In July this year, London-based insurance broker Zavitz Insurance & Wealth underwent compliance audits by two carriers covering 25 client files across several advisers.
It’s rare for advisors to be subject to simultaneous audits by carriers, said Tammy Oribine, a financial planner and business development manager at Zavitz. The fact that they both came at the same time was a coincidence.
Carriers have asked for a list of compliance documents covering anti-money laundering, errors and omissions insurance, privacy policies, conflict of interest disclosures and more, Oribine added.
Carriers periodically conduct audits, also known as business practices reviews, of life agents. By carrier, managing general agent (MGA), representative and advisors Consultant Advisor.ca finds that the best way to pass an audit is to conduct consistent and accurate note-taking, adopt MGA or carrier compliance document templates, and regularly train staff.
The audit could be triggered by, among other things, customer complaints, changes in the agent’s operations or a flag from one of the carrier’s other divisions, said Kim Hayes, global director of distribution compliance insurance at Manulife.
Some MGAs also conduct their own audits to help agents prepare for carrier audits. MGA Gryphin Advantage Inc. based in Flamborough, Ont., will audit 150 of its own advisors this year, said Kirk McMillan, the company’s president.
I want to help agents keep their documents in order. “If we can get to them earlier in the audit… they will be better prepared when the carriers arrive,” he said.
Common problems include inconsistent notes from client meetings, failure to follow a needs-based sales approach and clients not signing an advisor’s privacy policy or disclosure document, Hayes said.
Hayes added that some advisers volunteered to participate in the audit. One of them who asked Manulife for an audit this fall “felt he needed to go through this process to be able to correct any issues or identify gaps” so he could tell his customers he was in compliance.
The length of the audit varies. While one carrier gave Oribine 45 days to submit all documents, the other carrier initially only gave it a week. Both carriers completed the audits within two weeks of receiving the documents.
Oribine said it took her about 15 minutes to find information about each of the 25 customer files because the company maintains a good customer management system.
Zavitz advisors have checklists of documents and procedures they must complete, such as taking notes on every customer call and including a needs-based analysis with every insurance sale, said Justine Zavitz, vice president of Zavitz.
Oribine, on the other hand, ensures compliance documents are updated correctly since insurance regulations vary by province and territory, “so when you get audited, it’s already been done and you don’t have to worry about making changes before submitting them,” she said.
Hayes said that after the audit, the agent and MGA will receive a copy of the carrier’s report containing any findings and corrective actions. For example, if it’s a paperwork issue, the carrier can provide the agent with templates that can be customized to suit their business.
MGAs also create sample documents. McMillan said Gryphin has created a section on its internal website aligned with resources such as show cause letters, anti-money laundering policies and a suitability checker. There is also a segregated funds application available, where advisors can check what is required to complete a transaction with each carrier.
In addition to training advisors, companies should encourage assistants to participate in the compliance process, Hayes said. Manulife hosts a conference for assistants and compliance issues are regularly discussed in training materials tailored for assistants.
“It is much easier for anyone to implement a process when they understand the reason why the process needs to be implemented,” she said.
While some advisors are frustrated with the audit process, others see it as a learning opportunity to make sure they’re selling insurance the right way, McMillan said. And as senior advisors look to sell their firm to junior advisors, a practice with a rigorous compliance regime will be more valuable.
“It protects you, it protects your customers, and it protects MGAs and carriers,” McMillan said. “That’s the approach we’re taking.”
