It’s been almost 10 days since the comment period ended for the new “Fund Facts” document, but people are still talking about problems with the proposed two-page document.
“The way this is being proposed is not practical,” says Leslie Byrnes, vice president of distribution for the Canadian Life and Health Insurance Association.
On Tuesday, Byrnes addressed a packed Independent Financial Brokers conference in Toronto. Her concerns are similar to those reported by the mutual fund industry – such as document delivery timing issues – but she also expressed some concerns specific to the insurance industry.
On the mutual fund side, advisors would be required to provide a two-page document simplifying details about MER, fund composition and fund risks, but the insurance industry is required to provide two point-of-sale documents – a fund information document and a key facts document individual insurance contracts with variable characteristics (IVIC). This means that insurance advisors will need to have a number of different documents on hand.
“Let’s say you represent five companies and you’re offering the IVICs they hold, and there are 40 funds available in each IVIC – you’ll need to carry around hundreds of fund records to make sure you’re selecting the right client to select that day,” says Byrnes.
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With such a huge amount of paperwork to carry around, Byrnes wouldn’t be surprised if advisors wanted to carry only the fund documents they deemed most important. But this approach creates many problems.
“You’re not going to be carrying around hundreds of fund information, so maybe you’ll say, ‘OK, these are five funds that I like in this IVIC, so I’ll recommend them to the client,’” Byrnes explains. “If this happens, you only provide a few options, not the ones that the customer is contractually entitled to. Then there is the question of liability.”
Another issue for the insurance industry is that the fund facts document is “very prescriptive in nature.” Byrnes argues that the document’s content should be more flexible. Right now, everything, even the font, has been predetermined by the Joint Forum of Financial Market Regulators, the group tasked with designing the two-pager. “The Joint Forum sets out very detailed information that must be included in these documents. This limits innovation,” he says. “This approach is very principled and we are not sure this is the best or most effective way.”
Like the mutual fund industry, the insurance community is concerned about when to provide fund facts and key fact documents. Currently, documents must be provided at or before the time of sale. Byrnes says this could disrupt telephone sales because the advisor would have to mail or email the document before the transaction could go through.
An even bigger problem for Byrnes is that a new fact about the fund must be presented before each subsequent transaction. “The delays associated with this mean that customers will remain very frustrated,” he says.
Byrnes points out that the proposed framework assumes that all clients are the same – that none of them do any prior research on the fund. “It takes away choices from customers and puts them all in the same basket,” he says. “It’s quite paternalistic and they don’t even have the option to refuse to receive it.”
CLHIA has developed some ways to address the insurance industry’s problems related to fund facts and key fact documents. Above all, Byrnes argues that the Joint Forum must adopt a principles-based approach to regulation. Second, adopting a fund family approach to point-of-sale documents would reduce the amount of different fund information that advisors need to have on hand.
CLHIA has developed a four-page document that combines key facts and factual documents. “It puts everything in one place and is pretty easy for the consumer to understand,” Byrnes says. “And you know you’re presenting complete information at the point of sale, but you don’t have hundreds of fund facts with you.”
During the IFB presentation, Byrnes was asked why the funds document attempted to equate mutual funds with segregated funds when they are two different products.
“The basic answer is that regulators themselves don’t understand the difference,” he explains. “As an industry we need to be clear about what the differences are. And when regulators truly understand the differences better, they may be more willing to adopt an approach where similar but not identical regulations apply.
Despite Byrnes’ problems with the point-of-sale documents, he says they are “significantly better” than the existing summary. She is particularly delighted with the “clear and consumer-friendly” two-page layout. “It’s short and sweet, and customers are more likely to understand what they have.”
So what’s happening now? Byrnes says the Joint Forum will likely publish another document in the spring, but until then it is important for regulators and the insurance industry to continue conversations. “They need to try to take an approach that makes sense for our industry and also for advisors and consumers. However, it is important to engage the industry in this process before the next article is published.”
Posted by Bryan Borzykowski, Advisor.ca, bryan.borzykowski@advisor.rogers.com
(24/10/07)
