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Becoming an Independent Advisor

Everything You Need to Know for Going Independent 


If you are a licensed financial advisor, and thinking of starting your own financial practice, or are looking to embark on a career as a financial services advisor, IFB has resources to help! This page will provide you the information you need to start your journey.  

 Being an independent financial advisor can be a rewarding and satisfying career choice.  But before you decide, there are some things to think about.  First, as an independent operator of your own firm, you will be taking on responsibilities that may previously have been looked after by your financial firm.   

 These responsibilities include becoming accountable for the costs and dedication associated with operating an independent practice such as, renewing your license and keeping it in good-standing, meeting your compliance obligations (e.g., continuing education, errors and omissions insurance, and implementing privacy and anti-money laundering practices)entering into contractual relationships, building a book of business, and covering the operating expenses of your business.   

Tip!

If you have never been self-employed, it would be wise to conduct your own research and consult with a tax or legal advisor to better understand what this will mean and what type of corporate structure (if any) will best suit you.

Links to help you get started:

 


A brief introduction to the financial services industry in Canada

If you are new to the industry, it’s important to understand that the Canadian financial services industry is heavily regulated to protect consumers and ensure the stability of our financial system.  There are 13 provincial/territorial life insurance and securities regulators.  The mutual fund industry has a national self-regulatory body, called the Mutual Fund Dealers Association or MFDA.  It regulates firms (and their advisors) which only sell or provide advice related to mutual funds.  The broader securities industry has a national self-regulatory body called the Investment Industry Regulatory Organization of Canada, or IIROC.  IIROC regulates firms (and their advisors) who sell a variety of investment products. Individual securities commissions/regulators regulate portfolio managers, scholarship plans, exempt market products. Find more information here. 

 Life insurance is regulated by each provincial/territorial regulatory body.  There is no national “self” regulatory equivalent to the MFDA or IIROC. Life insurance companies are responsible under provincial insurance acts for the conduct of the agents they contract with, in addition to the oversight provided by each jurisdiction’s regulator.  Life insurance regulators collaborate with a view to harmonizing policy, legislative and regulatory standards for the industry across Canada.  These industry bodies are CISRO and the CCIR. 

What does “independent” mean in the financial services industry?

Sometimes individuals thinking of becoming an independent advisor equate it with having little or no regulatory oversight.  Sometimes individuals think that being independent means not paying, or sharing, commissions or other compensation with a firm or dealer.  Neither of these assumptions are true.   

 What “independent” does mean is that you will not be an employee of a firm or a career agent of a single insurer. Some advisors work for a firm which offers proprietary products.  This often limits, or restricts, the products they can provide to consumers. Independent brokers/agents can offer consumers financial products from multiple companies.   

Tip!

If you’d like to learn more from an experienced independent advisor, IFB can put you in touch with one. 

What's the first step in going independent?


Join IFB! Even if you are not independent yet, you can still join IFB as a non-voting member of the association. As a member you have access to our publications, reduced fees to attend our continuing education events, and networking opportunities that will help you get started on the road to your own financial services business.

IFB is the only professional association dedicated to the independent advisor.  Everything we do – our advocacy with regulators and industry stakeholders, our member newsletters, our E&O coverage, our CE events – is focused on the independent financial advisor and supporting those who have chosen to provide their services to clients through the independent sales model.

IFB gives a united voice to the thousands of licensed, highly professional self-employed entrepreneurs who believe that their clients are best served by an advisor who can search the market to find the perfect product for them. Click here to find out more about IFB and the important work we do.

Steps to going independent


Step 1 - Get licensed if you aren't already

You must have a valid license to sell or offer advice on financial products. This applies to all types of insurance, mutual funds, scholarship plans, securities, options, and futures.  

To get licensed, you must first meet the specific educational requirements for the particular license category you are interested in.  These requirements differ based on the type of financial license you are interested in.  For example, to become a portfolio manager there are additional work experience and educational requirements that would have to be met, in addition to the educational requirements.


I have a post-graduate degree in finance, do I still have to complete the educational requirements for a license? 

Yes. Each financial license has its own specific area of study that is recognized by regulators as the entry point.


 

Many financial advisors hold more than one license to allow them to broaden the services they can offer to clients.  As an example, IFB members often are licensed to sell both life/health insurance and mutual funds.  Some IFB members are licensed to sell other products like general (P&C) insurance, mortgages, or securities.  

Some advisors choose to earn a professional designation, such as the CFP® (Certified Financial Planner), in addition to their license. This can provide the advisor with additional tools to help plan for the client’s longer-term goals. 

How to get started?

  1. You will need to meet the educational/proficiency requirements for the financial license you want.

  2. You will need to apply for the license, and be approved by your provincial regulator, before conducting any business.

Before you get licensed, you must complete the appropriate course material and successfully pass the exams.  We’ve summarized the main steps below, organized by type of license, to help you learn more.  Please note this information is intended to be general guidance to get you started and assist in your research.  Always check with your provincial regulator to ensure you have the most up-to-date information.  

For life/health insurance:

The harmonized Life License Qualification Program (LLQP) has been the pre-licensing course requirement in Canada since January 1, 2016.  It is a 4module course and is offered through various education providers. You will need to register with an approved course provider, and successfully pass the exams.  You can find a list of approved course providers on the CISRO website. Each provincial regulator has information on where and when the LLQP exams will be held in their jurisdiction.  You must apply for a life license within one year of passing the LLQP, or you will have to rewrite it. 

Passing the LLQP or any other pre-licensing course doesn’t mean you are licensed.  It’s the first step! 


If I want to become licensed in more than one province will I have to write the LLQP exam in each one?

No. Since the course is national, the exam results are recognized by every jurisdiction. 


There are other requirements you must meet before being approved for a life insurance license including establishing your personal suitability (which can include a criminal record check and credit check), not be engaged in another occupation that is deemed to be a conflict and being sponsored by an insurance company.  Some provinces require a training or supervision period for new agents.  In Ontario, your license must be sponsored for the first 2 years by an insurer, after which you become responsible for maintaining your license.  The BC Insurance Council requires new entrants to complete the Council Rules Course within the first year.  Again, these rules can vary by province so always check with your regulatory body. 

In life insurance, insurance companies are ultimately responsible for any agents they contract with.  If you are not considered to be an employee or career agent of an insurer, most independent agents have contracts with a managing general agency (MGA) – not directly with the insurer.  In this case, the insurer contracts with one or more MGAs, who often provide market conduct oversight, training, and administrative support to agents on the insurer’s behalf. 

  1. Life insurance regulators: 

Each province or territory has its own life insurance regulator. 

In Ontario, the Financial Services Regulatory Authority (FSRA) became the insurance regulator in June 2019.  Previously, it was the Financial Services Commission of Ontario (FSCO).  You can find good information on the steps required to become a life/health insurance here: How to become a Life Insurance Agent or Accident and Sickness Insurance Agent. 

Similar information on getting a life insurance license is available for other provinces as well.

You can also find links to each provincial/territorial regulator on the Canadian Council of Insurance Regulators website.  

Tip! Regularly check the insurance regulator, or Insurance Council websites to obtain more information, to keep up with any updates and to sign up for their email list. 

For mutual funds:

If you do not have a mutual fund license, you will need to complete the pre-licensing course – either the Investment Funds in Canada course(IFC), offered by the Canadian Securities Institute (CSI), or the Canadian Investment Funds Course (CIFC) offered by the IFSE Institute.  A mutual fund license is restricted, in that you can only advise on and sell mutual fund investments.  If you want to sell a more comprehensive suite of investment products, see below Securities Investments section. 

Once you have passed the course work, the application for your license must be handled by the dealer firm you will work with. The dealer will sponsor your registration with the appropriate provincial securities commission.  The dealer firm will be required to provide market conduct oversight and ensure you complete a 90-day training program. The training program helps new registrants receive specific training and guidance to better understand the industry, the products being sold, and the regulatory environment overseeing the mutual fund industry. 

Mutual fund dealers and advisors (registered representatives) are regulated by the Mutual Fund Dealers Association (MFDA).  The MFDA is responsible for regulating the operations, standards of practices and market conduct of its dealer members and their advisors.  The MFDA website has useful information and a list of all dealer members. 

Have another financial license already? If you have another license, for example a life/health insurance license, and want to become a mutual fund or investment advisor, you must inform your dealer of this, or any other ‘outside business’, and obtain its approval.  Failure to do so can result in fines, license suspension or having your license revoked. You can find more information on what is considered an outside business activity and the need to disclose it on the MFDA website. 

 

For securities investments: (not limited to mutual funds):

Successful completion of the Canadian Securities Course (CSC)® is the pre-requisite to becoming licensed (registered) to sell securities. In order to be registered to sell securities, your license must be sponsored by a dealer firm and you are required to complete the Conduct and Practices Handbook Course (CPH)®, the Registrant Code of Ethics and Registrant Standards of Conduct courses. 

Once licensed, securities advisors and dealers are regulated by the Investment Industry Regulatory Organization of Canada (IIROC).  IIROC approved advisors must complete a 90-day training program and within 30 months complete the Wealth Management Essentials Course. 

To find out more about what’s required to be an IIROC approved registrant click here. 

If you have another financial license and want to become an IIROC registrant, you must disclose the outside business to your IIROC firm and seek its approval before engaging with clients. For more information on outside business activities click here 

More information on who needs to be registered and the steps involved is available on each Provincial securities commissions website, including the Ontario Securities CommissionYou can also find information on the various registration categories here. 

Proceed to Step Two!

Step 2 - Obtain Errors and Omissions insurance

If you previously had an arrangement with your employer that included E&O insurance, you will need to obtain coverage as an independent broker.  Proof of valid professional liability insurance is a mandatory licensing requirement in most jurisdictions and required by the insurers and MGAs/dealers you will contract with. 

Tip! IFB offers corporate and individual E&O coverage specifically designed for independent advisors and at very attractive rates.  New advisors can take advantage of IFB’s 50% premium discount for their first year. For more information on our E&O plans, click here. 

Step 3 - Have an insurance contract or be registered with a mutual fund/securities dealer

Life/health insurance:

To be licensed to sell life/health insurance, you must have a contract with at least one life insurance company.  These days, most independent brokers place their life insurance business through an agency, often referred to as a Managing General Agency or MGA.  Such agencies also have contracts with various insurers and can be helpful to you with administrative tasks and when you wish to offer a client a product with an insurer that you may not be directly contracted with. 

The MGA will want to separately contract with you, as an individual broker.  The contract will spell out what services they will provide you with, compensation arrangements and any requirements they may have to manage their business risks (such as proof of your license, errors and omission insurance, etc.).  There is no regulatory requirement to place all your insurance business with a single MGA, and many IFB members contract with more than one MGA.  However, some MGAs have adopted a contractual requirement to prevent agents from placing business through another MGA.  The contract with the insurer and MGA will also cover what happens to the advisor’s book of business in the event of termination, or otherwise leaving the business.   

Tip! Before setting up as an independent, you may want to talk to several agencies to get a better sense of their specific requirements and approach to business. 

The Canadian Association of Independent Life Brokerage Agencies, or CAILBA, is the trade association for MGAs and has a list of members on their website. Note that not all MGAs or insurance agencies belong to CAILBA. 

Securities/mutual funds:

To sell securities or mutual funds, you must be licensed and registered as an Approved Person with a specific dealer.  The dealer will be either a full service securities dealer and member of the Investment Industry Regulatory Association of Canada (IIROC) or a dealer limited to the sale of mutual funds and a member of the Mutual Fund Dealers Association (MFDA).  You can find a list of the dealers they regulate on each of these regulator’s website. As a securities registrant, you are restricted to placing all your securities trades through a single dealer.  There are also rules related to engaging in ‘outside’ business activities.  As an example, selling life insurance is considered an outside business activity which you would need to disclose to your dealer and get its written approval. 

If you are already with a dealer and wish to change dealers, you should be aware that moving your existing book of business to a new dealer can be difficult and time-consuming.  Make sure you know how this process will work before you take action.


Can IFB provide me with a recommendation on which MGA, Insurance Company or Securities/Mutual Fund dealer I should contract with? 

No.  IFB is a professional association.  IFB does not recommend specific firms.

 


 

Step 4 - Stay up to date on your compliance obligations

It’s important that independent brokers do not become isolated from the many regulatory requirements required of those who operate in the financial services industry.  For example, independent life insurance brokers are required to maintain an Anti-Money Laundering/Terrorist Financing Compliance Regime.  Independent brokers cannot be covered under a life insurance company’s compliance regime. 

IFB provides workshops, compliance materials and tools to help its members with compliance.  We also provide broker tip sheets and decode regulations so you know what you have to do to avoid regulatory penalties. 

Step 5 - Set up an independent financial practice

Many IFB members have set up personal corporations or have incorporated their businesses.  The advantages (and disadvantages) of incorporating depend on various factors, including your tax situation and expected revenue.

IFB cannot provide you with advice on how best to set up your independent business.  We recommend you seek out professional tax and legal advice to ensure you set up your business in the most effective manner.

Below are some links to help you research the various ownership options for an independent business.

Please note: These links are provided for information only, and IFB is not liable for the accuracy of information. Advisors should always obtain professional advice relevant to their own situation.

Government of Canada, Canada Business Network

Corporations Canada

Blunt Bean Counter

Canadian Federation of Independent Business

Globe and Mail: Why more advisors are looking to go independent, July 2020 

Want more information?

Browse through our website to learn more about us and why you should belong to an Association which believes in the independent broker. We have resources specifically designed to support independent advisors, like IFB Academy which offers online accredited CE (often free for IFB members) and Coming Up Next which links advisors looking to buy or sell a book of business (with a free trial period), and affordable E&O Insurance.

Learn more about IFB by watching this short video:  https://youtu.be/MBS3kp5VuNw 

Why wait? Support independent distribution! Call us or fill out a membership application today.