The Inherited Book and the Unlicensed Referral
Denise is a newly licensed life agent. Her mother's financial planner, Raj, has referred six of his clients to her over two years, and Denise has always been grateful. Last week Raj - who holds only a mutual fund licence, not a life licence - sent her an email: "I've got a 71-year-old client, Mr. Okafor, with $400,000 in RRIF assets. He wants a segregated fund contract with a 75% maturity guarantee and a beneficiary designation that bypasses probate. I'll handle the fund selection and the suitability conversation since I know him; you just sign the application as the agent of record and we'll split the 4% commission 50/50. He's expecting your call tomorrow." Denise has never met Mr. Okafor. She knows the segregated fund contract is a life insurance product requiring her licence. Raj's referral arrangement has never been documented in writing.
1. Identify every regulatory and ethical problem in Raj's proposal, and state what Denise must do before any application is signed.
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The proposal contains at least four distinct problems. First, agent of record integrity: Denise would be signing as the servicing agent for a client she has never met, on a suitability assessment performed by someone else. Signing an application attests that she conducted the needs analysis; that attestation would be false. Second, licensing scope: Raj is not life-licensed, so his "handling the suitability conversation" for a segregated fund contract is activity outside his authority, and Denise cannot launder it by being the signatory. Third, commission sharing: splitting commission with an unlicensed person for a life product is generally prohibited; referral fees to unlicensed parties, if permitted at all, must be disclosed, documented, and consistent with provincial rules - a 50/50 split for work that includes the suitability discussion is not a referral fee, it is compensation for unlicensed dealing. Fourth, undocumented referral arrangement creates a conflict of interest she has not disclosed to the client.
Before signing anything, Denise must: (1) personally meet or speak with Mr. Okafor and conduct her own needs analysis and suitability assessment; (2) confirm in writing with her managing general agency or insurer whether any referral fee to Raj is permissible and how it must be disclosed; (3) decline the 50/50 split as structured; (4) document the arrangement and disclose the conflict to the client in writing; (5) decline to proceed if Raj insists on directing the transaction. The correct answer is not "decline the client" - it is "take control of the file or walk away."
2. Mr. Okafor, when Denise finally calls him, says: "Raj told me you'd just be paperwork. I don't want to redo all this. Can't you just trust Raj's judgement?" How should Denise respond, and what does her obligation require if he refuses to engage?
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Denise should be direct and non-defensive: explain that she is legally responsible for the suitability of the recommendation, that she cannot sign an attestation she has not personally verified, and that the conversation protects him - a 71-year-old placing $400,000 into a product with a 75% maturity guarantee needs the guarantee's limits (it applies at maturity, not on death or on early surrender; it is measured against deposits, not market peaks) explained by the person accountable for it. She should offer to make the process efficient: a single structured meeting, use of Raj's existing notes as input but not as substitute for her own fact-finding.
If he refuses to engage, she must decline the file. Her duty of suitability is personal and non-delegable; "the client didn't want to talk" is not a defence to an unsuitable sale. She should document the refusal in writing, notify Raj that she cannot proceed, and - depending on provincial requirements - consider whether the circumstances warrant a report to her regulator. She should not sign and hope. A signed application she cannot substantiate is the exact fact pattern that produces regulatory discipline and a failed client complaint.