Steps to Going Independent

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.

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.   

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.

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.

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 CE Central which offers online accredited CE (many 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.