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Guidance Notes to Licensees - Individual Variable Insurance Contracts

The mandate of the Insurance Council of Manitoba is to act in the public interest to protect Manitoba consumers of insurance products, and to regulate insurance agents to ensure adequate standards are maintained for public protection.

Consistent with this mandate, the Life Insurance Council of Manitoba has developed a broad outline of the basic information that must be considered prior to proceeding with investment in individual variable insurance contracts (commonly referred to as segregated funds), and the minimum documentation that should be contained in a client file. This guideline is not exhaustive, and may not be the only acceptable practices that apply in any specific situation.

Code of conduct

The general principles outlined in the Life Insurance and Accident and Sickness Insurance Agent Code of Conduct are applicable to the sale of individual variable insurance contracts. The Life Insurance Council of Manitoba has identified those areas of the Code of Conduct which most directly relate to individual variable insurance contracts: 

Section 1 - Interests of the Client
Section 2 - Needs of the Client
Section 3 - Legitimate Business Interests
Section 4 - Professionalism
Section 6 - Conflicts of Interest
Section 7 - General Information Disclosure and Documentation

 

What the agent needs to know

It is reasonable for consumers to expect that the agent has the education and expertise to advise them with regard to the investment of their funds. Selling individual variable insurance contracts without the requisite knowledge and expertise may put the agent in jeopardy of disciplinary action or litigation. Information specific to the strategy and product must be provided to the consumer to enable them to make an informed decision. The knowledge required includes the items below:

About Investing:
Principle of Risk and Reward
Assessing Risk Profile
Asset Allocation and Diversification
Different types of risk
Risk measurement tools
Regulatory Requirements

About the Consumer:
Investment Objectives
Risk Tolerance
Investment Time Frames
Investment Knowledge
Assets and liabilities
Amount available for investment

About the Individual Variable Investment Contract:
Maturity Guarantees available
Death Benefit Options available
Other guarantees available (e.g. GMWB)
Costs associated with the contract
Costs associated with the guarantees
Volatility of potential returns
Impact of withdrawals on any guarantees
Sales charges (e.g. up front, deferred, no load)
Resets available
Funds available within the contract
Tax implications associated with the contract
Rights if consumer should decide to rescind the contract (time frames)
Costs if contract is surrendered

About the Funds Available Within the Contract:
Investment philosophy and objective of Fund Manager(s)
Amount and type of risk in each fund
Investments held by the fund (e.g. top 10 holdings)
Fund past performance
Technical details of fund (e.g. age, size, turnover rate)

How the Consumer can get additional information or assistance:
Information available in Information Folder
Fund Statements
Company Website
1-800 phone number
Company Client Service, Ombudsman, Regulatory body

 

Documentation/Retention

Documentation must be retained should it ever become necessary to verify that all the proper steps were taken in making the recommendations. At a minimum the following documentation should be retained in the agent's files:

Documentation of consumer contact(s)
Documentation of consumer's risk tolerance, time horizon, investment knowledge and objectives
Documentation which supports a leveraging strategy, if applicable, and client acknowledgement of risks
Documentation of transaction instructions and authorization and detailed notes of client meetings and discussions