The Continuing Evolution of Challenges Robert Frances, President & CEO, PEAK Financial Group June 7, 2012

 Compliance and regulation of MGAs/advisors  Technology  Competition and consolidation  Succession  Profitability Trends and Issues

 Growing demand  Many distributors  Volume based incentives (bonuses, contests)  Little regulation of the distributor  Paper based  Lack of central processing between suppliers  Domination of large suppliers vs smaller distributors  Increase in compliance costs Industry snapshot

 Mutual Fund Industry Evolution  What were the catalysts to change  Areas of possible change for the insurance industry Agenda Changes – David Bowie

 Suppliers/distributors  Competition  Regulation  Technology  Customers Mutual Funds Industry 1992 What a Wonderful World – Louis Armstrong

 Rapid growth, doubled since 1992  Dropping interest rates, high returns, ease of sales process  Industry attracting regulators  Risks and cases of losses Mutual Funds Industry 1995

 Catalysts for change: insular competition scandals increase in awareness and demand regulators worried What happenned

 Key issues raised:  conflict of interest  sales practices  regulation  Risks Stromberg Report  Let it Be - Beatles

 “It’s the end of the world”  “This will never happen”  “I don’t care”  “The regulators don’t understand this industry”  Industry spent time on this rather than building its coalition and response Players

 Little impact anticipated  Some provinces began to consider changes  IFIC – Sales Code Industry reaction You ain’t seen nothing yet - BTO

 Industry not taking issues seriously  Sweeping changes recommended Stromberg Report Suspicious Minds – Elvis Presley

 Within 12 months – MFDA  Sales practices  Capital requirements and financial reporting  Books and records, KYC Regulation – 0 to 60 in 2.4s Dazed and Confused – Led Zeppelin

 Tech bubble  9/11  Recession The perfect Storm Under Pressure - Queen

 MFDA initial audits  Compliance infractions, reports  Fines and enforcement  With every client loss - Opportunities for regulation The perfect Storm Killing Me Softly – Roberta Flack

 Decreasing number of players  Decrease in new entrants  Increase in regulatory, compliance, technology costs  Increase in consolidation activity The Result Crying – Roy Orbison

 Dealers - proactive  Work with regulators  Self regulatory organization  Supplier – distributor solution Hindsight

A comparison with the mutual fund industry…

1992Challenges throughout years Continued Increase in Fixed Costs Industry Consolidation Regulatory Changes Independent Fund Dealer Challenges faced by the mutual fund industry

 Life Insurance Sales Code  Single MGA per advisor  Value based growth vs. consolidation  Capital requirements and contingency fund Options

Change is inevitable; misery is an option. Yesterday - Beatles Come Together - Beatles Taking Care of Business – BTO I will Survive – Gloria Gaynor I’m Winning - Santana Conclusion

Thank You Robert Frances, President & CEO, PEAK Financial Group June 7, 2012