To Reduce Errors-and Omissions Risk, Follow the Rules
“What was he thinking?” we heard this frequently after a prominent politician resigned due to a sex scandal. We won’t retell the tawdry tale. But we will say his conduct highlights two qualities inappropriate in a public servant: arrogance (“I’m above the law”) and stupidity (“No one will notice”)
These flaws, unfortunately, are universal. People of all professional, educational, or social backgrounds believe (wrongly) that rules don’t apply to them and that rule breaking has no cost.
We see this a lot at the National Ethics Association. Financial professionals who want to earn our optional Certified Background Check credential must complete a detailed application and pass a rigorous seven-year background check. If they’ve had a disqualifying violation, we either find out about it from their application or from our background check. In either case, when truth comes to light, we must decline their application or revoke their membership.
Here’s a case in point (true story). A financial advisor, let’s call him Bob, wanted to join our Association. But he checked “no” to this question on our membership application: “Within the last seven (7) years, have you had a state or federally regulated license revoked, restricted, or terminated for cause?”
Our background check, however, revealed that he, in fact, did have a restricted business license. Reason: When he applied for his license, he failed to disclose that several decades before; he had been convicted of a misdemeanor. The state promptly fined him $2,500, revoked his unrestricted license, and replaced it with a restricted one.
Even though his misdemeanor happened 20 years ago and was eventually dismissed and expunged from his record, and even though he had never had a consumer-related insurance complaint, we could not admit Bob because of his current license status.
Here’s another true case: When a Certified Background Check member’s credential came up for renewal, we ordered a complete check, as we do with all renewing members. This uncovered two problems.
First, in the prior year, Tom had failed to respond to a regulatory agency inquiry.
Second, he had falsely stated to the regulator that he completed his continuing education credits. The state fined him for these two violations, and we revoked his membership.
What can advisors learn from these two cases? That having a cavalier attitude toward rules is as serious a matter as outright criminality. If you are one of the many who believe that rules don’t apply to you and that you’ll never get caught if you break them, consider this article a wake-up call.
Don’t jeopardize your career, your finances, or your clean errors-and-omissions insurance status by ignoring the rules. Instead . . .
- Follow all of the rules prescribed by regulators, especially administrative ones. You’ll pay a price if you don’t.
- Never assume rules they don’t matter. They matter a lot, and they apply to YOU!
- Don’t violate the rules and think you’ll never get caught. You will.
By paying attention to the rules, you won’t get sanctioned or sued . . . and your family and friends won’t ask, as they did about the disgraced politician, “What was he thinking?”