Anatomy of a carrier audit

This July, insurance brokerage Zavitz Insurance & Wealth in London, Ont., faced compliance audits from two carriers involving 25 client files across several advisors.

It’s rare for advisors to experience simultaneous audits from carriers, said Tammy Oribine, financial planner and business development manager at Zavitz. Having both come in at the same time was a coincidence.

The carriers requested a list of compliance documents covering anti-money laundering, errors and omissions insurance, privacy policy, conflict of interest disclosures and more, Oribine said.

Carriers periodically perform audits, also called business practice reviews, on life agents. According to a carrier, managing general agent (MGA) representative and advisors that Advisor.ca spoke to, the best way to pass an audit is to have consistent and thorough notetaking, adopt an MGA’s or carrier’s compliance document templates and to train your staff regularly.

An audit can be triggered by client complaints, changes in an agent’s business or a flag from one of the carrier’s other departments, among other reasons, said Kim Hayes, global head of distribution compliance insurance with Manulife.

Some MGAs also perform their own audits to help agents prepare for carrier audits. Flamborough, Ont.–headquartered MGA Gryphin Advantage Inc. is auditing 150 of its own advisors this year, said Kirk McMillan, the company’s president.

He wants to help agents ensure their paperwork is in order. “If we can get out there early with them in an audit … they’re going to be better prepared when the carriers come in ,” he said.

Common issues include inconsistent client meeting notes, not following a needs-based sales approach and not having clients sign off on the privacy policy or advisor disclosure document, Hayes said.

Some advisors have volunteered for an audit, Hayes added. One, who asked Manulife to audit him this fall, “felt he needed to go through the process in order to be able to correct any issues or identify gaps” so he could tell his clients he was compliant.

The length of an audit varies. While one carrier gave Oribine 45 days to send in all the documents, the other carrier only initially gave her a week. Both carriers completed their audits within two weeks after receiving the paperwork.

Because the company maintains a good client management system, Oribine said it took her about 15 minutes to retrieve information for each of the 25 client files.

Zavitz advisors have checklists of documents and procedures they must complete, such as taking notes of every client conversation and attaching a needs-based analysis to every insurance sale, said Justine Zavitz, vice-president at Zavitz.

On the backend, Oribine ensures compliance documents are updated properly as insurance regulation varies across provinces and territories, “so that when you do get audited, it’s already done and [you’re] not scrambling to make those changes before you submit it,” she said.

After an audit, the agent and MGA will receive a copy of the carrier’s report, which outlines any findings and corrective actions, Hayes said. For example, if it’s a paperwork issue, the carrier could provide the agent with templates to customize for their business.

MGAs create sample documents too. Gryphin has a section of its internal website set up for compliance with resources like reason-why letters, anti-money laundering policies and a suitability tool, McMillan said. There’s also a segregated fund app where advisors can check what’s required to place a trade with each carrier.

In addition to advisor training, firms should encourage assistants to be part of the compliance process, Hayes said. Manulife has a conference for assistants and compliance is regularly covered with training materials adapted for assistants.

“It’s much easier for everyone to implement a process when they understand the reason why the process has to be implemented ,” she said.

While some advisors get frustrated with the audit process, others see it as a learning opportunity to make sure they’re selling insurance the right way, McMillan said. And as older advisors are looking to sell their business to younger advisors, a practice with a strong compliance regime is going to be more valuable.

“This protects you, this protects your clients, and this protects the MGA and carriers,” McMillan said. “That’s the attitude we take .”