IVIC Suitability Needs-Based Sales PracticesRelease Date: 10/31/2016 Staff Reference: Justin Glinski
NEEDS-BASED SALES PRACTICES
The document describes industry practices intended to clarify the relation of the features of an Individual Variable Insurance Contract (IVIC) to the needs of a client.
It is important to bear in mind that the circumstances of individual clients will vary considerably. For this reason, the applicability of specific practices described in this document, except those that are required by statute, can only be determined by taking into account the circumstances of a specific transaction.
The needs-based sales practices described in Section 4 are carried out by advisors. This section is intended to expand on and provide practical guidance in the area of IVICs to help advisors understand the more general advice in The Approach, a reference document that was prepared jointly by Advocis, CAILBA, CLHIA and IFB in 2007 and updated in 2015.
The practices related to product design and information, training and oversight are generally carried out by insurers. In some cases, however, insurers may delegate training or oversight functions to another party, such as a Managing General Agent.
The IVIC is one of many wealth management products designed to address a variety of needs. The IVIC is a highly flexible product that can be used on its own or in combination with other wealth management products. Advisors need to understand the features of this product and how it fits with client needs in order to include it in a suitable recommendation.
When it became a mainstream retail product in the mid-1990s it was primarily used for capital accumulation. It provides consumers with the upside potential of investing in market-linked funds while allowing them to enjoy protection against the down-side risk of market declines. This protection is provided in mandatory 75% death and maturity benefits. Many contracts allow the consumer to increase these benefits to 100 percent. In 2006, with an increasing number of Canadians approaching retirement years, insurers began adding income protection in the form of guaranteed withdrawal benefit (GWB) features. These optional benefits are continuing to evolve and currently guarantee income for life or a specified period.
For many consumers, the decision to purchase an IVIC usually revolves around these guarantees and the role they play in providing a desired level of financial security. But the fact that IVICs are life insurance contracts means that they provide insurance features such as probate bypass and potential creditor protection that, for some, are important reasons to purchase the product.
Insurers and advisors both have important roles to play in ensuring that the product is appropriate for consumers. The task of the insurer is twofold, to design a product that functions in a reliable and predictable manner and to create product information outlining this for advisors and clients. 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.
Industry practices intended to address issues related to the suitability of IVICs fall under four general areas:
- development of the product and related information
- training of the field force
- product-specific guidance related to needs-based sales practices
- oversight of sales practices