Provincial insurance legislation and regulatory guidance require an agent to disclose, when asked and often proactively, the nature and source of compensation received in connection with a recommendation. This includes:
- The form of compensation (commission, fee, salary, a combination)
- Whether compensation varies by product or insurer, in a way that could influence the recommendation (commission differential)
- Contingent compensation arrangements, such as volume bonuses or profit-sharing arrangements with a managing general agent or insurer, that could incentivize recommending one product line over another
The purpose of compensation disclosure is to allow the client to assess whether the agent has a financial incentive that conflicts with the suitability analysis. It does not mean the recommendation is wrong, but the client is entitled to the information.
Common mistake: believing compensation disclosure applies only when the client asks. While a client inquiry always triggers the obligation, many provincial regulators and CISRO's conduct framework require proactive disclosure of material conflicts before or at the time of recommendation.
Recall: Why is compensation disclosure required when the agent is recommending a product that is genuinely suitable? Name two forms of compensation that must be disclosed.