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The Four Temptations of a Financial Advisor

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Even the best-intentioned financial advisor can fall prey to the temptations of unethical conduct. How? By giving in to these four seductive pressures.

1. Living beyond your means.  You go for the big house, pricey toys, and exotic vacations. You wind up with a huge mortgage and a mountain of credit card debt. You start churning client holdings in order to preserve your lifestyle.

What can happen:  Clients complain to regulators. Companies red flag you. Clients sue you.  You develop a reputation as an unethical and possibly criminal advisor.

How to avoid:  Don’t chase the big lifestyle; live within or slightly below your means. Keep your life in balance . . .not overly focused on money and material goods.

2. Running with the wrong crowd.  You begin working with product companies that cut compliance corners. They believe in run, gun, and score.

What can happen: You lose your ethical focus. You start selling variable annuities with long surrender periods to clients in there 80s.  Your state insurance commissioner issues a warning. You get sloppy with your securities paperwork and get fined by FINRA.   The National Ethics Association suspends your membership.

How to avoid:  Screen your partners not only for their products and support, but also for their commitment to professional ethics and compliance.  If they don’t measure up, get new partners.

3. Growing too fast.  You started out as a solo practitioner.  But in the last several years, you’ve added so many new clients you decided to hire three new employees.

What can happen: Your overhead soars. Your revenue doesn’t. Trapped like a gerbil on a treadmill, you begin recommending speculative investments with big commissions.   Clients complain.  Your state securities division audits you and decides to issue sanctions.

How to avoid:  Manage your growth so you never have to recommend an unsuitable investment because you need the revenue.

4. Getting comfortable. You entered the financial services business because you wanted to help people. You used to love the work, but now it’s getting a bit old. Clients keep asking the same questions. Carriers are a pain. Continuing education is a bore.

What can happen: Rather than find a new career, you just hunker down until retirement. Your edge slowly rusts. Many of your best clients notice—and take their business elsewhere.

How to avoid: Keep learning about new products or planning techniques.  Get involved with a professional trade association, ideally in a leadership position.  Network extensively with others in the business.  Get active in non-business pursuits that stoke your energy and creativity. If you can’t stay excited, find something else to do.

The point is this: ethical lapses aren’t mysteries. They happen when advisors succumb to temptations that lead them to make bad life decisions. Once you’re on such a path, your options become more limited and unethical outcomes more likely. Plus, the more dicey decisions you make, the more likely you’ll generate client complaints and possibly lawsuits. Don’t let this happen to you. Here’s how:

  • Keep your life in balance,
  • Don’t hang with a bad crowd,
  • Manage your business growth, and
  • Keep your professional edge sharp.


Do all this and your path through financial services should be profitable and enjoyable—and free of nasty errors-and-omissions insurance claims.

For more information on reducing your errors-and-omissions insurance liabilities, please visit our E&O Headquarters at E&OforLess.com (financial professionals only). For more information on ethical selling practices, visit National Ethics Association’s Ethics Center.

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