We would love to hear from you. Click on the ‘Contact Us’ link to the right and choose your favorite way to reach-out!

wscdsdc

media/speaking contact

Jamie Johnson

business contact

Victoria Peterson

Contact Us

855.ask.wink

Close [x]
pattern

Industry News

Categories

  • Industry Articles (21,155)
  • Industry Conferences (2)
  • Industry Job Openings (35)
  • Moore on the Market (414)
  • Negative Media (144)
  • Positive Media (73)
  • Sheryl's Articles (800)
  • Wink's Articles (353)
  • Wink's Inside Story (274)
  • Wink's Press Releases (123)
  • Blog Archives

  • March 2024
  • February 2024
  • January 2024
  • December 2023
  • November 2023
  • October 2023
  • September 2023
  • August 2023
  • July 2023
  • June 2023
  • May 2023
  • April 2023
  • March 2023
  • February 2023
  • January 2023
  • December 2022
  • November 2022
  • October 2022
  • September 2022
  • August 2022
  • July 2022
  • June 2022
  • May 2022
  • April 2022
  • March 2022
  • February 2022
  • January 2022
  • December 2021
  • November 2021
  • October 2021
  • September 2021
  • August 2021
  • July 2021
  • June 2021
  • May 2021
  • April 2021
  • March 2021
  • February 2021
  • January 2021
  • December 2020
  • November 2020
  • October 2020
  • September 2020
  • August 2020
  • July 2020
  • June 2020
  • May 2020
  • April 2020
  • March 2020
  • February 2020
  • January 2020
  • December 2019
  • November 2019
  • October 2019
  • September 2019
  • August 2019
  • July 2019
  • June 2019
  • May 2019
  • April 2019
  • March 2019
  • February 2019
  • January 2019
  • December 2018
  • November 2018
  • October 2018
  • September 2018
  • August 2018
  • July 2018
  • June 2018
  • May 2018
  • April 2018
  • March 2018
  • February 2018
  • January 2018
  • December 2017
  • November 2017
  • October 2017
  • September 2017
  • August 2017
  • July 2017
  • June 2017
  • May 2017
  • April 2017
  • March 2017
  • February 2017
  • January 2017
  • December 2016
  • November 2016
  • October 2016
  • September 2016
  • August 2016
  • July 2016
  • June 2016
  • May 2016
  • April 2016
  • March 2016
  • February 2016
  • January 2016
  • December 2015
  • November 2015
  • October 2015
  • September 2015
  • August 2015
  • July 2015
  • June 2015
  • May 2015
  • April 2015
  • March 2015
  • February 2015
  • January 2015
  • December 2014
  • November 2014
  • October 2014
  • September 2014
  • August 2014
  • July 2014
  • June 2014
  • May 2014
  • April 2014
  • March 2014
  • February 2014
  • January 2014
  • December 2013
  • November 2013
  • October 2013
  • September 2013
  • August 2013
  • July 2013
  • June 2013
  • May 2013
  • April 2013
  • March 2013
  • February 2013
  • January 2013
  • December 2012
  • November 2012
  • October 2012
  • September 2012
  • August 2012
  • July 2012
  • June 2012
  • May 2012
  • April 2012
  • March 2012
  • February 2012
  • January 2012
  • December 2011
  • November 2011
  • October 2011
  • September 2011
  • August 2011
  • July 2011
  • June 2011
  • May 2011
  • April 2011
  • March 2011
  • February 2011
  • January 2011
  • December 2010
  • November 2010
  • October 2010
  • September 2010
  • August 2010
  • July 2010
  • June 2010
  • May 2010
  • April 2010
  • March 2010
  • February 2010
  • January 2010
  • December 2009
  • November 2009
  • October 2009
  • August 2009
  • June 2009
  • May 2009
  • April 2009
  • March 2009
  • November 2008
  • September 2008
  • May 2008
  • February 2008
  • August 2006
  • The bigger your IMO, the bigger your compliance risk

    February 23, 2010 by Dennis M. Groner

    Published 2/2/2010 

    For years, entrepreneurial agents have been building successful general agencies. However, over the last couple decades, many have moved beyond merely being a big general agency to become independent marketing organizations (IMOs) that are multi-state operations with hundreds of active agents and contractual relationships with multi-product producers.

    As IMOs have grown in size, many have discovered that their compliance risks have also grown. In the past, regulators and plaintiffs turned to the insurance company who manufactured the product and appointed the agent for resolution of any compliance issue arising from the sale of its products.

    However, insurance companies have been changing their contract language over the last decade to shift more responsibility to IMOs for training, supervision and monitoring of their agents, which includes compliance and market conduct. In many instances, the insurance company that produced the product has turned to its contract with the IMO to defend against responsibility for any improprieties. Regulators and plaintiffs have typically seen the insurance company as the “deep pockets” that should bear responsibility for sanctions and damages. However, the greater the size of the IMO, the more likely it too, will be seen as having “deep enough pockets” to make it worthwhile to involve it in sanctions and litigation.

    If the IMO is involved in serious compliance and market conduct improprieties, it can suffer significant reputational risk in the marketplace. Reputational risk can surface quickly in any Internet search of the name of the organization and its officers, once a regulator has taken action or a suit has been filed. Often an IMO retains the name of the founder or president (e.g., The Smith Agency), and regulator and legal actions against the agency will reflect directly on the name of the founder or its management. The ability of an IMO to attract agents can be severely hurt by a single impropriety.

    An IMO needs to consider compliance and market conduct risk as part of its overall development plan. As the IMO grows, its need for compliance and market conduct support and controls also grows and changes. Investing in compliance and market conduct controls is most cost-effective when done on a staged basis.

    The majority of IMOs are not broker-dealers. Typically, their producers maintain their registration with a broker-dealer who has responsibility for supervising their activity as a registered representative. Those IMOs that are broker-dealers have much greater compliance responsibilities and they may be unable to delay development of many of the control procedures listed in this article. The compliance controls needed for an IMO which is a broker-dealer are not the subject of this article.

    The following are some of the ways that an IMO which is not a broker-dealer can mitigate or control compliance and market conduct risk early in its growth.

    Selection of producers

    Selection procedures and standards reduce compliance risk by avoiding contracting producers with a history of questionable compliance behavior. Early hiring decisions can often create compliance problems because of the pressure to hire agents quickly to make the IMO a viable operation. These early compliance problems can torpedo the IMO before it really begins to grow and develop.

    Development of selection procedures and standards should be accomplished prior to launch of the IMO. Often, the IMO will forgo background checking and rely on the appointing insurance company to conduct a check. However, to maintain its reputation with insurance companies, the IMO should avoid submitting for appointment any producers who will be rejected. This requires that the IMO carefully screen prospective producers for compliance and market conduct issues in their background.

    Some insurance companies have low selection standards which can come back to haunt the IMO. Therefore, it should not totally rely on the insurance company’s willingness to appoint the agent as a clear sign that there are no compliance issues in the agent’s background that could signal future trouble. The IMO needs to have an interview process that focuses on potential compliance and market conduct issues as a function of the agent’s market, sales approach, experience, education and training.

    Contractual obligations related to compliance

    An IMO’s contracts with its producers should include compliance obligations which will reduce compliance risk for the IMO. Should compliance problems arise, the IMO can demonstrate that it had directed the producer to avoid improper sales practices as part of their contract and that the producer had acknowledged the IMO’s compliance policies and procedures.

    Code of conduct

    A well-written code of conduct reduces compliance and market conduct risk by alerting producers to general IMO compliance policies and procedures during the hiring process and educating them about the IMO’s general policies and procedures. A code of conduct should be developed prior to launch of the IMO and referenced in the producer’s contract. The signing of the contract acknowledges receipt, acceptance and understanding of the code.

    As the IMO grows and prospers, it needs to continue to build its compliance and market conduct controls. Since IMOs grow at different rates, it is difficult to specify when the IMO should consider investing in additional controls.

    Compliance policies and procedures

    An IMO compliance manual which contains the IMO’s compliance policies and procedures reduces risk by providing producers and management with documented, standardized guidelines. An IMO compliance manual demonstrates to regulators that the IMO had documented policies and procedures in place should a producer create a problem. In litigation, a compliance manual strengthens the defense that the producer’s improper behavior was a violation of IMO policy and procedure, and therefore, the IMO is not liable for the producer’s actions.

    IMOs should not rely on the compliance policies and procedures of the insurance companies whose products they sell, because there is a lack of consistency among insurance companies’ compliance policies and procedures. Though the IMO should not use an insurance company’s policy and procedure manual as its own, it should compile all of the compliance manuals from the insurance companies whose products it will be distributing, obtain electronic versions and develop a compliance database for its use. Producers should have easy access to the compliance policies and procedures of the IMO’s preferred distributors. The IMO’s service staff should also have easy access to this information.

    A rough rule of thumb for when an IMO needs to begin developing its own compliance and market conduct policies and procedures is when it has more than 50 producers.

    Compliance education and training

    Providing producers with education and training reduces risk by creating awareness of compliance issues and educating producers about how to avoid problems. Producers should also be given updates on changes to regulations that impact them.

    Compliance risk is further reduced by demonstrating to regulators that the IMO has an active compliance education process. An ongoing education and training process is useful in litigation because it demonstrates that the IMO had carried out a key element of its responsibility to supervise its producers.

    The only training required by regulation (other than continuing education training requirements) is anti-money laundering (AML) training. The IMO should either obtain a copy of the certification of completion of AML training from every producer on an annual basis, or use a vendor’s training program. It is not cost-effective for the majority of IMOs to develop a customized AML training program.

    AML monitoring and training procedures are needed at IMO launch, but general compliance education and training can wait until the organization has grown in size to the point where there are so many producers that at least two supervisors are required to carry out normal supervisory duties.

    Many IMOs monitor producers’ continuing education fulfillment and remind producers 90, 60 and 30 days prior to license expiration of their continuing education requirements. It typically is not cost-effective for the IMO to assume responsibility for providing continuing education support beyond reminding producers. Product providers often provide continuing education support through programs provided by the regional staffs. This may be a service that the IMO can coordinate for producers. Some IMOs provide producers with information about vendors that can provide continuing education training.

    Compliance communication

    Product providers should provide the IMO with updates on changes to their policies and procedures and updates on changes to state, SRO and federal regulations. The IMO should post this information on a timely basis on its Web site for its agents and administrative staff after editing and synthesizing to reduce redundancy. An IMO must be vigilant that it is up-to-date on changes to regulations. Important changes should be communicated to producers and administrative staff and in some cases, the IMO should require that the producer and staff member formally acknowledge receipt of the information.

    As part of the IMO’s ongoing compliance communication efforts, it should develop a compliance section on its Web site that lists all compliance-related, education and training information. This reduces compliance risk by creating awareness among producers and staff about any changes in policy. It also demonstrates to regulators that the IMO was vigilant in informing its producers about changes in regulations.

    It is best that changes to regulations be included on the IMO’s Web site at launch. Using the Web site to communicate information about compliance and market conduct training and education can typically wait until the IMO has grown to point where it is cost-effective to provide its own education and training.

    Supervisory policies and procedures

    Documented supervisory policies and procedures (e.g., a supervisor’s manual) reduce compliance risk by providing supervisors with guidelines. A supervisor’s manual demonstrates to regulators that the company actively supervised compliance and market conduct.

    In litigation, it strengthens the ability to defend against accusations that the IMO failed to supervise its producers. IMO supervisory policies and procedures should include review of advertising and sales materials, monitoring of critical compliance related indicators, disciplinary procedures, etc.

    At launch, the IMO should include compliance responsibilities in the job descriptions of its management. As the organization grows in size, it often formally assigns responsibility for compliance to an appropriate member of management. As the IMO further grows, it often will designate a staff person to be its Compliance Officer. This individual should be suitably trained and have authority to carry out his or her compliance responsibilities.

    An IMO supervisor’s manual need not be implemented at the IMO’s launch. Typically, it is not necessary to create a supervisor’s manual until there are least two producer supervisors.

    It is important to note that once compliance-related policies and procedures are implemented, the IMO must follow them. The implementation of policies and procedures which are not followed increases compliance risk, since failure to follow documented policies and procedures demonstrates a conscious disregard for them.

    Dennis (Denny) Groner, Ph.D., CLU, ChFC, is a consultant to U.S. and international financial services companies on compliance and market conduct. He has worked with IMOs on developing compliance controls. Mr. Groner has written a number of books and articles on the compliance and market conduct. He can be reached at DenGroner@aol.com.

    Originally Posted at Life Insurance Selling on February 2, 2010 by Dennis M. Groner.

    Categories: Industry Articles
    currency