Posted by Anjali Kaur on Jun 22, 2022

Dual Licensing as a Life Insurance Agent

All provinces have regulations that permit individuals to be both licensed life insurance agents and registered dealing representatives.

The sponsoring mutual fund dealer is responsible for supervising the activities of the individual in matters pertaining to the sale of mutual funds and is expected to monitor the activities of the individual with respect to insurance activities.


Referral Arrangements

A referral arrangement is an arrangement in which a mutual fund dealer or dealing representative pays or receives a referral fee. A referral fee is any form of direct or indirect compensation for the referral of a client. It often takes the form of a share of commissions.

There is a potential conflict of interest in all referral arrangements because the party that makes the referral has a financial interest in introducing the client to the other party.

All referral arrangements involving dealing representatives must meet the following conditions:

  • The mutual fund dealer must be a party to the referral arrangement. Even when the arrangement has been negotiated directly by a dealing representative, the mutual fund dealer must be a party.  Dealing representatives cannot receive referral fees of any nature outside of their mutual fund dealer.
  • There must be a written agreement governing the referral arrangement before it is implemented.
  • All referral fees must be recorded in the mutual fund dealer’s books.
  • The referral arrangement must be disclosed to the client in writing before any transaction takes place.

Discretionary Trading

Your mutual fund dealer and you as a dealing representative are not allowed to accept discretionary trading authority from a client. Consequently, you must not place any trades in a client’s account without first obtaining the client’s authorization.

In order to facilitate trades when the investments are held at a mutual fund company in the name of the client, as opposed to being held in the nominee’s name by the mutual fund dealer, it is permissible to use a Limited Authorization Form (LAF). When investments are held in the client’s name, the client must normally sign the trade instructions before the mutual fund company is able to process the transaction. By signing the LAF, the client authorizes the execution of trades without the need to provide his or her signed written instructions to the mutual fund company.

Note that a LAF does not confer discretionary trading authority on the mutual fund dealer or the dealing representative. The dealing representative and mutual fund dealer may only initiate a trade following receipt of specific instructions from the client, for example, by telephone, fax, or other electronic means.

Power of Attorney

A power of attorney (POA) is a legal document that allows a person to act on another person’s behalf.

There are two kinds of POA:

  • limited POA
  • general POA

A limited POA restricts permitted actions to those of a specific nature such as financial matters whereas a general POA permits a broader range of activities.

MFDA rules prohibit you and your mutual fund dealer from accepting or acting on a POA for a client of the mutual fund dealer or similar authorization in your favor.

There is a limited exception that allows you to accept or act on a POA from your immediate family members (spouse, parent, or child). In these cases, the client’s account with your mutual fund dealer must be serviced by a dealing representative other than you as the holder of the POA. In addition, each trade made pursuant to a POA must be reviewed by the branch manager.

Let’s Learn

  1. Peter, a dealing representative has referral arrangements with a mortgage broking firm where his wife is an employee. He refers one of his clients Jeremy to the mortgage broking firm and he receives a fee for doing so. He does not think it is necessary to inform the client or his employer as the referral is not in conflict with his duties as a dealing representative.

Which one of the following statements is TRUE?

Solution: There is a regulatory breach as there is no referral agreement in place between the mutual fund dealer and the mortgage broker.

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