I am dedicating this text to Jim Ruta and friends who believe that the insurance industry does not need more and better regulations…
LEARN ABOUT THE UNIVERSAL LIFE SCAM:
http://www.amazon.ca/Unraveling-Universal-Life-Richard-Proteau/dp/1503246167
Four advisors who broke the same law; four advisors who received totally different sanctions for the same infractions. The differences in the treatments of the same infractions are so great, that we can only ask: “Is justice for sale? How much does it cost to get the most favorable treatment and who do you need to know?”
A few years ago, I believe in justice. I believed that justice applies to all whether you are rich or not, white or black, native or non native… I know this was stupid of me. Money and influence makes a lot of differences in Canadian Courts. If you are black and caught with a little marijuana you most likely be sent to jail while, if you are white, you will get a simple warning. If you are poor and kill someone while drinking and driving, chances are you will do jail time. If you are rich, you can plead that life spoiled you so much that you were unable to know right from wrong.
Justice in the financial industry is no exception. It is all about money and who you know. To illustrate this we will use the example of four different advisors who broke the same law by sharing their commission when selling a life policy.
NOTE: In Quebec, when an advisor commits an infraction, he may face multiple sanctions at many judiciary levels. The AMF can proceed with an administrative penalty such as suspension and a fine of $5,000 (for specific infractions) just based on the findings of its investigation. The AMF can proceed in requesting more severe administrative decisions and injunctions by submitting its claims to the Bureau Decision and Revision which is an administrative tribunal. The AMF, for infractions that are considered to be penal infractions such as sharing commission with someone who is not licensed and receiving commission if you are not licensed must submit its claims to the Superior Court. In addition to all of these, an advisor can be sanctioned for his ethical behavior by the Chambre Financiere.
- Advisor: Luc Deguire
Infraction: Sharing of commission
Decision: AMF DÉCISION NO 2010-PDG-0088 (Please note the difference between decision and judgment. A decision is the result of an administrative power used to apply a sanction after an investigation. There is no trial.)
Sanction: Suspended for life and $100,000 penalty
Judgment:Chambre Financiere: CD00-0870: Suspended for life with $90,000 penalty
Media: Heavily publicized
- Advisor: Gabriel Couture
Infraction: Sharing of commission
Decision: AMF: No decision or action
Judgment: Chambre Financiere: CD00-0842: Penalty $30,000 – NO Suspension
Media: No publicity
- Advisor: Jean Pierre Falet
Infraction: Paying the premium of his client
Decision: AMF: No decision or action
Decision: Chambre Financiere: No decision or action
Please note that Falet is facing accusations by La Chambre but not related to payment of premium but related to conflict of interest, not doing need analysis, signing of blank applications.
Media: Not applicable
4: Advisor: Jean Gerard Cauchon
Infraction: Sharing commission with client and unlicensed third party
Decision: AMF: No decision or action
Decision: Chambre Financiere: No decision or action
Media: Not applicable
What is interesting is the range of sanctions going from one extreme (Deguire) to the other (Falet and Cauchon). Let’s start with the easiest case which is Gabriel Couture.
Gabriel Couture, is this the right sanction?
Gabriel Couture by sharing commission was condemned on the basis of his code of ethics to pay $30,000 in sanctions. Is this right? I believe it was. This was a balanced judgment based on the fact that Couture did not harm his clients. It was balanced against the fact that this was his career and his need to make a living.
Gabriel Couture was extremely lucky. In his case, the AMF did not take any actions and this mean that the AMF decided to waive the law for him unlike what the AMF did for Deguire.
I also want to apologize to Gabriel Couture and take my part of responsibilities. The fact is that I convinced Couture to remain in the Direct Channel of Manulife when I knew of the pressure this was going to put on his sales and business and it was wrong. For all insurers other than Manulife, he was with the MGA Groupe Cloutier. For example, let’s assume he could get 190% bonus for all insurers on 100,000 sales credits. By signing with the Direct Channel, he now had to do 100,000 sales credits with Cloutier and 100,000 sales credit with Manulife. We all know it is not doable unless you cheat and break the law. To my defense, I am the only one at Manulife who fought against these sales quotas stating that we were putting undue pressure on advisors to break the law or code of ethics. Sadly nobody listened to me. Still if I had not convinced Couture to remain in the Direct Channel, maybe he would not have been under so much pressure and maybe he would have made the different choice by not breaking the law.
Now coming back to Couture’ sanction, the problem is not with the sanction. The problem is with the difference in the sanction between Couture and Deguire. It is not a small difference. The difference is huge. Deguire is suspended TWICE (AMF AND CHAMBRE) FOR LIFE and Couture is not suspended at all. How do you explain this? $30,000 in fines versus $190,000…
The sanction of Couture should be the standard. Depending on the particulars of the case you can expect a slight difference but not to this extreme. As a result, we are left to ask one simple question. Who gets to decide whether you are treated based on the extreme or based on the standard. Who has this influence and control? We will answer this question when we review Deguire decision.
Finally it is interesting to see the media coverage of Deguire while there was nothing for Couture. It shows how the AMF is able to control the Medias.
Jean Pierre Falet: Is the investigation used to hide the truth and protect Manulife…
When I started to work at Manulife, I did not know Falet. In fact after 6 months there, I still had not talked or seen Falet (which was weird since he was doing by himself more production than most Quebec MGA.) If you know this man, you will understand why. I was therefore very surprised when I was approached by the Director of Compliance who was acting under the direction of the Producer Review Committee of Manulife asking my help in explaining to Falet that it was illegal for him to pay the premium of his clients. This had been going for a while but Manulife had decided that he had to stop. We needed a signed document stating that he understood that he could not pay the premiums of his clients even when they were on a trip…Whether this is considered sharing of commission or premium rebate, it is still illegal. (Not surprisingly, the person responsible for this situation was Guy Couture VP Manulife who was responsible for many other Manulife infractions as revealed by the audit of Quebec Operations I conducted in my final months at Manulife.)
We stopped this Falet practice but it took me a while to understand that the Producer Review Committee of Manulife was censoring the type and number of infractions committed by producers that it was obligated to report to the AMF.
As we shall see, Manulife behavior towards Falet is extremely different compared to its behavior towards Deguire. I shall explain why when we deal with Deguire. This is why I am interested in the disciplinary proceeding by La Chambre Financier against Falet. It is interesting to note that I was not contacted or interviewed as a witness. Was this to protect high level Manulife employees? How much influence does Manulife has over the AMF and La Chambre in these decisions and sanctions…
Jean Gerard Cauchon: Can the application of the law be more ridiculous?
The story of Cauchon’s infractions is hilarious. Cauchon was never found guilty of sharing commission despite the fact he admitted twice in Superior Court of Quebec that he had shared commission with a client or an unlicensed third party.
The first case is 200-17-004678-041 dated November of 2005. In this civil lawsuit, we have Mr. Bissonnette who is suing Mr. Cauchon for the rest of his share of commission above the $125,000 that Cauchon had already been paid to him. The problem was that Bissonnette was not licensed. In Quebec, if you are not licensed and you receive commission from the sale of life insurance you committed the same infraction as if you had paid this commission to someone not licensed. Now the judge should have automatically dismissed the claim since it was based upon breaking the law and refer the whole affair to the regulator. Amazing, the judge did not do this. He continued with the civil lawsuit, Why???
How dumb can you be for suing your partner when you are breaking the law? The law firm for Bissonnette was Béland, Massicotte, Petitclerc. Would you find strange for a lawyer to submit a civil claim for a thief who is suing another thief for his share of the profits of the crime he perpetrated? It’s the same principle here. I am amazed this went to court and that lawyers put this into a civil claim.
It gets even more ridiculous when Cauchon answered back with his own legal claim asking that the Court orders Bissonnette to pay him back the $125,000 because it was illegal for him to have paid that money to someone that was not licensed. This is what the judge said:
“The court considers that it would be unfair, after violating the law governing his own professional activities that the defendant could, citing his own infractions, recover the money he paid…”
By the way did I forget to mention that while receiving commissions illegally Mr. Bisonnette was a VP at Transamerica? Now we have such a conflict of interest… and I am certain that those who bought the insurance were not aware of this.
It gets worst. During that time, Cauchon did his insurance business through an MGA called Groupe Cloutier. Groupe Cloutier was clearly not supervising Cauchon. Again no legal consequences for Cloutier while Deguire was sanctioned for not having supervised one of his agents adequately.
Under 400-17-002043-095, it is this time, Cauchon, who is suing Cloutier for unpaid commission. Groupe Cloutier made an agreement to give 2/3 of the service commission of 3% to Cauchon. This is by the way contractually illegal for many insurers such as Manulife (source Guy Couture). This 3% commission is paid by the insurer for the benefit of the client to provide a decent level of service and not for the benefit of the advisor.
And I am not done. In 200-17-004450-045, Cauchon admits paying $22,000 to his client to help pay for his insurance. Here is what stated by judge Babin in the worst decision ever which is now used as a precedent to remove the responsibility of advisors when selling Universal Life as an investment.
“For Cauchon, as Gaudreault was a big customer, he preferred to see him satisfied and it was not a problem for him to pay $22,000.00, especially since he had received an important commission on the sale of the two insurance policies.”
It is almost as if Judge Babin congratulates Cauchon for doing the right thing by breaking the law…
Luc Deguire, why is he the exception?
As shown above, it is clear that the Courts, the AMF, the Chambre Financiere and the insurer don’t consider rebating and sharing of commission to be a big infraction except for Luc Deguire. Why?
To answer this question we must consider, how these policies were sold. Manulife needed to remove Deguire to get control of the Manulife policies sold by Deguire. Manulife had to do this or it was going to lose a lot of money. The difference between Deguire and Couture is how Deguire sold his policies.
Contrary to the lies made by the AMF, Deguire did not pay his client’s premium. This would be impossible. Let’s assume the premium for a client is $200,000 for $2,000,000 of insurance. Deguire’s total commission including bonus is $300,000. He decides to give the client $100,000 for buying the policy. He can’t give more than this as he has to pay tax on the $300,000. But he would tell the client to put another $200,000 in year 2 and they would reduce the death benefit to $200,000 at beginning of year 3.
Normally most insurers would apply surrender charges to this decrease in death benefit but not Manulife. Assuming the surrender charge are 2 times premium, they would be $400,000. With a normal insurer, decreasing the death benefit to $200,000 would trigger $380,000 of surrender charges wiping the cash values of the policy.
Not Manulife. So the client keeps his cash and is death benefit is now $200,000. The cost of insurance that was $20,000 is now reduced to $2000 and is covered by the interest earned on the cash value. At the end of 8 years when the surrender charge period is over, the policy is cancelled and the client gets all his cash back plus interest. So basically the insurance did not cost him a thing and on top of this he made $100,000 profit from the sharing of commission. The problem is for Manulife. The $2000 Cost of Insurance only permits Manulife to recover $30,000 of the commission of $300,000 it paid out. Manulife was aware of this because I warned Manulife that doing this was insane. Manulife ignored my warning because it wanted the sales even telling me that it expected agents to promote this feature but they expected them not to use it!
This is why Deguire had to go. Manulife was able to order the AMF to suspend Deguire for life allowing Manulife to take over the block. The first thing that Manulife did when it took the block over was to state, through Brian Woolley who had committed perjury in this affair to hide his actions, that whoever was now servicing Deguire policies could not make any changes to the policies including decreasing the face amount contrary to how it was sold by Deguire and contrary to the insurance contract. This was the final infraction as it is an infraction for an insurer to dictate to an agent to act against the best interest of a client and this was also a breach of contract.
It has been 5 years that I have been fighting for better regulations in the insurance industry. My only win was the removal of the 10/8 concept and making orphan policies illegal in the province of Quebec. To my surprise, the other regulators in the other provinces have not made orphan policies illegal. To change the industry, I tried to use a gentle confrontational approach. I have not used what I know because I did not want to force changes through the destruction of careers. This did not work and this is about to change. The insurance industry is built upon a GODLIKE complex where we build advisors into industry GODS such as Bruce Etherington. I can tell you that what hides behind these so called GODS and I have to use this information to destroy the argument of Jim Ruta and friend that the insurance industry does not need more and better regulations, I will do it. So, insurance industry do yourself a favor! Do the right thing and start addressing the real problems such as 1) making orphan policies illegal, 2) make Universal illustrations real, 3) stop the illegal replacement of seg funds… because my patience is running out.
