Regulator reining in Greatway’s multiple levels of questionable insurance marketing
TORONTO –
Life insurance coverage for a child would possibly sound slightly off, however fast-growing Greatway Financial Inc. says it is by no means too early to enroll.
The Calgary-based firm, which sells insurance policies on behalf of insurers throughout Canada, places a lot of its give attention to the funding aspect of life insurance coverage, billing them as a tax-sheltered approach of boosting returns.
“Babies are the easiest and fastest to qualify because most won’t have any health history,” the corporate notes.
Greatway’s strategy, and the way in which it coaches its purely commission-based brokers to make use of its “result-proven system” to promote insurance coverage, has, nonetheless, raised critical considerations with regulators — a lot in order that Ontario’s insurance coverage watchdog ordered the corporate to destroy all educating supplies, and retrain brokers by the tip of March, as a result of the outdated directions may result in unfair or misleading practices underneath the legislation.
The Financial Services Regulatory Authority of Ontario (FSRA) alleges that Greatway has centered its gross sales nearly solely on common life insurance coverage, a fancy monetary product normally utilized by the rich for property planning. It additionally alleges the corporate’s coaching encourages brokers to promote the identical product to all shoppers no matter their earnings or wants.
While Greatway has disputed a number of the regulator’s findings, it has agreed to adjust to the order.
Along with remedial educating for all its brokers, the order requires the corporate to succeed in out to all Ontario coverage holders to assist them assess whether or not their plans are actually appropriate and to assist handle considerations if not.
Growing scrutiny
The enforcement motion is a part of a wider effort by the FSRA and different regulators wanting into the dangers created by multi-level advertising firms akin to Greatway, whose business fashions are primarily based on brokers who’re paid each by means of commissions on their very own gross sales and a portion of the fee for brokers they recruit to the corporate.
The mannequin, mixed with the corporate’s gross sales technique, has led to some Greatway brokers pulling in additional than $1,000,000 in a 12 months, the corporate says, whereas its YouTube channel profiles former cab drivers and home cleaners who’ve made properly over $100,000 of their first 12 months on the firm.
Meanwhile, a report on the business mannequin by regulators together with the FSRA famous that an organization matching Greatway’s description principally focused newcomers to Canada with incomes usually ranging between $40,000 and $50,000.
The report mentioned that the mannequin has seen speedy development lately, with Experior Financial Group Inc., World Financial Group Insurance Agency of Canada Inc., and Greatway collectively growing their agent numbers by about 40 per cent from 2020 to 2021. As of 2021, the three companied had about 27,000 whole brokers, plus about 66,000 recruits.
Greatway itself has gone from 1,400 brokers promoting about 13,000 insurance policies in 2018 to 4,000 brokers promoting nearly 28,000 insurance policies final 12 months.
That tempo of development has created added threat because of the variety of inexperienced brokers, mentioned Huston Loke, government vice-president of Market Conduct on the FSRA.
“You put that situation together with training materials that we believe to be inappropriate, then you have a recipe for customer harm.”
A fancy product
There are quite a few monetary implications to Greatway’s gross sales technique. The regulator discovered that the corporate solely requires coaching on promoting ‘overfunded’ common life insurance coverage, the place funds above the insurance coverage premiums accumulate as tax-sheltered financial savings by means of a technique known as an insured retirement plan.
The regulator’s investigation discovered that Greatway instructed brokers to downplay the insurance coverage aspect of the product solely, particularly to “remove the insurance mindset,” to “not mention insurance amount,” and to give attention to the funding returns, whereas instructing in purple letters “DO NOT HIGHLIGHT” on the coaching materials web page for essential dangers of the product.
A key a part of downside with the monetary technique, mentioned Vaneesa Cline, a monetary planner in Calgary, is that the price of the insurance coverage ramps up quickly with age. That diverts funds away from the funding aspect and saddles consumers with a lifetime of rising prices for a premium product they might not even want, she mentioned.
Cline mentioned she’s helped a number of former Greatway shoppers kind out their funds, together with one man who was initially paying about $250 per 12 months in premiums, however by the point she met him in his 60s, he was critically unwell and his household was struggling to make funds of $600 per thirty days.
“It’s potentially devastating,” mentioned Cline. “When (clients) get to retirement and they need the money the most, the cost of the insurance inside these policies is so high that it quickly depletes the cash value that has built in these policies, to where these policies lapse.”
Universal life plans may be an effective way to create monetary safety, mentioned Cline, however solely to acceptable shoppers who’ve already maximized funds to extra widespread tax-sheltered choices like RRSPs and TFSAs (or within the case of infants, RESPs).
Greatway, which declined an interview request, mentioned in an emailed response to questions that brokers are skilled to offer shoppers with the absolute best options that adhere to suitability, wants, objectives and price range, and that each one shoppers undergo a monetary wants evaluation with their agent to search out the best choice that meets their wants.
‘So surreal’
Loke on the FSRA mentioned the regulator will proceed to watch Greatway, and that it’s nonetheless wanting into different firms with comparable fashions, in addition to particular person brokers and the insurance coverage firms whose merchandise they promote.
There are nonetheless limits to what the regulator can do, as there aren’t legal guidelines towards both Greatway’s company construction, nor necessities to reveal commissions.
Those commissions can run up rapidly partially as a result of the payouts are front-loaded with such everlasting life insurance coverage merchandise, mentioned Jason Pereira, a monetary planner primarily based in Toronto. That implies that fairly than paying a small proportion of managed investments over a lifetime, the agent will get the majority of it straight away.
It helps clarify how Greatway says it has properly over 100 brokers pulling in additional than $100,000 a 12 months, whilst most work half time.
One agent, Melanie Uy, mentioned in a LinkedIn publish soliciting new recruits that she earned $200,000 in further earnings over 12 months whereas nonetheless working her day job with the Alberta authorities.
“You may find it so surreal, too good to be true,” mentioned Uy, speaking about two others who made $500,000 in a 12 months after solely two or three years within the business.
“But if you have an open mind, you will uncover, recover and discover this opportunity for sustained, profitable growth.”
If the fee is not sufficient to incentivize gross sales, Greatway additionally presents prizes akin to Mediterranean cruises or Teslas to prime sellers.
Pereira mentioned together with Greatway, he is seen a spike on social media of individuals speaking up life insurance coverage as an funding automobile utilizing “unbelievably faulty logic and terrible math.”
The extra generally bought time period life insurance coverage is less expensive and makes rather more sense for most individuals, as do extra typical funding choices, he mentioned.
“This sort of action makes me livid, quite honestly,” mentioned Pereira. “These are monies that were diverted away from retirement savings and education savings that would have been more flexible.”
Greatway says it’s doing what’s finest for its shoppers, because it has because it was based on “principles of integrity” by Marlon Antonio in 2010, and that its imaginative and prescient stays to assist households “avoid financial ruin.”
Regulators and critics stay skeptical, however some brokers sound like they’re believers.
“Greatway is the way to achieve and fulfil your destiny. Your purpose,” mentioned Carol Villarica, who along with her associate Hector grew to become the primary seven-figure earner over 12 months at Greatway in 2020, as she spoke at an organization conference final 12 months.
“Because when your why is clear, the price is an easy price to pay. All your sacrifices, all our sacrifices, will be worth it.”
