Earlier this month, The Financial Services Commission of Ontario (FSCO) released details of its upcoming guideline on consumer protection. The regulator invited feedback from stakeholders, with a view to introducing a set standard for insurance, credit union/caisse populaire, loan and trust, and mortgage brokers.
The Treating Financial Services Consumers Fairly Guideline is FSCO’s plan to ensure a common understanding in financial services when it comes to treating consumers fairly.
“FSCO already expects that its licensees are treating consumers fairly; in fact, some are doing great work in this regard. This guideline provides a common understanding about what it means to treat consumers fairly throughout a financial product’s life cycle. That’s good for consumers and good for business,” said Anatol Monid, executive director, Licensing and Market Conduct Division, FSCO.
The initiative comes on the heels of G-19, the insurance industry’s guideline on compensation disclosure in the group benefits space. That move by the CLHIA has proven contentious, with brokers upset that their views were not consulted adequately.
Jonathan Corrigan is an employee benefits consultant with Corrigan Financial Group, and for him, FSCO’s plans amount to little more than common sense.
“I read the whole document, but I don’t think it is going to effect any real change,” he says. “A lot of this are things people should be doing already. They need to focus on the education of the people that are selling these products.”
Holding the CFP designation, Corrigan believes some of the wording can be tightened up in FSCO’s introductory document on the guideline.
“They use ‘must’ when a statutory requirement is in place, so that’s something you absolutely have to do,” he says. “Then they use ‘should’ when there is not a consistent statutory requirement, but it is expected in the code of conduct.”
He adds: “In principle one, they talk about expecting ‘a core component of a licensee’s business governance and culture is fair treatment of consumers.’ It says ‘a treating consumers fairly culture should be driven from senior levels of an organization.’ I think that needs to be a ‘must.’ ”
In his opinion, a company’s culture comes from the top, so regulatory efforts to promote fairness won’t amount to much if agents are pressurized into meeting unreasonable sales targets.
In FSCO’s release, Corrigan also took issue with the section on conflicts of interest, particularly the sentence – ‘Some examples of situations where conflicts of interest may arise include: Payment or acceptance of an incentive, commission, or any non-monetary benefit for the sale of financial services or products.’
“I don’t think a commission is a conflict of interest, people just need to know how their broker/advisor is paid,” he says. “If someone from a bank discloses they are not commission-based, so there isn’t any bias to particular products – that may not be true. Really the only products they are able to sell are what their own bank offers.”
Broker compensation is a hot button issue currently, with G-19 scheduled for roll-out in the new year. In Corrigan’s opinion, FSCO would do well to not follow the CLHIA’s lead when it comes to consulting with advisors/brokers.
“I have no problem with compensation disclosure, but the way they went about it was totally wrong,” he says. “They should have consulted stakeholders and tried to build something that was amicable for everybody. They basically had meetings to say ‘hey we want to hear your opinions, but it is a foregone conclusion.’”
The biggest concern brokers have right now is the sinking feeling that G-19 is simply a vehicle for the insurers to promote direct selling, believes Corrigan.
“The big problem brokers have is that it is insurance companies disclosing the commissions, so they can offer to do it cheaper to go direct,” he says. “The advisor needs to be in charge of the disclosure, similar to the way it is in the P&C space. The insurance company has no idea what the advisor is doing for value.”