will be paid for making the sale. Rather, I would very much want to know if the recommendation made by the intermediary is in MY best interests, or may have been influenced by an “incentive” bonus, trip, sales campaign, etc. I’d like to see the intermediary make as good a living as possible, provided of course that it is reflected in superior service by a knowledgeable and adequately research-equipped advisor. In all instances, however, I would expect transparency, and full transparency at that.

    If the one holding out as a “financial advisor” recommends that I buy that “term” life insurance and pay for it monthly (without disclosing the financing costs of 18% plus) and then recommends that I “invest the difference” at some projected rate I’d like to know why the cost of financing is not disclosed and what the risks are in the proposed investment …and what’s the logic, particularly when the cost of financing is higher than the net after tax gain rate on the proposed investment.

    If one holds out as an “insurance broker”, and as one who “shops the market…” I’d expect full transparency in the disclosure, including print-out of his/her research work… and that doesn’t mean a list presented as a “market survey” but where the “broker” or MGA crafted and massaged the available data to filter out offerings that are available on the market. If the “broker” or “financial advisor” is knowledgeable enough, surely (s)he should be able to explain his/her recommendation rather than censor the information provided to me. Yes, transparency!!! Don’t we as consumers deserve that from people we are supposed to trust?

    Having done my research, I know that millions and likely billions of dollars of life insurance that is paid for by consumers are “left on the table” by “advisors” who either didn’t care to acquire the needed knowledge or simply “cheaped out” on the acquisition of advanced market research tools. This, IMO, is simply unfair to consumers!!!

    MGAs have a great deal of influence over their “producers”/”brokers”/”financial advisors” (pick your term as you please). However, the 64-billion dollar question is whether that influence is always with the best interest of consumers being placed as first and foremost. Is the MGA just an app-mill, providing their agents with voice mail and a “quote-a-matic” website to look up premiums with or without canned “presentation” print outs or is the MGA providing its brokers with the most advanced research tools, quality professional education and a professionally staffed (no, I don’t mean unlicensed clerks) research back office?

    I could go on for several more pages with numerous other matters, issues and examples, but I hope that the message is clear. Bill 157 doen’t appear to address ANY of these valid and significant consumer interest issues.

    While the stated goal and spirit of the bill is laudable, it appears that in its present form the bill may provide employment opportunities to some aspiring bureaucrats, but that’s about it… a “make work project”. Reminds me in a way about e-health, some power plant cancellation, etc. that the current provincial government in Ontario has come up with at our expense…

    Whatever the outcome is, at least let’s be fair and not describe Bill 157 for what it is not; it simply doesn’t fit the laudable goals and spirit by which it is being promoted.

  • Ami Maishlish
    March 12, 2014 at 10:59 am

    As noted in various postings on this subject, I am very much in favour of the spirit and advertised goals of Bill 157.

    My concern with it is that it so full of holes (including exemptions and exceptions) that, in practice, it would more likely create a costly bureaucracy that would add nearly nothing to consumer protection, may actually impede consumers who need to seek redress with yet another bureucratic alley-way, and may actually serve to LOWER rather than raise the bar.

    The Act is also deficient in its silence on active and significant consumer representation in its proposed added regulatory apparatus. Translated, that means no real and meaningful consumer representation. Why is that if the Act is promoted as being in the interest of consumers?

    Rather than re-invent the wheel by squaring off its curvature, why isn’t the RIBO Model being adopted as a starting point? It is not perfect, nothing is, but the RIBO Model is as close to perfection as Ontario has achieved for insurance intermediaries.

    RIBO is entirely independent of all advocacy groups and associations, includes active consumer representation including in its complaints and disciplinary apparatus, its council is elected by the insurance intermediaries that it regulates as an SRO, it has REAL rather than the “Mickey Mouse” education and continuing education requirements to qualify for licensing and license retention, it is not an added alley-way to an archaic regulatory maze, and it has proven its effectiveness and value for consumer interests since its inception in 1981.

    Moreover, regardless of whether one is licensed to pitch a bidding war on a house in Toronto, or to receive commissions for placing mortgages, or is licensed to defend drunk drivers or licensed to control the inventory at a hardware store, etc., RIBO does not exempt these people but requires them to demonstrate proficiency and adhere to strict licensing standards in order to be licensed as P&C Brokers.

    In contrast, the Act proposed by Bill 157 would permit just about anyone, except for life insurance agents and investment intermediaries, to hold out as “financial advisors” regardless of proven proficiency, related education or continuing education, etc.

    If the spirit and goal of Bill 157 is as it is promoted by Advocis then it must be discarded in its current form and sent back to the drawing board.

    As consumers, we need less bureaucracy, better protection, meaningful and RELEVANT disclosure by product manufacturers and distributors, open access to information, and more transparency. After all, sunlight is one of the best disinfectants.

    So, let’s do it right or at least as close to “right” as possible. The RIBO model, rather than the “flaky GPS” model presented by Bill 157, would be a good starting point.

  • Ravi
    March 12, 2014 at 7:40 am

    This is an interesting bill. I wonder how many so called advisors even know what’s in it.

    There needs to be a better and more centralized mechanism to spread the word among advisors