Ready for a compliance audit? Oct. 2018 Updated for BFG PP broker presentation in Aug., previously for BFG Calgary broker presentation in May; previously modified for AWAA broker meeting, March 2018; originally prepared for Sudbury Advocis/PFA North presentation. Earleen Moulton VP Compliance, BridgeForce Financial Group

Goals and objectives Purpose: Course outline: Payoff: Raise awareness and educate about statutory compliance requirements in an advisor’s practice, and how to manage risk Course outline: Review key elements and requirements of statutory compliance obligations of brokers which are the focus of insurance company compliance audits, including review of some of the various tools available from BridgeForce to support compliance Payoff: Better understanding of expectations for a compliant practice, including sales process Reduce risk in the practice Well positioned to face a compliance audit or examination!

Agenda Industry’s new standardized Advisor Practice Review tools to help you demonstrate compliance APEXA update Other compliance topics on your radar CAILBA 2017

Why should you care? Regulators and carriers control your ability to be in this industry Complaints & sanctions are costly Reputation risk Risk mitigation & reduction through compliance processes Professionalism & your value proposition Regulators (MF and insurance) look to other areas of financial services to determine if you’re suitable. Time, effort to deal with Published for all, including clients/prospects, to see. Reflects on your family, colleagues, and friends in your community. Understand why you need to pay attention to compliance. Not because you have to, but because it’s the right thing to do. Plan to spend hours weekly on compliance – updating, reading, learning (CE).

Standardized Advisor Practice Review (APR) Industry developed, found on CLHIA website

New APR survey template For use in MGA channel Insurers to do random checks of advisor files to confirm adequate documentation See CLHIA site: www.clhia.ca/ The Standardized Advisor Practice Review for Use in the MGA Channel (APR) is a standardized survey template. The APR is intended to assist in the ongoing assessment of advisor compliance in the MGA channel. This survey will be reviewed and updated on an as-needed basis to reflect changes in industry practices, new statutory requirements and interpretations with respect to the applicability of existing statutory requirements. Use by the Company Companies should check the CLHIA website to confirm that the current version is being used. If a Company does not wish to receive a response to a specific question or group of questions, the Company may mark “Not Applicable” in the answer field Apart from adding “Not Applicable” in the answer field, the questions in Sections 1 cannot be added to or otherwise modified. If a Company wishes to ask additional questions, these should be added in Section 2. Similarly, Companies should conduct random checks of advisor files to confirm they have adequate documentation related to the required disclosures and evidence of needs-based sales practices, including a fact find, written needs-analysis and “reason-why” letter.

Advisor Practice Review Two Sections 11 standard questions used by all insurers (3 only apply if licensed in Quebec) Additional questions the Company can ask that they have specific interest in Attestation to be signed

APR in detail Intended to assist in the ongoing assessment of advisor compliance with statutory obligations: Holding out E&O, CE, valid license Written disclosure for conflicts of interest Needs-based sales practices (FF, NA & ‘RW’ letter) Privacy compliance program AML/ATF compliance program Quebec specific questions

BridgeForce website 2.0

Example of how each topic page presents information.

Forms and tools section contains all templates etc. for quick access.

The chart provides information on the 6 steps in the needs based sales process, with the tools you can and to help demonstrate use of the process: #2 – Client expectations (includes letter of engagement, we’ll talk about next) #3 – Fact finding #4 – Needs assessment #5 – Recommendations and advice #6 – Reason why letter #7 - Product information Next slide – FSCO comment on ‘disclosure’ sound practices

The Approach: Step 1 Disclosure to clients

The chart provides information on the 6 steps in the needs based sales process, with the tools you can and to help demonstrate use of the process: #2 – Client expectations (includes letter of engagement, we’ll talk about next) #3 – Fact finding #4 – Needs assessment #5 – Recommendations and advice #6 – Reason why letter #7 - Product information Next slide – FSCO comment on ‘disclosure’ sound practices

The Approach: Step 2 Client expectations

The Approach: Step 3 Fact finding

Review the information provided, including the document attached. Note specifically that not every assessment doc will work or be suitable for every situation. “The extent of the assessment will vary according to product and circumstance.” Advisors may need several – one for very simple situations and one for more complex, comprehensive planning situations. If not familiar with the material on the BFG site and/or have any questions, they can contact Mike/Dennis. Again, you may have your own.

The Approach: Step 4 Needs assessment

Recommendations & advice The Approach: Step 5 Recommendations & advice

Talk about the LIRD and the reference document from CLHIA. Stress suitability of the recommendation/advice must be documented in full, providing the client with factual information to make an informed decision to replace the coverage.

Review the purpose and the points. Go to Compliance page: 1. Show The Approach with explanatory notes & FAQ 2. Show the letters and the CL template.

The Approach: Step 6 ‘Reason Why’

Document rationale This is a critical step All elements of the recommendation should related back to and support the goals of the client Link back to the fact find information Document! Note this documents suitability of the recommendation/advice at the time of the sale, based on the information provided at the time. That may change in the future, thus the need for regular reviews/servicing.

Review the material. Stress the need to keep documentation on file to demonstrate this step – for future reference, to support the sale, and in the event of a concern/complaint in the future. There is some movement in the industry to have advisors play a larger role in consumer education around financial literacy.

The Approach: Step 7 Product information

Product info + seg fund specific info You’re expected to be able to demonstrate product suitability, or a needs based sales process for seg funds too! Advisors must understand the features of seg funds & how it fits with the client needs, in order to include it in a suitable product recommendation. “The task of the advisor is to identify the financial needs of the consumer to ensure the IVIC product is suitable for them in light of their particular circumstances and then assist the consumer in understanding how the product meets his or her financial needs.”

APEXA update Industry approach to on-boarding/contracting, compliance monitoring and oversight. No firm date for BridgeForce, but we’re in active talks APEXA continues to: Discuss next steps with Regulators for information sharing Support carriers and MGAs in on-boarding

On your radar Fair Treatment of Consumer(FTC) guidelineS FSCO to become FSRA Comp disclosure; changes to compensation models Disclosure of conflicts of interest, OBAs Business continuity plan Updating AML programs (risk assessment, ID verification changes) Updating privacy compliance programs (DPA, breach notification processes, cybersecurity) G19, and on Learn how to protect yourself from cyber attacks. Plan to ensure your business can continue in event of disaster, illness, etc.

As you read, keep in mind: FSCO-licensed or registered individuals and businesses to which this Guideline applies will be referred to as “Licensee(s).” The purpose of this Guideline is to ensure there is common understanding between FSCO and its Licensees as to what it means to treat consumers fairly. Treating consumers fairly is about putting consumers first, and considering what they expect or need at every stage of the product life cycle, from the moment a product is envisioned and distributed, through to the fulfillment of the terms of the business contract. FSCO’s expectations apply to all Licensees, whether or not they have a direct interface with the consumer, and whether or not they are involved in all stages of the product life cycle. These include Licensees designing a financial services product, and those distributing or selling products to consumers (sometimes referred to as “intermediaries”). Draft guidance from FSCO and CCIR. Principles include:

FSCO will become FSRA Financial Services Regulatory Authority, proposed to be in effect April 2019 Keep tabs on development at: http://www.fsrao.ca/ CAILBA has been involved in new fee rule with FSRA FSRA Establishes Ad Hoc Fee Rule Industry Advisory Groups August 3, 2018 FSRA is committed to an open, transparent and collaborative approach that involves stakeholders and ensures broad input and perspectives to inform its direction. The legislative framework in the FSRA Act, when proclaimed, will provide FSRA with specific rule-making authorities under the regulated sector statutes and the FSRA Act, including the authority to make rules governing fees and other charges. FSRA is now working on a fee rule which will form the source of its funding. Formal public fee rule consultations, as stipulated in the Financial Services Regulatory Authority of Ontario Act, 2016 (FSRA Act), are planned for Fall 2018, pending proclamation of the Act. After the 90-day formal public consultation, FSRA will review the comments received and incorporate changes as it determines is appropriate. Any material changes would require an additional 90-day consultation period. After the 90-day FSRA public consultation is complete, the Board may recommend the fee rule to the Minister for approval, with the Minister approving or rejecting the proposed rule within a 90-day Ministerial review period. The FSRA Fee Rule Industry Advisory Groups (IAG) are special purpose, ad hoc groups being established specifically to provide regulated sector industry insight and views to the FSRA management and Board of Directors related to the development of funding model options for FSRA, prior to the formal, statutorily required 90-day consultations on a new fee rule. While FSRA may, in part based on its learnings from this stakeholder engagement, develop other industry advisory committees and mechanisms to ensure stakeholder input and engagement, it is not expected that the Fee Rule IAGs will be used for other purposes.

Questions? Have you updated your sales process – for the Reason Why letters Disclosure – now 7 steps; BFG template updated CAILBA 2017