Canadian Ethics Course for Life Insurance Agents PDF

Copyright © 2023 Oliver Publishing All rights are reserved, including the right of reproduction in whole, or in part, without the express written permission of Oliver Publishing Inc. This book is published to provide advisors key information about the ethical conduct. The publisher has made every e...

Copyright © 2023 Oliver Publishing All rights are reserved, including the right of reproduction in whole, or in part, without the express written permission of Oliver Publishing Inc. This book is published to provide advisors key information about the ethical conduct. The publisher has made every effort to ensure the content is current and accurate, however, it cannot guarantee specific course results. The publisher does not intend this book to provide investment, tax, or legal advice. ISBN: Published by: Oliver Publishing Inc. 151 Bloor Street West, Suite 800 Toronto, Ontario M5S 1S4 Tel: (416) 922-9604 Fax: (416) 922-5126 Toll Free: 1-800-238-0377 Email: [email protected] www.oliverslearning.com Printed and bound in Canada  TABLE OF CONTENTS Consequences of Cheating...........................................................................................................................................1 Learning Objectives........................................................................................................................................................ 2 Competencies.................................................................................................................................................................2 Key Terms....................................................................................................................................................................... 2 Licensing............................................................................................................................................................... 3 Ethical Practice............................................................................................................................................................. 6 1. Competence............................................................................................................................................................... 7 2. Objectivity.................................................................................................................................................................. 7 3. Disclosure................................................................................................................................................................... 8 4. Integrity...................................................................................................................................................................... 8 5. Confidentiality............................................................................................................................................................ 9 Ethical Conduct........................................................................................................................................................... 10 Competence................................................................................................................................................................. 11 Objectivity.................................................................................................................................................................... 14 Disclosure..................................................................................................................................................................... 15 Integrity........................................................................................................................................................................ 18 Confidentiality.............................................................................................................................................................. 20 Licensee Responsibilities............................................................................................................................................22 Other Business Activities.............................................................................................................................................. 23 Reporting to Provincial or Territory’s Association........................................................................................................ 23 Confidentiality of Customer Information..................................................................................................................... 23 Referral Fees................................................................................................................................................................. 24 Proper Books and Records............................................................................................................................................24 Replacement.................................................................................................................................................................25 Putting It Into Practice................................................................................................................................................. 26 Steps to Ethical Decision-Making................................................................................................................................. 27 1. Identify the Issue................................................................................................................................................ 27 2. Gather the Facts................................................................................................................................................. 27 3. Determine the Options and Evaluate................................................................................................................. 27 4. Test Options........................................................................................................................................................ 28 5. Choose the Best Option and Review.................................................................................................................. 29 Applying the Steps........................................................................................................................................................29 Consequences of Cheating WFGIA defines cheating as the failure to act with honesty and integrity, by a candidate, associate or agent, when studying for, or completing, an examination of any kind. Actions which are considered cheating on an exam or test include, but are not limited to: copying from another candidate's work; using materials not authorized for the exam (i.e. phones, tablets, written notes); collaborating with another candidate during an exam; collusion, which means obtaining from or giving to another candidate unauthorized assistance in any subject (i.e. sharing computer screens or linking other devices to your terminal for the purposes of allowing others to assist with the completion of the exam); falsification, which means modifying, without authorization, an examination paper, record, or report for the purpose of obtaining additional credit; knowingly using, buying, selling, stealing, or soliciting any of the contents of a test/exam (i.e. taking photos of exam questions, colluding with others to memorize exam questions for the purposes of sharing the questions with others); taking a test/exam for another candidate or permitting another candidate to take a test for oneself; attempting to bribe an instructor or other employee to obtain a passing grade, or better grade on a test/exam, or to alter records for such grades. Using technology in which another person remotely logs on to a person’s computer and answers questions. Any exam, test or certification information (including CE Credits) must not be copied, shared or removed from the testing centre/environment, or dispersed to, or shared with, any other individuals. The consequences of cheating on any exam, certification, compliance course or CE Credits will lead to disciplinary measures up to and including termination from WFGIA. This may include compliance notices, warning letters, fines, demotions, increased supervision, and requirements to retake examinations. Every candidate, associate or agent must report any information they become aware of that could be considered cheating or an attempt to cheat. Instances of cheating or unethical behaviour can be reported to upline(s), Head Office Compliance, the Regional Branch Manager (RBM) team or the proctors and/or organizers of the exam. Failure to report instances of cheating or unethical behaviour may also lead to disciplinary measures. 1 Learning Objectives This course addresses the professionalism, integrity, and objectivity that an individual must always maintain as a financial advisor. The world of finance can be complex, and it is the role of the advisor to help clients navigate this world with diligence and honesty. Upon completion of this course, students will be able to: Apply the principles of ethical behaviour when confronted with situations that may create a conflict of interest, or that may not align with the best interests of a client; Demonstrate knowledge of best practices, and apply them to professional settings; and Understand the conditions, responsibilities and duties of being a licensee. Competencies Competency 1: Maintain an insurance practice in a competent manner by being diligent, financially reliable and following the regulations and procedures of regulating bodies, employers, and/or insurers. Competency 2: Advise clients, insurers and the public in an objective and honest manner by recommending products that meet their needs. Competency 3: Disclose all relevant facts to insurers and clients in a clear, logical and concise manner including: potential conflict of interest; compensation structure and fees; quantitative and qualitative information. Competency 4: Uphold integrity while interacting with insurers and the public and advising clients. Competency 5: Protect the confidentiality of all client information. Competency 6: Exercise ethical judgement, and behave ethically in all situations. Key Terms Agency: a licensed corporation or partnership, or an individual sole proprietor agent, that meets the nominee requirements set out in the Council Rules. Client: a person who may reasonably be expected to rely on a licensee’s advice or actions with regard to insurance. Licensee: a licensed insurance salesperson, agent, or adjuster. Person: includes a corporation, partnership, society, association, or other organization or legal entity. Principal: a person on whose behalf a licensee has undertaken to perform adjusting services. Transaction: a situation in which a licensee provides an insurance product or service to any person. 2 LICENSING Each province or territory has its own governing body or council that oversees the licensing and renewal of its life insurance agents. All provinces and territories require candidates to successfully complete the harmonized LLQP course. There are several additional requirements that may include: Criminal record check Supervision or sponsorship Professional liability insurance or errors and omissions coverage Probationary period Administrative fees Licences are approved for a set period determined by the province or territory and require renewal. Renewal requirements also vary, but generally include proof of professional liability insurance or errors and omissions coverage, continuing education credits or professional development credits and an administrative fee. Specific guidelines and regulations should be confirmed on the advisor’s governing body’s website: Alberta Insurance Council http://www.abcouncil.ab.ca/ Insurance Council of British www.insurancecouncilofbc.com Columbia Insurance Council of Manitoba https://www.icm.mb.ca/ Office of the Superintendent http://fcnb.ca/insurance-Licence-types.html of New Brunswick Office of the Superintendent http://www.servicenl.gov.nl.ca/insurance/ of Newfoundland and Labrador Office of the Superintendent https://www.novascotia.ca/finance/en/home/insurance/default.aspx of Nova Scotia Office of the Superintendent http://www.fin.gov.nt.ca/services/insurance-licensing-regulation of Northwest Territories and Nunavut Financial Services Commission http://www.fsco.gov.on.ca/ of Ontario Prince Edward Island of the https://www.princeedwardisland.ca/en/information/justice-and-publ Attorney General ic-safety/insurance-regulation Autorité des Marchés https://lautorite.qc.ca/en/becoming-a-professional/ Financiers Office of the Superintendent https://www.skcouncil.sk.ca/ of Saskatchewan Office of the Superintendent https://www.princeedwardisland.ca/en/information/justice-and-publ of Yukon Territories ic-safety/insurance-regulation ETHICAL PRACTICE There are five overlying principles of ethical practice for an advisor: It is each advisor’s responsibility to maintain the standards of professional conduct in the insurance industry. 1. Competence Advisors must: Conduct all insurance activities in a competent manner. They must apply their knowledge and skill in a manner consistent with the usual practice of the business of insurance in the circumstances; Be diligent and financially reliable; meaning they can be relied upon to properly safeguard and account for money and property entrusted to them, and to promptly deliver them in accordance with the circumstances; Be aware that conduct outside their professional life, such as outstanding judgments, pending legal proceedings, and bankruptcies, may reflect on their financial reliability; Adhere to the continuing education requirements; Follow the anti-money laundering procedures when completing insurance business; and Refrain from giving advice in areas beyond their expertise as an insurance licensee. 2. Objectivity Advisors must: Be objective, honest and sincere when advising clients on services and products; Complete an analysis of the client’s needs and the product’s suitability for their situation; Act in a manner consistent with the client’s or principal’s best interests; Remain faithful to their duties and obligations as an insurance licensee;  Provide a duty of good faith to insurers, insureds, fellow licensees, regulatory bodies, and the public. 3. Disclosure Advisors must: Inform clients on all aspects of the insurance products they purchase, including any changes that occur during the terms of the policies; Ensure illustrations include prices, values and benefits clearly and fairly, with disclosure of amounts that are not guaranteed; Make full and fair disclosure of all material facts, to enable clients to make informed decisions regarding their insurance; Disclose any fees charged in addition to the policy premium. Use sales materials or illustrations that are clear and straightforward to avoid misleading or deceiving clients; Not use terms such as “guaranteed” without appropriate qualification or evidence to support the statement; Inform the client of arrangements to place the client’s insurance through another agent; Fully and accurately disclose any information material to the insurer’s decision to issue a contract of insurance; and Inform the insurer when placing insurance on behalf of another agent who is acting for the insured. 4. Integrity Advisors must: Be trustworthy and conduct all professional activities with reliability and honesty; o Behaviour outside the professional context can reflect on trustworthiness and call into question one’s suitability to hold an insurance licence. Engage in fair competition so clients can access the products and services they need at reasonable prices; Deal effectively with client concerns and objectives; and Never discriminate based on a client’s age, gender, marital status, ethnic origin, physical or mental ability, religion, sexual orientation or socioeconomic status.  5. Confidentiality Advisors must: Hold in strict confidence all information acquired in the course of the professional relationship concerning the personal and business affairs of a client; and Never divulge or use such information other than for the purpose of a transaction or of a similar, subsequent transaction with the same client, unless expressly authorised, or as required by law. ETHICAL CONDUCT Competence PRINCIPLE Advisors must: Conduct all insurance activities in a competent manner; meaning that they must apply their knowledge and skill in a manner consistent with the usual practice of the business of insurance in the circumstances; Be diligent and financially reliable; meaning they can be relied upon to properly safeguard and account for money and property entrusted to them, and to promptly deliver them in accordance with the circumstances; o Conduct outside their professional life, such as outstanding judgments, pending legal proceedings, and bankruptcies, may reflect on their financial reliability; Adhere to the continuing education requirements; Follow the anti-money laundering procedures when completing insurance business; and Refrain from giving advice in areas beyond expertise as an insurance licensee. GUIDANCE Competence encompasses many aspects of an advisor’s practice. It can be separated into four main topics: communicating with clients, communicating with the insurer, diligent record keeping and education. ⮚ Client Communication It is very important that advisors have ongoing communication with their clients, and keep them informed about their policies. Some common matters of discussion include: A lapse or change in insurance coverage; An adequate fact finding and assessment of a client’s insurance needs; Conversations about life changes; Report all claims promptly; Delivering insurance policies or evidence of insurance coverage within a reasonable time and, in any event, in accordance with the terms of the insurer agreement with the insurance company; and Deal with all formal and informal complaints or disputes in good faith and in a timely and forthright manner, including, when necessary, referring the complainant to other more appropriate people, processes, or organisations. Examples of Misconduct:  Selling an insurance policy that is inappropriate, given the client’s stated objectives and circumstances. Counselling a client to conduct an assignment of a life insurance policy in a manner that fails to meet the client’s stated objective. Providing written notice to a client that their insurance coverage has been renewed, prior to receiving confirmation from the insurance company. Soliciting clients to invest the cash value of their life insurance policies in a company you have a vested interest in, without disclosing the inherent conflict of interest and the true risks involved. Failing to fully assess a client’s needs and objectives. ⮚ Communicating with the insurer Advisors assess the client’s requirements, and act as an intermediary between the client and the insurer. It is important that advisors: Properly place insurance coverage as instructed; Provide evidence of insurance coverage when required; Ensure client information is accurate and up to date; Advise an insurer or principal of a risk or claim; Inform the insurer about any risks they perceive; Adhere to the authority granted by the insurer; and Represent the insurer’s products fairly and accurately. Examples of Misconduct: Offering policy terms that are not authorised by the insurer. Issuing a cover note purporting to bind an insurer the agency did not represent. Altering the effective date of an insurance contract. Insurers rely on advisors for information to make underwriting decisions. Therefore, an advisor must make reasonable inquiries into a risk. ⮚ Record Keeping Advisors are required to keep a record of their communication with the insurer and client. They must also track their administrative tasks diligently. Advisors need to: Properly document communications and instructions from a client to ensure mutual understanding and provide a record of the transactions; Properly handle and account for money or property; Maintain proper records of insurance transactions and related financial affairs; Provide for the safekeeping and confidentiality of records;  Promptly report all potential claims; and Promptly deliver all insurance documents and money due. Examples of Misconduct: Failing to properly manage the business and financial dealings of an agency, including the proper handling and remittance of premium money to insurers. Failing to remit to the insurer all premiums collected or received in accordance with the terms of the agency’s agreement with the insurer. When collecting or receiving funds on behalf of an insurer, advisors must: Never encumber the funds without the prior written consent of the insurer; Never use or apply the funds for purposes other than those specified in the agreement with the insurer; and Always pay to the insurer all funds collected or receive less any deductions authorised by the insurer. ⮚ Education The financial industry is always changing. As legislation is modified, policies must be adapted. Insurers also change their products to compete within the industry, and to meet clients’ evolving needs. Every provincial and territorial association requires that advisors continue to develop professionally. When applying for an insurance licence renewal, advisors must have completed a mandatory number of continuing education or professional development courses. These courses should be relevant to the advisor’s practice and help them better inform their clients. Financial education is ongoing and advisors should make sure they are: Improving in areas where they lack sufficient expertise, training, or experience; Staying up to date on the latest changes in the industry; Updating their understanding and knowledge when there are product changes. Other Examples of Misconduct: Failing to account for withdrawals from a bank account over which the licensee held a power of attorney. Having personal debts or questionable financial involvement with a company that solicited investors for offshore investment. Being named in a lawsuit by a group of former clients alleging misappropriation of funds. QUESTION/CASE STUDY Carla recently met with a client to complete his life insurance application. The client has a medical history that will require a rating, and Carla has explained the rating process to him. The client understands that he might have to accept a higher premium due to his medical history. When the insurer provides Carla with the details of the rating and the exact increase in premium, Carla accepts the rating on the client’s behalf and the policy is issued to the client. This is an example of competence misconduct. While Carla properly informed the client of the possibility of a rating and made sure that he understood, she accepted the rating for the client without advising the client of the changes to his insurance plan as a consequence of the medical rating. Objectivity PRINCIPLE Advisors must: Be objective, honest and sincere when advising clients on services and products; Complete an analysis of the client’s needs and the product’s suitability for their situation; Act in a manner consistent with the client’s or principal’s best interests; Remain faithful to their duties and obligations as an insurance licensee; Provide a duty of good faith to insurers, insureds, fellow licensees, regulatory bodies, and the public; and Disclose all material information. GUIDANCE Advisors owe a duty of care to their clients, and should not engage in practices that place their own interests, or those of others ahead of their clients’ interests. Advisors receive compensation based on the products or services clients purchase. Some products provide higher compensation than others and it would often be advantageous to recommend a product that would yield a higher commission, but remaining objective is a key component to the advisor-client relationship. Objectivity can be maintained by: Accurately representing and disclosing all material information when required; Evaluating the client’s needs before making service or product recommendations, and properly using the advisor position to support and counsel a client through the decision-making process; Avoiding conflicts of interest that would make putting the client first a secondary consideration; Employing and remunerating licensed persons to conduct insurance business; and Ensuring a client is not at a disadvantage when they are inexperienced, in poor health, or lack financial education. Examples of Misconduct: Making a recommendation to a client, knowing the cost is above the client’s budget. Proposing a product that the client—or, indeed, the advisor—does not understand. Avoiding completion of the Know Your Client and product suitability documentation. Recommending a product or service that is not in the client’s best interests or meet their needs. Signing as witness to an application without actually having seen them signed. Counselling a client to misrepresent material information to an insurance company. Backdating a client’s insurance policy and subsequently lying about when and how the transaction was processed. Drafting and signing a false certificate of insurance for a family member who required evidence of insurance coverage. QUESTION/CASE STUDY Arjit has been an advisor for several years. During his annual appointments, he usually gives each client a 20-minute appointment block. During the appointment, he reviews the client’s policies and updates their file. The client from his last appointment told Arjit that they would like to set up a new insurance policy, but did not have time to do it that day. Arjit needs only more insurance sale to meet his sales goal for the month, and to qualify for his insurer’s quarterly campaign. He completes and submits the client’s application without completing a new analysis or reviewing the new insurance policy. This is an example of objectivity misconduct. Even with clients’ time constraints, employer sales pressure, and the temptation of bonuses, it is important to always be objective and provide clients with a complete analysis and explanation of the products they are purchasing. Arjit allowed his personal goals to campaign, and did not put the client’s interests first. Even when clients insist they do not have additional time, advisors always need to thoroughly explain the policies they are purchasing and make sure that they fit the client’s situation. Disclosure PRINCIPLE Advisors must: Inform clients on all aspects of the insurance products they purchase, including any changes that occur during the term of the policies; Ensure illustrations include prices, value and benefits clearly and fairly with disclosure of amounts that are not guaranteed;  Make full and fair disclosure of all material facts to enable clients to make informed decisions regarding their insurance; Disclose any fees charged in addition to the policy premium; Use sales materials or illustrations that are clear and straightforward to avoid misleading or deceiving clients; Not use terms such as “guaranteed” without appropriate qualification or evidence to support the statement; Inform the client of arrangements to place the client’s insurance through another agent; Fully and accurately disclose any information material to the insurer’s decision to issue a contract of insurance; and Inform the insurer when placing insurance on behalf of another agent who is acting for the insured. GUIDANCE A client must consider many things when purchasing a product or service. It is the advisor’s job to disclosure important product information, fees and material facts. An advisor may find themselves in a situation where their objectivity might be compromised due to a conflict of interest. A conflict of interest exists when loyalty to, or representation of, a client or insurance company could be materially or adversely affected by interest or duty to another party. A conflict of interest may be real, potential, or apparent. It is a best practice to inform the client or insurer and receive written approval of the conflict before proceeding with the relationship. Prior to the sale of an insurance product, the following must be disclosed to the client: The transaction is between the client and a named insurance company; The particulars of the relationship between the advisor and the insurance company; The nature and extent of any business or financial interest, if any, the advisor has in the insurance company and the insurance company has in the advisor; The nature and extent of whatever interest, if any, the advisor has in the transaction, including, but not limited to, whether they have the right to receive a commission or other remuneration in respect of the transaction (the amount of remuneration or commission does not have to be disclosed); and Where a commission or remuneration is payable, the identity of the company or person paying it. Such disclosure is needed upon each initial transaction with a client and each subsequent transaction where there is a change in the information contained in the original disclosure. ⮚ Withdrawal of Services When an advisor chooses to terminate a business relationship with a client, it is done in a manner that avoids prejudice and allows for the orderly transfer of the client’s insurance business elsewhere. The advisor should also provide the client with adequate notice of their intent to withdraw services, as well as comply with any applicable statutory and professional obligations. ⮚ Anti-Money Laundering It is the advisor’s responsibility to disclose any suspicious money laundering activities. The Financial Analysis and Transaction Reporting Center (FINTRAC) guidelines outline suspicious transactions, transaction reports and compliance as well as the procedure to report these activities. ⮚ Disclosure as an Insurance Agent Prior to soliciting any insurance business, every advisor is required to disclose to the public that they are an insurance agent. This should be kept in mind when advertising. It is recommended that all insurance agents include on their letterhead and business cards a reference that clearly identifies them as an insurance agent, as the professional designations CLU or CAIB will not always convey that they are an agent. Each form of communication should be reviewed to ensure the spirit of this licence condition is being met. Examples of Misconduct: Omitting in the fees given to the client, the total insurance premium charged by the insurer, along with the total additional fee charged by the agent. Failing to inform the licensing body of an investigation by a legal authority or professional organisation, bankruptcy or criminal charges. Changing illustrations to only demonstrate the benefits of a product and no disadvantages. Not informing the client when their policy is increasing in premium. Not explaining the fees or charges for a product or service. Moving practices and not informing the client Failing to disclose one’s status as an insurance agent. QUESTION/CASE STUDY Sunisha has her first appointment without her supervisor. She meets with clients to explain the available insurance products and take a new application for coverage. During the explanation, the clients ask several questions. Sunisha is unsure of the answers, but answers the best she can and moves on to take the insurance application. She then submits the application. Sunisha delivers the policies when they are approved and does not clarify any of the clients’ questions. This is an example of disclosure misconduct. Sunisha does not take the time to make sure that the clients’ questions and concerns are properly addressed. She instead rushes them into the application process. The clients may not properly understand their policy and Sunisha has delivered it without disclosing all the details. Integrity PRINCIPLE Advisors must Be trustworthy and conduct all professional activities with reliability, and honesty; o Behaviour outside the professional context can also reflect on trustworthiness and call into question suitability to hold an insurance licence. Engage in fair competition so clients can access the products and services they need at reasonable prices; Deal effectively with client concerns, objectives and concerns; and Never discriminate based on a client’s age, gender, marital status, ethnic origin, physical or mental disability, religion, sexual orientation or socioeconomic status. GUIDANCE An advisor’s integrity is crucial to their success. Their actions should always follow a high ethical code when dealing with the public, insurers, their clients and other financial representatives in the industry. To maintain a thriving clientele, an advisor’s conduct should speak their trustworthiness. They must: Be honest when dealing with money or property; Properly use their position or knowledge as an advisor; Put the client’s needs above their own; Treat all clients with respect and professionalism; Submit accurate documentation to insurers and clients; and Represent services and products as well as oneself honestly so as not to mislead the public; and Never commit theft or fraud. ⮚ Sale on Merit Insurance should be sold or conserved based on the merits of the particular policy as it relates to the client’s needs. Discrediting an insurance company based on its products is not a proper practice of the business of insurance. This requirement is not meant to prevent licensees from providing information that is relevant to the client’s ability to make an informed decision about their insurance. However, information offered solely for the purpose of undermining the reputation of an insurer is inappropriate. Advisors must not: Discredit another licensee, insurance company or person; Make any false or misleading statements or representation when conducting insurance activities; or Coerce a prospective buyer in any manner, including through the influence of business or professional relationships. ⮚ Holding Out Advisors should present themselves to the public as they are licensed. Letterhead, business cards, signage and advertising must have the name(s) shown on the agent’s licence, or the agency or firm the individual is authorized to represent. Advisors should: Hold themselves out as they are licensed; Disclose they are an insurance agent prior to conducting insurance activities with the public; Not use the term “and Associates,” or a similar phrase, as part of a business or trade name when there are not two or more licensees in the business; Not represent themselves as having specific expertise in a given area of practice or industry designations unless they are suitably qualified by virtue of their experience, training, or both; Not purport to be a financial planner or provide financial planning advice unless they meet the qualifications and disclosure requirements; and Not make any false or misleading statements in the solicitation of, or negotiation for insurance. ⮚ Advertising Advisors must not engage in misleading advertising by offering prices, rates of return, products, or services they cannot reasonably provide or that are subject to undisclosed qualifications. Examples of Misconduct: Making or assisting in making false insurance claims. Using premium money for personal use or misappropriating funds while acting in a position of trust. Making false or misleading statements. “Witnessing” a signature known to be a forgery. Using confidential client information provided by an insurer for a purpose other than intended. Raising capital from the clients of an insurance agency of which the licensee was owner and principal, without disclosing to the clients that they were investing in the agency, and without providing material information to them about the investment, such as agency financial statements and disclosure on how the investments would be used.  Failing to refund all money due to a client in accordance with the cancellation provisions set out in the client’s insurance contract and as agreed to in the licensee’s contract with the insurer. Requesting an insurer cancel a client’s insurance policy for non-payment of premiums, when the premium has been paid, in order to apply the pro rata, return premium against an outstanding debt owed by the client. Submitting applications that were known to have been completed by an unlicensed person. Directing an unlicensed employee to take an insurance application. Directing an employee to sign a document as agent of record when the employee has not completed the form or met the policy owner. QUESTION/CASE STUDY Ricardo advertises his insurance services in the community. He will be taking his mutual funds licensing exam in a month and wants to make sure that he has clients lined up to do business with as soon as he gets his licence. He has added “Advice for mutual funds and sale for RRSPs, RESPs and TFSAs” to his advertising and has been setting up client appointments regarding mutual funds after his exam date. This is an example of integrity misconduct; Ricardo is falsely advertising and misrepresenting himself. He does not currently hold a licence to sell mutual funds and is not qualified to give clients advice regarding mutual funds. Before advertising and setting up client appointments, Ricardo needs to have his mutual funds licence. Confidentiality PRINCIPLE Advisors must: Hold in strict confidence all information acquired in the course of the professional relationship concerning the personal and business affairs of a client; and Never divulge or use such information other than for the purpose of a transaction or of a similar subsequent transaction with the same client, unless expressly authorized, or as required by law. GUIDANCE Advisors collect and maintain their clients’ private information. Clients expect that advisors will protect their interests and privacy and only access, use, or disclose confidential information with their express permission. Examples of Misconduct: Providing a copy of a client’s insurance policy to two other customers as an example of the product they are being offered. Sharing client information with another professional without client authorization. Keeping confidential client information in an unsecured location. Accessing confidential client information from an insurer’s computer database without authority and subsequently communicating that information to another person. QUESTION/CASE STUDY Tamara has just moved to a new house and is setting up her home office. She is setting up the house and has several contractors in and out of her home. When she moved, she packed her client files into boxes and locked them in the trunk of her car, then brought the boxes into her new office. Today, one of the contractors who has been working in her home will install a lock on her office door, but she has not had time to put the files back into her filing cabinets. She plans to spend the weekend at home organizing her files. This is an example of confidentiality misconduct. Tamara has not locked her client files in a secure location. While they are in her home, there are several contractors moving in and out. The door to her office is unlocked and her files are in boxes rather than in a secure filing cabinet. LICENSEE RESPONSIBILITIES Licensees have many responsibilities integrated into their daily business activities. Failure to comply with these responsibilities could result in disciplinary action. Other Business Activities Licensees who conduct business activities other than those authorised under their licences, must keep themselves up-to-date on their provincial or territorial association’s conflict guidelines. OTHER EMPLOYMENT OR BUSINESS ACTIVITIES (“BUSINESS ACTIVITIES”) HELD BY LICENSEES Other Business Activities may create a conflict of interest for the licensee. Many associations require advisors to disclose any business they conduct other than those authorised under their licences. In certain circumstances, if a conflict is too significant to be resolved, the advisor will be required to stop their other business activities or their licence will be revoked. Advisors are encouraged to communicate with their governing body prior to engaging in any other business activities. Licensees engaged in other business activities could have their suitability reviewed if a complaint is made, and if a conflict of interest is found, they may be subject to disciplinary action. Reporting to Provincial or Territory’s Association ⮚ Change of Name An advisor must notify their province or territory’s association when there is any change to their name, including their trade name(s). ⮚ Address Changes A licensee should notify their province or territory’s association of changes to their residential or business address or other contact information. There is often confusion as to what each address is used for, in particular the service address: Residential Address: The licensee’s primary legal residence. Usually the residential address is used for tax purposes. Business Address: This should reflect the office location (including branch offices for agencies and firms) from which the licensee conducts their insurance business. Confidentiality of Customer Information Licensees must hold in strict confidence clients’ personal and business information and must not divulge or use any such information other than for the purpose of transactions between the licensee and their clients unless expressly authorized by their clients, or as required by law to do so. Referral Fees Most provincial and territorial associations have guidelines regarding referral fees and compensation. It is important that advisors refer to these guidelines before setting a standard for their business practice. There are two types of rules for referral fees. The person receiving the compensation can either be a licensed insurance agent or unlicensed. Licensed Third Party: Sharing commissions between licensed agents is allowable. Unlicensed Third Party: To receive referral fees, both the licensed person paying the referral fee and the unlicensed person being paid must meet certain requirements: The person who is receiving the referral fee cannot engage in any insurance activities with the client, including discussing the merits of a particular insurance product or the client’s insurance needs; and A written disclosure must be given to the client stating that the unlicensed person is being compensated for the referral. The written disclosure must be provided before arranging the insurance transaction. Licensees should keep a copy of the written disclosure in their files as proof of meeting this requirement. Proper Books and Records As a condition of licensing, all advisors are required to maintain proper records and accounting books relating to their insurance activities. Advisors should maintain their records in sufficient detail as to ensure customer protection. It is recommended that records be kept by advisors to show that certain licensing conditions and the advisor’s duty to the client have been met. Although the exact nature of the documents to maintain will differ depending on the type of business being conducted, advisors must consider to the following: Various disclosures provided to the client; Client consents; Details regarding sub-brokering of business; Correspondence between the licensee and the client; Detailed notes on meetings and conversations with clients, insurers or adjusters; and Insurers’ requirements. How long books and records should be kept will vary depending on the nature and complexity of the transaction and the governing body’s regulations. Advisors are cautioned that they may be subject to requirements under statutes including the Insurance Act, the Companies Act, as well as tax legislation, and may wish to seek legal or accounting advice before finalizing their policies. Replacement When replacing an existing insurance policy, advisors must abide by the regulations of the insurer and the jurisdiction in which they practise. A replacement must be genuinely beneficial to the interests of the insured. Where replacement could be detrimental to the interests of an insured, an agent must make every reasonable effort to maintain the existing policy. This is to ensure the client receives full disclosure of the details, including the advantages and disadvantages of both policies, and to allow them to make an informed decision on whether to replace their existing insurance policy. A replacement occurs when, as a result of the purchase of a life insurance policy, any existing life insurance contract is: Rescinded, lapses or is surrendered; Changed to paid-up insurance or continued as extended term insurance or put under an automatic premium loan; Changed to reduce benefits or to release over 50% of the cash value; or Subjected to substantial borrowing. The replacement of a policy generally applies when the policy to be replaced is: A life insurance contract; A temporary or interim life insurance contract*; or A rider to a life insurance contract. *A temporary or “interim” contract exists where a client has applied for insurance with, and paid money to an insurer. Agents replacing such a contract must comply with the Replacement Regulation. The replacement of a policy does not generally apply when: The existing policy is an annuity; The new or existing policy is group insurance; or The new policy is the exercise of a contractual privilege under an existing policy with the same insurer. PUTTING IT INTO PRACTICE Steps to Ethical Decision-Making Decisions often need to be made quickly and advisors do not always have time to reflect on their actions. To alleviate some of the ethical pressure of spur-of-the moment decision-making, it is best to have standard practices in place and to follow them consistently. Ethical decisions are not just made by financial advisors, an individual in any situation or career can find themselves in a situation that requires them to make a difficult decision and evaluate the best option. 1. Identify the Issue Advisors make so many decisions for their clients, insurers and businesses daily, that many begin to seem insignificant. It is important to remain vigilant and recognize when an issue requires an ethical decision. 2. Gather the Facts To make a good ethical decision, the information gathered should be accurate and comprehensive. The details will help to assess future consequences as well as the current context of the issue. Advisors must take into account client details, insurer regulations and any other factors to ensure a complete understanding of each unique situation. Fact gathering can include: The event that has occurred The circumstances under which it occurred The consequences of the event Concerns arising from the event Stakeholders affected by the event Unknown factors or variables 3. Determine the Options and Evaluate As with all complex decisions, there are usually several possible options to resolve an ethical issue. Each option will have both advantages and disadvantages for each party involved. Advisors should also check with rules, policies and regulations in the industry or with their employer. There are five approaches that can assist advisors with the evaluation of options in decision-making: ⮚ Utilitarian Approach Choosing the option that, on balance, does the greatest amount of good, and causes the least harm to the parties involved.  ⮚ Rights Approach Choosing the option that protects the moral rights of the parties involved. Moral rights include: The right to make life decisions and live how one chooses The right to privacy The right to accurate and factual information ⮚ Fairness or Justice Approach Choosing the option that adheres to the principle that all individuals should be treated equally regardless of gender, race, religion, ethnicity, sexual orientation, mental ability, job status or income. ⮚ Common Good Approach Choosing the option that takes into consideration the welfare of the community. This is based on the concept that all individuals should be contributing to the community. ⮚ Virtue Approach This approach asserts that a decision is made with the idea that an individual should always be the best person possible. Virtues include honesty, compassion, integrity, fairness, and tolerance. Is the individual at their highest potential after the decision or can they behave in a more ethical manner? Each approach presents the advisor with an option to determine the best path forward. In the financial industry, honesty takes precedence over loyalty and a long-term view should take precedence over a short-term view. Loyalty is the allegiance to another person or entity, but this emotion does not always lead to the most ethical decisions. A long-term view encompasses both short- and long-term perspectives while a short-term view does not. 4. Test Options Often these approaches can be combined to help advisors make the best decisions for their clients, the public and insurers. For the most part, putting the client first is the best guideline when weighing the options, but there are certain situations when a client cannot be put first. Helping a client who had asked for help altering an insurance application, may certainly lead to a favourable outcome for the client, but assisting a client in misrepresentation is not an ethical choice for the advisor. If possible, ask for advice from someone in the industry. Speaking to another person familiar with the regulations and expectations of the financial industry can often clarify the best course of action. Make sure you are comfortable with the decision and it feels like you are doing the right thing. The financial industry has a few tests to help advisors test their options.  ⮚ The Smell Test Based on moral intuition, this test is useful when the precise issue cannot be nailed down. The test asks, “how does it smell?” If there is a whiff of something wrong, chances are there is, and the decision is usually clear. ⮚ The Front Page Test The advisor asks if they would like to read about their decision on the front page of tomorrow’s newspaper. In other words, how would they feel about their decision becoming public? If the notion causes discomfort, they have made the wrong decision. ⮚ The Mom Test This test asks, “If I were my mother, would I do this?” Any person whose morals are held in high esteem can replace “my mother” in the question. It could be a family member, or the CEO of the company. The decision maker is putting themselves into the shoes of another to determine whether the decision is the right one. 5. Choose the Best Option and Review Once all the information has been gathered and analysed, a decision can be made. It is important to remain objective and not rush to a decision. After the decision, review and reflection can help the advisor the next time they are in a similar situation. Applying the Steps CASE STUDY PART ONE Marcus is a newly licensed advisor who recently started with Star Insurance Company. He has been to several training sessions and client appointments over the past two weeks and feels ready to meet with clients without supervision. His first solo appointment is with a couple, Darla and Jamie. Darla and Jamie have been married for five years and they have two children who are 4 and 2. They would like to have one more child in the next year. Jamie is a roofer during the summer and spends the winter doing seasonal work around the city. Darla runs a small business from their home while caring for the children. Both Darla and Jamie have put off purchasing life insurance because they did not think they needed it until Jamie had a minor roofing accident. Due to the scare, they made an appointment with Marcus and two other advisors. Marcus has a second meeting with Darla and Jamie. He does a complete analysis for Darla and Jamie, taking into account their needs and their budget. He provides a recommendation based on the information they provide and realises that the best product for the couple is one that he is not comfortable explaining. He does not have a complete understanding of the new life insurance product but still thinks that it is best for them. After they meet with each advisor, Darla and Jamie will be comparing the recommendations and choosing an insurance product that works for them. What should Marcus do? 1. Identify the issue: Marcus would like to recommend an insurance product that he does not fully understand but might be in the best interests of the client. 2. Gather the facts: Based on the client’s needs analysis and product suitability, there is an insurance product available. Marcus does not have enough knowledge on the insurance product to explain or recommend it to the clients. The best insurance solution for clients might not be explained or given and their insurance portfolio will be negatively impacted. 3. Determine the options and evaluate: a. Recommend the best insurance coverage for the client and explain the product in the best way that he can. b. Recommend an insurance product he understands fully, but which may not be ideal for the clients. c. Set another meeting with the clients to make an informed recommendation. 4. Test options: Marcus is a new advisor and he should speak to his supervisor or manager before making a decision. a. Recommend the best insurance coverage for the client and explain the product in the best way that he can. i. With this option, Marcus is taking a risk. He does not understand all the details of the insurance product and might not be able to explain all the details properly. Due to his limited understanding, this also might not be the best product for the clients. b. Recommend an insurance product he understands fully but still meets the clients’ needs.  i. With this option, Marcus will be able to explain all the details to the client and make sure that they fully understand the product. He is taking the risk that there is a better product that might be in the clients’ best interests and he could lose the business as a result. c. Set another meeting with the clients to make an informed recommendation. i. With this option, there is a possibility that Marcus could lose the business to the other advisors. The clients could not want the additional meeting or feel that Marcus was not adequately prepared for their meeting. 5. Choose the best option and review: Advisors are not expected to know everything, and understanding insurance products and solutions is an ongoing process. When an advisor cannot answer a client’s questions or make recommendations, they should always do their homework before giving the clients an answer. Clients accept that advisors need time to gather information to provide the best solution or answer all their questions. Marcus can explain to Darla and Jamie that in order to make the best recommendation and to match an insurance solution to their needs, he needs to take some time to research the other insurance product so that he can make sure that he is providing them with the best option. CASE STUDY PART TWO Darla and Jamie appreciate that Marcus wants to take some time to find the best insurance product for their situation. They agree to set a second appointment with him before making a decision about their coverage. Marcus prepares an insurance recommendation and Darla and Jamie agree that his recommendation best fits their needs. Marcus sits down with Darla and Jamie to take their insurance application. During the insurance questionnaire, the clients ask if their upcoming trip to Kenya will affect their insurance application for a life insurance or critical illness policy. Marcus explains that travelling to a country with an “Exercise a high degree of caution” Canadian Travel Advisory can either change the rating of their policy, or prompt the insurer to place an exclusion on it. Darla and Jamie do not want their insurance coverage to be affected so drastically by their travels. They are only planning a short trip and do not feel it is fair that it affects their policies for the rest of their lives. They ask Marcus if there is any way to avoid the possible negative impact. What should Marcus do? 1. Identify the issue: Marcus would like to help his clients, and make sure that they are approved for an insurance product that best meets their needs. 2. Gather the facts: The clients are travelling out of the country, and the insurer requires they disclose their travel plans on their application. Disclosing their travel plans may result in their policy being rated, having exclusions placed on it or be declined. Marcus’ clients could end up without any coverage. Marcus also has an obligation to the insurer. 1. Determine options and evaluate: a. Recommend the clients wait until after their trip to Kenya before applying for their insurance coverage. b. Recommend the clients submit their insurance application and wait until the insurer makes a contract proposal. c. Not mention the clients’ travel plans in their insurance application so it will not affect the approval of their coverage. 2. Test options and get guidance: Marcus is a new advisor and he should speak to his supervisor or manager before making a decision. a. Recommend the clients wait until after their trip to Kenya before applying for their insurance coverage. i. With this option, the clients are taking a risk. They may need coverage during their trip and they will not have any if they wait until after they return. They also do not know what the insurer’s decision will be and the policies could be approved without any issues. b. Recommend the clients submit their insurance application and wait until the insurer makes a contract proposal. i. With this option, the clients take the risk that their policy could be rated, have exclusions put on it or be declined. If the clients’ policy is rated or declined, it will be recorded and could affect future insurance applications. c. Not mention the client’s travel plans in their insurance application so it will not affect the approval of their coverage. d. Disclosure is a principle of ethical decision-making. It requires that the advisor disclose all relevant information to the client, insurer and the public. With this option, Marcus would not be acting ethically towards the insurer. Choose the best option and review: The best option for the clients, the insurer and the advisor, is to recommend that Darla and Jamie apply for their insurance coverage and evaluate the insurer’s contract offer. It is possible the insurer will not place a rating, make exclusions or decline the policy. Every situation is treated differently and there might be no issues with the approval of the clients’ policies. If there is a rating or exclusion, then Darla and Jamie can make the best decision for their situation with all the information available to them at the time. If the policy is declined, they can reapply when they return from their trip.