Safe Suitability: Recommend the Right Products to Prevent Lawsuits



Have you been “kicking the can” when it comes to suitability—or the appropriateness of the products and services you provide to your customers?

As we’ve discussed over the prior two articles, (Safe Disclosure and Safe Solicitation) “kicking the can” refers to engaging in bad habits that could end up hurting you, either literally or figuratively. During the Vietnam War, U.S. soldiers kicked the can quite literally. When they spotted discarded cans on the side of the road, they kicked them. The Viet Cong noticed this and began booby-trapping the cans. But the soldiers kept on kicking . . . with deadly results.

Today, financial professionals figuratively kick the can each time they ignore a compliance or ethics guideline. This practice won’t kill them, but it might very well blow up their companies—and their careers. Not only that, it can spawn nasty errors-and-omissions lawsuits.

We’ve already discussed can kicking in terms of client solicitation and disclosure. This time, let’s focus on suitability, a particularly explosive issue since regulators seem to be hard wired to detect product sales that don’t fit a client’s resources and goals.

So how do you prevent avoid suitability disputes down the road?

First, take your responsibilities seriously. The onus falls on you to demonstrate that every product recommendation you make is suitable for your clients. No exceptions allowed.

Second, rediscover the joys of fact-finding. If you want to increase your revenue—and your errors-and-omissions insurance claims—open and close a sale as quickly as possible. But if you want to build a high-quality, sustainable business, with satisfied clients, take the time to thoroughly assess their unique needs before you recommend a solution. Specifically, be sure to uncover all relevant facts that relate to their purchase of your product or service. Based on your business, you will need to fully understand each person’s financial objectives and concerns. To this end, encourage your clients to express their hopes and dreams for the future. If applicable, be sure to get families involved in these discussions, so there are no misunderstandings or errors-and-omissions problems later.

Third, get familiar with your suitability forms (if any). Yes, these forms can be annoying, but they will help you walk on safe suitability ground. The goal: to make sure that what you recommend fits a client’s current and future situation, especially in light of their personal resources.

Fourth, when you present a product, explain all of its moving parts. Review the product literature carefully, defining key terms and paying special attention to fees and charges. Before you present your solution, make sure the product’s advantages outweigh its disadvantages for each individual client.

Fifth, and finally, always do the right thing. The best defense against exploding cans is to simply not kick them. Are you ready to stop kicking the suitability can down the road? This is the best way to prevent errors-and-omissions insurance claims in the future.

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