Remuneration and commission sharing are important aspects in the practice of representatives. However, a distinction must be made between payment of remuneration and commission sharing. Indeed the Act respecting the distribution of financial products and services This link will open in a new window sets out different rules for each.
Remuneration is the amount to which a representative or a registrant (firm, independent partnership or independent representative) is entitled in consideration of the sale of a financial product or the provision of a financial service, regardless of how this is paid. Possible types of remuneration include salaries, commissions, fees, charges, compensation, a percentage, lump sums, hourly rates, etc.
- Commission sharing
Sharing of commissions takes place when the registrant (a firm, an independent partnership or an independent representative) splits the remuneration and gives part of it to another person authorized under the Act. Commission sharing therefore always takes place after the remuneration has been paid.
Who is entitled to remuneration?
Only the person who sold a product or provided a service is entitled to receive remuneration. This person may be:
- a representative attached to a firm or an independent partnership;
- an independent representative;
- a firm;
- an independent partnership.
Conditions that representatives must meet to receive remuneration
The Act respecting the distribution of financial products and services This link will open in a new window sets out conditions that must be met in order for a representative (attached or independent) to be entitled to remuneration. These conditions apply to all representatives, regardless of the sectors in which they pursue their activities.
The conditions that representatives must meet at the time a product is sold or service provided are the following:
- To hold a right to practise issued by the AMF:
- To be certified in the sector pertaining to the products sold or services provided;
- To have a way of carrying on business;
- To have sold the product or provided the service themself;
- If the representative is attached to a firm or an independent partnership: to receive his or her remuneration through the firm or independent partnership.
Distribution agreements must be reached between the insurer and the registrant. Consequently, an attached representative may not receive remuneration directly or request that part of his or her commission be paid to another person. Representatives may submit their request only through their firm or independent partnership.
However, a registrant and an insurer with which he or she has a distribution agreement may determine that the insurer will pay the remuneration directly to the registrant's representative. Such an agreement does not release the registrant from his or her obligation regarding the keeping of a commissions register relative to the payments made by the insurer.
Conditions that firms or independent partnerships must meet to receive remuneration
The Act respecting the distribution of financial products and services This link will open in a new window sets out conditions that must be met in order for firms or independent partnerships to be entitled to remuneration. These conditions apply to all firms or independent partnerships, regardless of the sectors in which they pursue their activities.
The conditions that firms or independent partnerships must meet at the time a product is sold or service provided are the following:
- The legal person or partnership must be registered as a firm or independent partnership with the AMF and meet all the registration requirements and obligations;
- The product must be sold or the service provided through a representative attached to the firm or independent partnership in the sector relating to the product sold or service provided;
- The representative attached to the firm or independent partnership must hold a valid right to practise in the sector relating to the product sold or service provided.
The registrant is required to enter in the commissions register Regulation respecting the registration of firms, independent representatives and independent partnerships This link will open in a new window a statement pertaining to each commission or other remuneration received. This register must contain all information about payment of the commission received by the registrant and any related sharing thereof.
The rules pertaining to the keeping of and entry in the commissions register are set out in sections 22 to 25 of the Regulation respecting firms, independent representatives and independent partnerships This link will open in a new window (c. D-9.2, r.9).
Types of commissions
The Act respecting the distribution of financial products and servicesThis link will open in a new window (the "Distribution Act") does not specifically detail the various types of commissions. However, in practice, in addition to an upfront commission that a representative receives for the sale of a product or provision of a service, there are also maintenance commissions, renewal commissions, referral commissions, contingency commissions and graduated sales commissions.
Maintenance and renewal commissions
Maintenance and renewal commissions are similar. They are commissions that a representative is entitled to receive continuously (generally every year), after receiving an upfront commission. However, these two types of commissions may differ. With respect to maintenance commissions, the representative is expected to "maintain" an after-sale service with clients; renewal commissions simply result from the fact that the initial contract has been renewed.
Contingency commissions are given by an insurer to a registrant where the claims arising from the insurance policies sold through the registrant have remained below a certain level set by contract. This commission is therefore uncertain and conditional.
Graduated sales commissions
Graduated sales commissions are paid by the insurer to a registrant whose sales have increased.
Referral commissions are paid for the referral of a client who purchased a product or service. The term "referral" is used in the industry to designate two different cases: one which is related to the sale of a product or provision of a service, and one which is not.
The Distribution Act This link will open in a new window applies only to the first case. As soon as the referral commission is determined based on the sale of a product or provision of a service to the client being referred, the matter pertains to a sharing of commission and the relevant rules apply.
On the other hand, when a person receives a fixed remuneration for referring one or more clients to a representative, regardless of whether or not a product was sold or a service provided afterward, this does not pertain to a sharing of commission. The representative is then said to have purchased the name of potential clients. Such activity is governed by The Act respecting the protection of personal information in the private sectorThis link will open in a new window and is not covered by The Act respecting the distribution of financial products and services. In this case, any person may therefore receive such remunerationSee notice on client referrals under The Distribution Act This link will open in a new window.
Special rules governing the disclosure of remuneration or commissions
Special rules Act respecting the distribution of financial products and servicesThis link will open in a new window, section 17. Regulation respecting information to be provided to consumers This link will open in a new window, ss. 4.1 to 4.4
Where representatives require compensation from the persons with whom they transact business, they must disclose to the client the fact that they also receive remuneration for the products sold and the services rendered.
The disclosure must be given in writing before or at the time services are rendered, and must indicate:
- the fees claimed;
- whether they receive any other type of remuneration, including a commission, a sharing of commissions, or any other benefit to which they are entitled with respect to the products sold or the services rendered;
- the name of the person with whom the commission is shared, where applicable.
Regarding claims adjusters
Under the Act respecting the distribution of financial products and services This link will open in a new window, claims adjusters who offer services to a claimant must propose two contracts, one providing for hourly remuneration and the other providing for percentage remuneration. The client may choose the most suitable contract.
Damage insurance representatives who are specially authorized to settle claims arising from the policies taken out through their firm are required to disclose to their clients the method of remuneration for providing that service. Such disclosure must be done in writing.