The Continuing Evolution of Challenges

Robert Frances, President & CEO, PEAK Financial GroupJune 7, 2012

Compliance and regulation of MGAs/advisors Technology Competition and consolidation Succession Profitability

Trends and Issues

Growing demand Many distributors Volume based incentives (bonuses, contests) Little regulation of the distributor Paper based Lack of central processing between suppliers Domination of large suppliers vs smaller distributors Increase in compliance costs

Industry snapshot

Mutual Fund Industry Evolution What were the catalysts to change Areas of possible change for the insurance industry

Agenda

Changes – David Bowie

Suppliers/distributors Competition Regulation Technology Customers

Mutual Funds Industry 1992

What a Wonderful World – Louis Armstrong

Rapid growth, doubled since 1992 Dropping interest rates, high returns, ease of sales process Industry attracting regulators Risks and cases of losses

Mutual Funds Industry 1995

Catalysts for change:

insular competition

scandals

increase in awareness and demand

regulators worried

What happenned

Key issues raised: conflict of interest sales practices regulation Risks

Stromberg Report - 1995

Let it Be - Beatles

“It’s the end of the world” “This will never happen” “I don’t care” “The regulators don’t understand this industry”

Industry spent time on this rather than building its coalition and response

Players

Little impact anticipated Some provinces began to consider changes IFIC – Sales Code

Industry reaction

You ain’t seen nothing yet - BTO

Industry not taking issues seriously Sweeping changes recommended

Stromberg Report 2 - 1998

Suspicious Minds – Elvis Presley

Within 12 months – MFDA Sales practices Capital requirements and financial reporting Books and records, KYC

Regulation – 0 to 60 in 2.4s

Dazed and Confused – Led Zeppelin

Tech bubble 9/11 Recession

The perfect Storm

Under Pressure - Queen

MFDA initial audits Compliance infractions, reports Fines and enforcement With every client loss - Opportunities for regulation

The perfect Storm

Killing Me Softly – Roberta Flack

Decreasing number of players Decrease in new entrants Increase in regulatory, compliance, technology costs Increase in consolidation activity

The Result

Crying – Roy Orbison

Dealers - proactive Work with regulators Self regulatory organization Supplier – distributor solution

Hindsight

A comparison with the mutual fund industry…

Challenges faced by the mutual fund industry

Life Insurance Sales Code Single MGA per advisor Value based growth vs. consolidation Capital requirements and contingency fund

Options

Change is inevitable; misery is an option.

Yesterday - Beatles

Come Together - Beatles

Taking Care of Business – BTO

I will Survive – Gloria Gaynor

I’m Winning - Santana

Conclusion

Thank You

Robert Frances, President & CEO, PEAK Financial GroupJune 7, 2012