Growing Your Financial Advisory Practice | Insights for Financial Advisors, Planners and Investment Managers
038: Compliance for Insurance Advisors How it Can Help You Run a Better Practice
Compliance has a bad rap in the financial services industry, but today’s guest has a unique perspective. Now a compliance officer, he actually started his career in the financial services industry as an advisor, so he understands exactly how compliance affects—and can even improve—your business. He’s also passionate about helping advisors run their own independent practices while staying compliant.
Joining the podcast today is Eric Wachtel. Eric is the national chief compliance officer for IDC WIN where he is responsible for maintaining and strengthening IDC WIN’s compliance programs and initiatives. He has 24 years of experience in the life insurance industry and has worked steadily to build IDC WIN’s compliance programs while maintaining a pro-business environment.
Eric is also the compliance chair of Legislative Affairs for the Canadian Association of Independent Life Brokerage Agencies (CAILBA) where he participates in numerous insurance industry working groups and committees which help shape the direction of compliance in the life insurance industry.
What You’ll Learn in This Episode:
- What fair treatment of consumers means and why it’s becoming so important (3:55)
- What exactly you need to do to be compliant (11:00)
- How templates can make compliance a lot easier—but they don’t do the work for you (17:10)
- How good compliance is good for business (33:05)
- Why Eric is excited about how the insurance industry is handling compliance lately (39:15)
- Why it’s critical to have the right support when it comes to compliance (41:10)
Links and Resources:
Call Eric at: 905-366-3866 EXT#3228
Quotes by Eric Wachtel:
“Good compliance equals good production and good service to consumers.”
“I tell advisors to resist the temptation to take your template, customize it, get it done, then throw it in a drawer and don’t look at it for a year. Because that is a pitfall.”
“Compliance these days is synonymous with professionalism.”
Historically, there has been a lot of angst around compliance because advisors haven’t been clear on what exactly they have to do. That’s because insurance compliance is principles-based (rather than rules-based like securities), which can lead to ambiguity and uncertainty. But Eric is here to share the exact steps you need to take to be compliant and have peace of mind.
Hint: If you’d like to hear more about compliance in wealth management, listen to our episode with Jamie List where he explains how high service standards make compliance a cinch.
Below, we’re sharing three key ideas from this episode:
- How to keep your practice compliant
- How to keep your client files compliant
- How good compliance is good for business
For the rest of the episode, find the podcast on iTunes or Stitcher, or hit the link above.
How to keep your practice compliant
In order to run your practice correctly, there are three manuals Eric says you need to have that demonstrate your understanding of, and processes around, anti-money laundering, privacy, and general compliance.
- Anti-money laundering regime
- First, you must comply with the Proceeds of Crime (Money Laundering) and Terrorist Financing Act. You should have a manual that demonstrates the following:
- You have an appointed anti-money laundering compliance officer in your practice.
- Hint: Yes, you can just appoint yourself, but you must have written, dated documentation demonstrating your appointment.
- You have to have written policies and procedures for detecting and reporting instances of money laundering. It’s not enough to rely on insurance companies’ documentation as they don’t always have updated forms (and if you print out forms from them, you might be using outdated ones anyway).
- You have completed a risk assessment of your business. This can be kind of fun—think like a criminal, and see how your practice might be vulnerable.
- You and your staff engage in ongoing training for fulfilling your policies and procedures.
- You review your anti-money laundering regime once every two years.
- Privacy regime
- You should also have a manual that outlines the same five points as above, but for privacy (for example, appointing a privacy officer and having policies and procedures on collecting, retaining, sharing, and protecting consumer information).
- This one often feels more relevant as you’ve undoubtedly heard many instances of privacy breaches in every industry out there—and probably a bit less about money laundering. Considering that you’re handling a lot of very private information about your clients, it’s easy to see why you need to take privacy seriously.
- General compliance regime
- The third manual that Eric recommends based on what he’s heard from advisors who have been audited is a general compliance manual. In this manual, you should demonstrate that you and your staff understand industry rules and operate based on them (this includes aspects like needs-based selling).
- How to keep your client files compliant
- Eric also explained that when auditors look at your client files, they want to see that you’re following a seven-step approach to your work with clients:
- Advisor disclosure, which outlines who you are, who you’re contracted with, how you’re paid, and how you handle conflicts of interest.
- A document that shows that you are managing client expectations by telling them exactly how the two of you will work together and what your individual roles and responsibilities are.
- Evidence that you have engaged in fact finding to collect and understand a client’s unique situation and needs.
- A needs assessment that quantifies the needs based on your fact finding.
- Your recommendations and advice for the best course of action that the client should follow.
- A Reason Why letter that outlines in layman’s terms how you and the client arrived at a decision— how you based your recommendation on their needs and any differences between your suggestion and their chosen course of action. This should also include any currently unmet needs that the client may want to address in the future, as well as an invitation to contact you if they have any questions.
- Product information that you have showed to your clients to help them make their decision.
Hint: The client files also don’t need to have each step separate—you might have documentation that covers a few steps in one go, and that’s fine.
How good compliance is good for business
Contrary to how some people talk about it, compliance is not just a necessary evil. In reality, every piece of the required client files benefits both you and the client.
For instance, if there’s ever a claim against you, you can have peace of mind knowing that you’ve met all of the regulations and have a clear way to defend yourself.
But more importantly, being compliant has the double duty of providing excellent service to your clients. For example, making expectations clear from the beginning quells misunderstandings before they happen and avoids conflict later on in the relationship—which is ideal for everyone.
Similarly, the Reason Why letter reminds clients of unmet needs that you can help them with in the future and invites them to be in touch if they have questions. This helps clients move away from a transactional, one-and-done approach to insurance and keeps the business relationship going.
And having a solid privacy regime means that your clients can trust you to keep their most private information safe.
Moreover, your clients, whatever industry they happen to be in, are likely used to compliance and are themselves experiencing a surge in regulation in their field. Clients will respect that you have a process that you follow and that you take their business seriously. As Eric puts it, “compliance these days is synonymous with professionalism.”
To learn more from Eric, like why you’ll be hearing a lot more about fair treatment of consumers in the near future and why compliance needs to be part of your weekly process, catch the full episode right here on this page or subscribe to the show on iTunes or Stitcher.
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