Why do I believe FSCA is necessary? For the last few years as a consumer advocate I was involved in many cases which clearly demonstrate that some changes are needed. The compelling evidence in my possession made me believe this was going to be a “walk in the park.” However I was extremely surprised by the resistance of the regulators. In fact, I am quite impressed by the breath of their imagination when it came down to finding reasons not to view the evidence in question. This is why I had to create the Financial Services Consumer Alliance (FSCA); to provide more teeth to my advocacy for some very basic changes in the life and financial industry. So what are some of the opened files in question?
File Di S… : Di S was an advisor at Manulife until Manulife cancelled his contract for cause. It is still not truly known why by the public as it should be, because the matter was never investigated by the regulator. However the allegations are that he forged the signature of his client on several applications. These are serious allegations and possible infractions. Under the law, Manulife was obligated to inform the regulator (in this case the AMF) of the reasons why it was cancelling this advisor’s contract. Manulife did not and therefore Manulife committed a severe infraction also. The reason Manulife gave (internal email) was that an investigation in the actions of this advisor would have hurt the reputation of Manulife while being costly to them.
This was bad enough but Manulife went even further and never informed the clients of the advisor that his contract had been cancelled for cause and that this advisor could not service their investments (seg funds) and life policies anymore. This allowed the advisor to transfer the funds of his clients with penalties to Industrial Alliance (information provided by clients through interviews) on the basis that “Manulife seg funds were not good anymore”
First resolution I was seeking in this file was the guaranty from the regulator to the public that an insurer must inform the regulator if an advisor’s contract is cancelled for cause and the reason why. In other way, I wanted the guaranty from the regulator that Manulife did not have the discretion of choosing whether or not it would submit to the law and certainly I wanted from the regulator the guaranty that they did not have the discretion of choosing whether or not they were going to apply the law. The second resolution I was seeking was to reaffirm the duty of the insurer towards the customer and the duty of the insurer to inform the clients of any changes to the contract of an advisor if this would prevent him from servicing them. One of the biggest duties in our industry is one of disclosure. This is not a duty you choose to follow or not… Finally, the final resolution I was seeking was the establishment of a committee to study the replacement of seg funds. How many of you had client who had seg funds which were transferred into other investment without the client being informed of the value of their guarantees? This had to be addressed…
The AMF answered my requests and inquiries with amazing hostility even going so far as using defamation to destroy my reputation which is now the subject of a lawsuit.
File Lussier : If I could not convince the regulator to intervene and look at implementing changes with the file DI S, certainly I would succeed with the file Lussier which was even worst. Here again we had a Manulife advisor whose contract was cancelled for cause but this time the license of Lussier had been cancelled by the regulator. Certainly Manulife and even the regulator had an obligation to inform the clients of Lussier directly that he could not service them anymore. I went even further than this. I demanded that the regulator confirmed that Lussier had an obligation (30 days) to either sell his clientele to a licensed advisor or arranged for a licensed advisor of his choosing to service the clientele on his behalf. This was a pretty simple request which turned into a 3-year legal battle. To resolve this dispute, I had to introduce a demand for a declaratory judgment to render the Law pertaining to the distribution of financial products and services in Quebec unconstitutional for the regulator (AMF) to act. In this case, one day prior the case was heard in the Superior Court of Quebec, the AMF released a communiqué stating that, an unlicensed advisor or the insurer responsible for these advisors, were obligated to ensure that a licensed advisor was servicing the now orphan clients. This was not the responsibility of the orphan clients; a 3-year legal battle just to obtain this obvious concession. No wonder I am tired…
File Thompson: For me this is my most disappointing case. There were so many wrongdoings in this file and my heart still ache when I remember the interviews I conducted with the clients and victims in question. I have never seen clients being victimized so many times and by so many organizations and this is where I believe I lost a lot of my faith with the financial industry.
The fraud here started simply. An agency named DGA retained the services of an unlicensed advisor named Thompson to sell life insurance policies (mostly Transamerica) to unsuspected clients. The scheme was simple; Thompson who was good at selling would meet the client, sell the insurance and take the app without signing it. The principal of DGA who was licensed would sign the app and send them under his name. As a result, of this we still do not know today if the formation of the life contracts were legal (however since Transamerica did to act to rescind the contract upon learning the truth, we can say that Transamerica accepted and endorsed the placement of these policies as being legal).
So who had committed the biggest fraud? Hopefully you will have answered DGA and the principal who are the ones who have enabled this fraud and who are to be held to a higher standard of conduct since they are licensed. Is that not the purpose of licensing? Then why was DGA and its principal never prosecuted? Only Thompson was prosecuted. In fact, the regulator (the AMF) kept the involvement of DGA and its principal secret and even secret from the clients and the public (we will see why) and allowed the principal to close DGA and sell his clientele. The licensed advisor who bought the clientele then went around with the complicity of the regulator stating that the policies were not legal and started to replace the policies that had an average coverage of $100,000 permanent life with $10,000 life insurance; with higher premiums and a 2 years no death benefit clause since the clients were too sick to qualify for regular insurance. When the clients started to understand that their Transamerica policies were possibly legal, they made complaints against the agents falsely replacing the policies but the Chambre Financiere refused to take the complaints.
How many times can you be victimized? First resolution I sought in this case was that the regulator had a duty of divulgation towards victims of frauds by informing them they were victims of frauds. The regulator refused to admit this on basis that it would compromise its investigations. We fought the matter in Court where the Court refused to let the matter go to trial on the basis that I had not the competence and the interest to intervene in this matter.
Why did the AMF acted like this? Why was it so important for the AMF to keep the involvement of DGA secret? Later I discovered that the AMF would have refused compensation to the victims of the DGA from the Compensation Fund established to that effect on the basis that since Thompson sold the policies and was not licensed, and that the funds only compensated fraud of victims of licensed advisors, their request would have been denied. The victims were never informed in fact of the existence of DGA and its principal even after the end of the investigation by the AMF. (In fact I had to tell victims who had been waiting for 2 years for a call from the AMF as to the conclusions of the investigation that the investigation had been closed for a year and they would never receive such a call) Knowledge of the actions of DGA would have changed the perception of the victims as to their right to compensation and this is why the involvement of DGA had to be kept secret. Victims were subject again to a last act of fraud…
File No… : Now, do clients who own seg funds have the rights to be informed of the values of their guarantees prior the transfer of these seg funds? For me, the answer is obvious but it seems the answer is not as obvious for the financial industry. Again I submitted to the regulator a very disturbing case. I had an advisor of the name of Mario Isabella who had a client of 79 years of age who had seg funds. While Mario was outside the country (he was in Porto Rico at the Manulife Conference), a Manulife Securities advisor approach his client and recommended to transfer all of the funds into a mutual fund. I could only observe how Mario tried to intervene from a distance in order to have the time to explain to his client that she was going to lose important guarantees. He contacted the advisor requesting he put a hold on the transfer until it was done and he talked to Manulife compliance to make certain that the transaction was not processed until everything was disclosed to the client. Still the transfer was allowed to proceed. This is when I had to strongly intervene to have these transfers reversed. When Mario sat down with the client to disclose the value of the guarantees, the client decided to keep the seg funds.
As a resolution I was seeking first that the Manulife Securities advisor be reported for violation of his code of ethics with the Chambre Financiere deciding whether or not he needed to be suspended. This was never done. I wanted an explanation of why Manulife compliance had allowed the transfer. And finally, I used this example to show to the regulator why we needed obligatory and standard divulgation of the values of the guarantees of seg funds prior a transfer. My approaches and recommendations that this problem be studied were ignored and are still ignored.
File Pfund : This is another interesting file. Mr. Pfund was not a happy client at all. When he came into my office referred to me by my compliance department, he was adamant. He was not going to choose another advisor. What he wanted was to wait for the maturity guarantee of his seg funds to mature in 4 years and transfer his money to the banks. We argued and argued but he would not budge and take an advisor. Usually, even if was licensed, I did not take on client unless it was for training purposes because it is quite a legal headache. In this case I had no choice and I accepted to service his policy until the transfer of the funds out of Manulife. To do this, Pfund had to sign a disclosure agreement stating that he understood the potential conflict of interest between my duty as an employee of Manulife and my duty to him. Interesting legal headache because legally I could not refuse as director to look after his policy but as a licensed advisor, I was not supposed to be in a conflict of interest position even if disclosed. Who says running a distribution channel is easy? Conflict between laws and regulations was a reality of my daily living…One day, he called me angry learning that he was losing part of his seg fund guarantee which he had been waiting so long for. His registered investments were now a RRIF and he had been forced to take a minimum withdrawal. This had reduced proportionally his guarantee. He was not happy and this is when I learned that the previous advisor had not explained to him the impact of withdrawals on guarantees. In fact, Mr. Pfund had been lucky because the government had changed the RRIF age by 2 years and he should have started to take withdrawals at age 69 and not 71. These 2 years would have decimated his guarantees…
In fact, after reviewing the problem, my conclusion was that this type of seg funds should never been offered as a registered investment for someone of Mr. Pfund age. Why did Manulife then created a product where the maturity date was passed the RRIF conversion date making the guarantee useless? I sought an answer to this question in Court hoping to send a message to insurers that they have a duty to design responsible products. The case was not allowed to proceed forward.
Later, the bank advisor thinking he was on top of things sent the request of transfer a few weeks ahead of time. Now the advisor thought it was obvious that they wanted the transfer at maturity but I never seen Manulife act so fast and the funds were transferred immediately at Fair Market Value and not at Guaranteed Value which was a lot higher. I had to fight to get this reverse even threatening the Director involved that I would personally sue Manulife even if I was an employee if this was not done (yes it may seems rash, but you have to understand that the Director had tried to blame me for this mess since I was now the servicing agent and implied that I should compensate the client personally for the difference between the Fair Market Value and Guaranteed Value. As they say patience only goes so far…)
Again I used this example to show how easy it is to transfer seg funds even if they are in the money with their guarantees since there is no disclosure at all. The client here was going to lose tens of thousands of dollars because the transfer had been sent 2 weeks early and Manulife felt it had no duty to inform the client that the transfer had been sent early or even inform me, the servicing agent, that a transfer had been received… I think some standards are needed…but the regulators ignored my suggestions.
File Boissonneault : This is an interesting case where the client was the owner of Capital Accumulators, a product with important guarantees that were not offered anymore. In fact the product is not offered anymore either. A major component unique to this product as a seg fund was that it had a bonus structure which was starting to get paid at year 10. This bonus structure was quite substantial. The original advisor was Alan Murphy who had been suspended but who as per the law had named an advisor to service his clients. This was ignored by his agency Groupe Cloutier who referred some of Murphy’s clients to another advisor named Malouin who proceeded to transfer with penalties the clients out of the Capital Accumulators and again there was no divulgation done. The client states he was not reminded of the bonus of the Capital Accumulator and he stated that he was told there was no penalies. While the penalties of almost 10 years were almost done, the client was put in funds with new deferred charges and this was all allowed to proceed by the Groupe Cloutier and the insurers involved. Quite a mess when the client started to understand what really had happened.
Again I used this example with the regulator requesting the formation of a group to study the problem of seg funds transfers in order to formulate and recommend solutions to the problem. I was not asking for a change in the law. I was requesting that the question be studied… and this was ignored…
So for those who believe that Consumer protection and oversight is not needed in the insurance industry because the consumers are well served by other organizations, well I ask of you one question: “Where were you when I was fighting these important battles?”