Presenting Products Ethically
Table of Contents
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Chapter 1: Agent Ethics |
1 |
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What is meant by product “suitability?” |
2 |
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Adequate Communication Skills |
2 |
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Investment Vehicles |
3 |
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Why is Ethical Conduct Necessary? |
3 |
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Is it possible to teach ethical behavior? |
5 |
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Psychological egoism/ethical egoism |
5 |
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What is the scope of ethics? |
7 |
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What does it take to be a moral person? |
7 |
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Provide quality work and services / Creating a Legacy |
8 |
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Example 1 |
9 |
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Example 2 |
10 |
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Example 3 |
11 |
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Example 4 |
12 |
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What are our responsibilities to other moral people? |
12 |
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Required Continuing Education |
14 |
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Compliance Manuals: ABC Insurance Company Compliance Manual Example |
16 |
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Introduction |
16 |
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Standards of Conduct |
17 |
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Making the Client’s Interests a Priority |
17 |
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Applicable Canadian Laws and Regulations / Conflicts of Interest |
17 |
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Client Privacy |
18 |
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Anti-Money Laundering |
19 |
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Employee Trading in Company Securities |
19 |
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Client Gifts and Entertainment Costs |
20 |
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Accurate Representation of Agent Expertise |
20 |
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Fronting / Coercion and Undue Influence |
22 |
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Rebating / Tied-Selling / Misrepresentation |
23 |
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Twisting and Churning |
24 |
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Induced Lapse |
25 |
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Registration and Licensing |
25 |
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Insurance License / Dual Licensing for Securities and Life Insurance |
25 |
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Continuing Education Requirements |
25 |
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Errors and Omissions Insurance |
26 |
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Approved List of Insurance Suppliers |
26 |
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Scope of Business / Approved List / Foreign Insurance Products |
26 |
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Out of Province Clients / Non-Resident Clients / Servicing of Products & Services |
27 |
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Points of Sale Requirements |
28 |
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Agent of Record for Insurance Applications / Policy Delivery |
28 |
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Commissions / Non-Life Licensed Insurance Referral Program |
29 |
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Servicing Requirements |
30 |
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Updating Insurance KYC / Replacement of Existing Life Insurance Contracts |
30 |
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Remittance of Insurance Funds |
32 |
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Record Retention (chart) |
32 |
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Separation of Records / Cautionary Note on Destruction of Records |
34 |
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Records Documenting Verbal Communications with Clients |
34 |
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Information to be Documented |
34 |
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Complaints, Litigation and Regulatory Inquiries |
35 |
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Regulatory Inquiries |
35 |
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Conclusion
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35 |
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Chapter 2: First Contact |
36 |
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Setting Appointments |
38 |
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At the Door |
40 |
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Communication Skills |
42 |
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Identifying Client Goals |
42 |
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Sales Conduct
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45 |
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Chapter 3: Product Suitability |
47 |
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Ability to Save Adequately |
47 |
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The Reason for the Goal |
48 |
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The Goals |
51 |
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Basic Product Information Requirements |
53 |
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Determining Product Suitability |
53 |
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Product Replacement |
55 |
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Identifying Suitability Issues |
56 |
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It is Not a Liquidity Issue but Rather a Suitability Issue |
57 |
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Investment Returns / Counterparty Risk |
58 |
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A Comprehensive Financial Plan |
59 |
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Suitability in the Retail Sale of Financial Products (2008 Study) |
61 |
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Determining Suitability According to the Report (Basel Committee on Banking Supervision International 2008 Study) |
65 |
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Annuity Surrender Values and Penalties |
67 |
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Financially Sound Insurers
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67 |
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Chapter 4: Product Costs |
69 |
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Adverse Selection |
71 |
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Purpose of the Insurance |
71 |
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Risk Categories (Preferred Best and Preferred) |
72 |
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Life Insurance Death Proceeds |
72 |
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The Terms “Insurance” and “Assurance” |
73 |
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Term Insurance / Permanent Life Insurance |
73 |
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Whole Life Insurance / Universal Life Insurance / VUL |
74 |
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Life Insurance Surrender Charges |
76 |
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Taxation / Viatical Settlements |
78 |
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Annuity Costs |
79 |
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Annual Variable Annuity Costs |
79 |
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Less Risk – Lower Yields |
80 |
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No-Load and Front Load Commissions |
80 |
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Mortality Fees |
80 |
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Investment Advisory Fees |
81 |
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Implicit Interest Rate (i%) |
81 |
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Delaying Annuitization when Interest Rates are Low |
82 |
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Equity Indexed Annuity Costs |
83 |
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Participation Rates |
83 |
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Averaging / Caps |
84 |
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Spreads, Margins and Administrative Fees |
85 |
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Annuity Surrender Values and Penalties (chart)
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85 |
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Chapter 5: Anti-Money Laundering |
87 |
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Abbreviations/Definitions |
88 |
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Terrorism Produces Insurer Risk (legal, reputational and operational) |
89 |
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Proceeds of Crime (Money Laundering) and Terrorist Financing Act |
90 |
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Object of the Act |
90 |
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Company Objectives |
92 |
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Policy Application / Restricted Businesses and Entities |
92 |
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Client Due Diligence (CDD) |
93 |
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Due Diligence Requirements for Personal Clients |
94 |
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Ascertaining Identification – Face-to-Face |
94 |
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Due Diligence Requirements for New Business Clients |
96 |
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Confirm the Existence of the Client’s Business |
96 |
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Collection of Beneficial Owner and Director Information |
96 |
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Not-for-Profit Organizations |
97 |
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Exceptions to Business Client Requirements |
97 |
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When to Conduct Client Due Diligence |
98 |
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Enhanced Client Due Diligence |
98 |
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Third Party Determination |
98 |
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Politically Exposed Foreign Person (PEP) Requirement |
99 |
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Retention of Client Records |
100 |
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Suspicious Transaction or Attempted Transaction Reporting |
100 |
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Signs of Suspected Money Laundering |
100 |
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“Red Flag” Indicators |
101 |
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Large Cash Transaction Reporting |
101 |
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Mandated Money Laundering Reporting Officer (MLRO) |
101 |
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AML Education / A Change in Thinking |
102 |
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Three Stages of ML: Placement, Layering, and Integration |
103 |
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Product Identification |
103 |
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Permanent Life Insurance Policies / Annuity Products |
103 |
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Any Cash Value Insurance Product |
103 |
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1. Single Premium Life Insurance Contracts |
104 |
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2. Early Policy Redemption |
105 |
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3. Claim Fraud |
105 |
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4. Cash Premium Payments |
105 |
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5. “Free Look” Periods on Newly Issued Policies |
105 |
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6. Collusion of Customer Intermediary and/or Insurer Employee |
106 |
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7. Third-Party Premium Payments |
106 |
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8. Risks Involved in International Transactions |
106 |
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9. Fraudulent Customers, Insurers, or Reinsurance Companies |
107 |
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Money Laundering Indicators Not Unique to Insurance Products |
107 |
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Large Cash Transactions |
107 |
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Use of False Addresses and Other Information |
107 |
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Overseas Business from Higher Risk Jurisdictions |
107 |
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Characteristics of the Money Launderer
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108 |
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Chapter 6: Annuities |
110 |
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Annuity Terminology |
110 |
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Planning for Increased Life Spans |
113 |
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Longevity Risk |
114 |
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Variable Annuities (Variable Annuities Contain Risk) |
114 |
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Registered Retirement Savings Plans (RRSP) |
116 |
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Section 146 of the Income Tax Act |
116 |
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Prescribed Treatment/Non-Prescribed Treatment |
117 |
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RRSP Types |
119 |
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Contributions |
119 |
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Spousal RRSP |
120 |
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Taxation of Deferred Annuities / The Decision to Buy |
121 |
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Life Income Funds (LIF) |
122 |
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Immediate Annuities |
122 |
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Payout Options |
123 |
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Single Life Payout Option |
124 |
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Joint-and-Survivor Payout Option |
125 |
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Installment Refund Life Payout Option |
125 |
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Variable Annuity Payout Option |
126 |
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Term Certain Payout Option |
126 |
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Other Products |
126 |
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Dollar Cost Averaging |
127 |
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Beneficiary Designations |
127 |
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Contingent Beneficiaries |
128 |
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The Insurance Contract |
130 |
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Deposits |
131 |
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Surrender Penalties |
131 |
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Retirement Savings Plan (RSP) Endorsements |
132 |
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Conversion to Registered Retirement Income Fund (RRIF) |
132 |
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Guaranteed Interest RRIFs |
133 |
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Mutual Fund RRIFs |
133 |
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Segregated Fund RRIFs |
134 |
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Self-Directed RRIFs
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134 |
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Chapter 7: Following the Sale |
135 |
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Returning Telephone Calls Promptly |
136 |
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Yearly Contact |
137 |
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Requesting Referral Business |
138 |
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Poorly Performing Products |
140 |
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Increased Liability |
140 |
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Liability Risks (Warranty of Authority & Express Authority) |
142 |
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Contributory Negligence |
145 |
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E&O Insurance for Agents |
145 |
United Insurance Educators, Inc.
Eatonville, Washington 98328 USA