AE DISCIPLINE ISSUES

Moderator:Rob Smithen, FCIA, FSA, MAAA

Presented by:Jessie Shaw Gmeiner, MSc, FCIA, FSA

John Tarrel, FCIA, FFA, ASA

September 5, 2008

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Agenda

Introduction Summary of Complaints since

2002 Important Issues CIA Standards and Rules Scenarios

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Introduction

Why are we here?

CPC reported reviewing seven complaints against seven individuals related to actuarial evidence for 2007/2008.

Complaints

Ind.

Life 1 2

Pension 8 11

P&C 1 1

Workers Comp.

0 -

AE 7 7

Other 0 -

Discipline Bulletin, Vol. 14, No. 2 (May 2008)

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CPC and Discipline Process

“Complaint” or “Information” referred to Committee on Professional Conduct 20 committee members Represent all practice areas 2 “public” representatives (non-FCIA’s)

Upon initial review Committee may: dismiss complaint if not justified prima facie, Initiate private admonishment proceedings, or appoint investigation team

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Based on IT report, the Committee may either: dismiss complaint (with or without

letter of advice) charge and issue a private

admonishment charge and offer plea with

recommendation of sanction charge and refer to public

Disciplinary Tribunal

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Most complaints not of a very serious nature, but serious enough to warrant a review by the CPC and in several cases resulting in disciplinary action.

Differences in AE practice from other practice areas (i.e. AA or pension) that may contribute to increased exposure to complaints (e.g. competition from non-actuaries, cost pressure, adversarial)

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Complaints since 2002

15 complaints: 12 Marriage Breakdown (MB)

7 dismissed minor sanctions appropriate for complaints found to

be justified total of 4 private admonishments (PA’s) and 1 letter of

advice

3 General Civil Litigation (GCL) 1 dismissed 2 still active

12 Ontario; 3 Quebec 7 from one non-FCIA competitor (Ontario)

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Complaints from non-FCIA Competitor

Nature of complaints: Validation of data Standards not met Mathematical errors Incorrect assumption Values wrong

5 cases dismissed

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Other MB CasesNature of complaints: Plan member alleged “fraud” Inadvertently hired by both member & spouse Actuary hired by plan member, later did non-actuarial

work for spouse Plan member complained about valuation method &

other issues Hired by plan member’s lawyer, later did work for

lawyer for spouse

Nature of misconduct where sanction applied: Conflict of interest (3) Confidentiality (1) Incomplete reporting/disclosure (1) Incorrect assumptions re indexing (1)

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AE Cases (Non-MB)

2 active cases Nature of complaints:

Rule 1(integrity) Rule 2 (not qualified) Rule 3 (failed to meet standards)

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Differences between MB & GCL

MB is high volume/low fee practice (at least in Ontario) GCL is low(er) volume/high(er) fee practice (in all

jurisdictions)

High volume of MB reports by non-actuaries (in Ontario)

Low volume of GCL reports by non-actuaries (in most provinces)

MB more adversarial between parties (since parties pay)

GCL less adversarial between parties (since insurer pays in most cases)

Implications (if any) of these differences?

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IMPORTANT ISSUES

Making sure work product adheres to standards: suggest periodic review of general standards, specific standards & rules, fulfil CPD requirements

Courts want actuary to be an unbiased objective expert (new Civil Procedure Rules in NS)

Conflict of Interest & Confidentiality in MB cases

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Conflicts of Interest Resolving Some Issues

When retained by lawyer (or first party), always get name of spouse and other lawyer.

If subsequently approached to do valuation for spouse, clear with lawyer or first party.

If retained by both parties, always provide copies of subsequent calculations to both parties.

At all costs, avoid any verbal counselling which is to the benefit of one party.

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Standards and Rules Standards of Practice

very specific in AE field (particularly MB) breaches to date of a “technical” nature lack of compliance with Standards leads to a breach of

Rule 3

Rules of Professional Conduct more general than Standards; have broad implications deal with issues such as:

• duty to the public• integrity• professional responsibility• ethical conduct• upholding the reputation of the profession

breaches can result in major sanctions

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Making use of the Rules

Rules are: a resource to guide your practice should be referred to regularly

If any situation causes concern or doubt review the Rules

Even if no concerns arise review the Rules periodically

Develop sound business practices to avoid violations

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Rule 3: Standards of Practice

Professional services defined in the Rules

Standards to be observed include: general standards practice specific standards

Standards apply to: assumptions, methods, data, reporting

and documentation (“work” in the general standards)

testimony in the courts or before other tribunals

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Rule 2: Qualification Standard

Pre-requisites for performing professional services include: member is qualified to do so member meets applicable qualification standards

Qualification Standard identifies minimum CPD Meeting minimum CPD is not necessarily

sufficient to be considered “qualified” “Qualified” also involves knowledge of and

experience in practice area Members entering a practice area should seek

advice, assistance, mentoring from a qualified, experienced practitioner

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Rule 5:Conflict of Interest

Conflict of interest may be actual or potential

Performance of services where a conflict exists are subject to strict conditions: ability to act fairly is unimpaired full and timely disclosure to all direct users express agreement of all direct users

“Full and timely disclosure” means: disclosure of all material facts, and disclosure should be in writing

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Rule 5

Conflicts of interest can arise: when accepting an engagement when carrying our an engagement after completing an engagement

Differing legal practice by province does not affect application of Rules (e.g. “collaborative family law” concept in Ontario)

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Rule 7: Confidentiality

“Confidential information” defined No disclosure of such information unless:

authorized by client or employer required to do so under Rule 13 required to do so by CPC, IT, DT or AT regarding

disciplinary matter required to do so by law

No exceptions relating to nature of information (e.g. materiality, significance, implications of disclosure, etc)

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Rule 1: Professional Integrity

Rule 1 is a “catch-all”

Violation of any other rule almost certainly violates some aspect of Rule 1

Deals with ethical behaviour: Honesty, integrity, competence Fulfil responsibility to the public Uphold the reputation of the profession

Dictionary definition of “ethical” includes “conforming to the ethics of a profession”

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Rule 1

Annotation to Rule 1 requires a member to: perform professional services with skill and care Not associate with anything the member knows

or should know to be false or misleading Not engage in conduct involving dishonesty,

fraud, deceit or misrepresentation Not commit any act that reflects adversely on the

profession

Membership in the profession involves both individual and collective responsibility

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Rule 4: Disclosure Rule 4 relates to disclosure of all direct and indirect

compensation “indirect compensation” defined broadly any material consideration . . . . . from any source includes compensation which has been, or may be, received

Disclosure must be “full and timely” [Annotation 4 – 1] “full” means “all material facts” “timely” means “in sufficient time for the client or employer

to make an independent decision” disclosure should be in writing

Annotation 4 – 2 also requires “full and timely” disclosure of any lack of financial or organizational independence related to performance of professional services

Professional services include services rendered to a client or employer

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Rule 6: Control of Work Product

Rule 6 deals with control of work product in order to avoid misuse of professional services rendered

“Professional services” include: advice, recommendations or opinions based on actuarial

considerations other services provided from time to time services may be rendered to client or employer

Member’s obligations are: to “take reasonable steps” to avoid misuse of services to ensure clarity and fairness to ensure that the member is identified as the source of

the material

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Rule 8: Courtesy and Cooperation

Important in AE work because of: adversarial context frequency of review of work of other actuaries demands of viva voce testimony in direct and cross-

examination

Member’s obligations include: performance of services with courtesy and

professional respect avoidance of unjustifiable or improper criticism cooperation with others in the client’s or employer’s

interests

Differences of opinion can, and do, arise [Annotation 8 – 1] be objective, courteous and respectful

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Rule 8 Rules do not prevent expression of alternative

opinion(s) [Annotation 8 – 2] such alternative(s) should be “in the best interest of the

client or employer” such opinion(s) should be accompanied by factors that

support the alternative(s)

Invitation to advise a client or employer of another member [Annotation 8 – 3] prudent to consult with other member request client’s or employer’s consent to such consultation make informed judgement as to potential violations of

Rules which might affect acceptance

Obligations of original member cooperation in providing data, working papers, documents must not refuse to consult or cooperate . . . . . . . need not provide items of a proprietary nature

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Rule 9: Advertising

Advertising or business solicitation activities: must not be false or misleading must not reflect unfavourably on the

profession must not reflect unfavourably on the

competence or integrity of any member

Advertising and business solicitation activities broadly defined: include all communications by whatever

medium, including oral communications

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Rules 11, 12 & 13 These are grouped under the heading “Collateral

Obligations” CIA disciplinary procedures apply to member found

guilty of criminal or similar offence [Rule 11] Member shall respond to and cooperate fully with

CPC, IT, DT or AT regarding disciplinary matter [Rule 12]

Member shall comply with specified procedures if member becomes aware of any material non-compliance by another member [Rule 13] procedures to be followed are set out in Annotation

13-1, sections 2 and 3 exemptions from following specified procedures are

set out in Annotation 13-1 section 4

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Scenario 1

You prepare a MB report for lawyer A who represents the plan member

Lawyer A transmits the report to lawyer B who represents the plan member’s spouse

You receive a telephone call from lawyer B asking you to explain to her the assumptions and methodology you have used

How do you respond?

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Scenario 2 You are retained by plaintiff’s counsel to prepare a

report in a PI case As part of the documentation counsel provides you

with an expert report concerning the plaintiff’s capacity to perform services

Counsel instructs you to base your loss of services assessment on the data in the expert report

The expert’s opinion regarding the annual value of loss of services is based on Statistics Canada time use data

Having used such data yourself on many occasions you realize that the expert has misinterpreted the Statistics Canada data

What do you do?

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Scenario 3

You are contacted by a couple who have gone through a breakdown of their marriage

They wish to divide their marital property in an amicable fashion and have not retained legal counsel

They jointly request you to accept an engagement to determine the value of their respective pensions earned during marriage

You are interested in accepting this engagement

How do you proceed?

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Scenario 4 You accept an engagement from plaintiff’s counsel to prepare an

actuarial report in a PI case Along with the data you subsequently received there are

instructions from counsel which you consider professionally unacceptable

You withdraw from the case and return all documentation to counsel

A year later you accept an engagement from a defence counsel to review an actuarial report in a PI case, solely for purposes of assisting counsel in cross-examination of plaintiff’s actuary

After reviewing the report and giving your verbal comments to counsel you realize it relates to the same action you withdrew from a year earlier

What do you do in each of the following cases: the plaintiff is the same plaintiff whose counsel originally contacted

you? the plaintiff is a different plaintiff in the same action?

How did this situation arise?