Through Canada’s insurance loophole

Lynne Rae Zlotnik had insurance in her blood.

Her father, Harold, began selling policies in 1945 and eventually she followed in his footsteps. “Insurance,” Harold Zlotnik liked to say, “is the business of financing dreams.”

But when insurance regulators began looking into Vancouver-based Lynne Zlotnik Wealth Management Inc. this year – a firm she created in 2006 to sell life insurance and other investment products – they were troubled by what they found.

Several of her clients had invested a total of more than $1.4-million in her company on the promise of a lucrative return. The clients included 96-year-old Katie Sturhahn, who cashed out a $200,000 segregated fund, an investment fund that comes with insurance guarantees, and instead put her faith in the insurance agent.

It was a questionable financial strategy, since the payout on the fund – which she intended to leave her five children – was assured. Soon after the elderly woman died in March, the agent declared bankruptcy, and the money was gone.

“That was our inheritance,” says her son, 71-year-old Walt Sturhahn. “We’ve got none of it.”

But an even more disturbing discovery had yet to be made: When regulators went looking for someone responsible for overseeing such a risky financial transaction, there was no one to answer for it. The regular checks and balances that are designed to oversee an insurance agent had failed.

The insurance company that administered the policy had no direct oversight over Ms. Zlotnik. In a practice that is increasingly common throughout the industry, she dealt with a middleman company called a Managing General Agent, or MGA, which is an unregulated wholesaler of insurance products to independent agents that few consumers know about. That made it difficult for regulators to scrutinize her conduct.

Read on: Through Canada’s insurance loophole

Source: www.ctv.ca