Keeping Your Business Safe with E&O Insurance

As a new insurance agent, you’ve decided to enter a highly rewarding industry, both financially and psychologically. However, to attain these rewards requires a huge investment of time, energy, and fortitude. Because these sacrifices can be intense, you might have difficulty managing the three key challenges facing new insurance professionals:

  • Managing the risks of entering the business,
  • Making the most of your limited time, and
  • Building the goodwill of your prospects and clients.

Fortunately, buying (and keeping) E&O insurance will help you surmount each challenge. Here’s how.

First, new agents will typically have fewer assets and less disposable income than more experienced agents. As you’re working hard to adjust to a new industry—learning about its products and under intense pressure to close sales—the chances of making a mistake can be huge. This poses a large financial risk.

Since you have fewer financial resources and less knowledge, it’s crucial you protect yourself with E&O insurance. Going without coverage is an unwise choice for most agents. And those who have made and lost that bet rue the day they stayed uninsured. However, E&O insurance for new agents must also be affordable, since they don’t have a lot of money. “I need cheap E&O insurance” is a phrase heard often around new-agent offices. Online E&O providers address that need because they have less overhead than traditional E&O insurance marketers, which translates into lower prices.

Second, having limited time is a common problem for new agents. Why? Because becoming a successful producer forces you to quickly learn a great deal of information: product specifications, marketing and sales systems, new-business procedures, regulatory compliance, market and buyer needs, and much more. And while you’re learning all that, you must also identify prospects, set up meetings, do needs analyses, determine and present solutions, and close cases, not to mention handling service requests from existing clients.

For these reasons, new agents tend to be quite busy, which makes it hard to shop conventionally for E&O insurance through an insurance broker, a tedious and time-consuming experience at best. Given these problems, many new agents choose to buy E&O insurance from an online provider such as EOforLess. This lets them select, pay for, and then bind their E&O insurance in just a few minutes . . . literally saving days or weeks compared with a broker-mediated sale.

Third, because new agents are in an inherently risky position and are short of time, the last thing they need is a client dispute. Responding to client complaints and defending themselves in court is a huge time drain, something they can ill afford at this point in their careers.

Fortunately, having E&O insurance is a powerful way to prevent client problems. As soon as you suspect a customer is unhappy with something you did or failed to do, call your E&O insurer. The company will then evaluate the problem; appoint a defense attorney, if needed; and contact the unhappy customer to see if it can defuse the dispute before it becomes a formal lawsuit. If you don’t have E&O insurance, you’d have to handle these steps yourself, which might not happen. By not having E&O insurance, you actually increase your chances of getting sued.

In summary, as a new agent, job one is to get up to speed quickly with your job and your industry: learning the business, mastering your product portfolio, learning how to sell, and knowing how to get policies on the books and customer service requests fulfilled. It’s hard to do all that without the peace of mind that E&O insurance brings.

So, if you’re a new agent who still hasn’t purchased E&O insurance, consider buying from EOforLess, the online click-and-bind pioneer. And if you already have coverage, take advantage of our Renewal Reminder, which will prompt you to visit our online store before your existing policy renews. Either way, you’ll be doing your career a big favor by reducing the risks, costs, and problems all new agents face. Good luck!

Documentation—the practice of summarizing every key client conversation and decision in writing—is a crucial part of your day. It not only produces a paper (or electronic) trail of your regulatory compliance, it helps to support your legal defense in case a cl­ient sues you.  For these reasons, compliance officers and attorneys are big on documentation. In fact, they would love for you to spend your entire day on it, despite the inevitable revenue plunge.

However, insurance and financial advisors may not be as positive about documentation as their compliance and legal colleagues are. That’s because they’re the ones who have to do it. What’s more, each minute spent documenting imposes an opportunity cost in terms of time lost to prospecting, sales meetings, business management, and the like. As regulations become more involved, the documentation requirements soar in tandem, taking up more time, imposing more costs, and generally making the life of a financial professional more tedious.

Are you spending more time on documentation these days? Do you find yourself dreading every client phone call because now you have to record its key outcomes? If so, you’ll be happy to know you’re not alone.  According to a new survey from Nuance, maker of Dragon speech recognition software, 89 percent of financial advisors say heavy documentation limits the time they can spend with clients; 37 percent spend three hours or more each day writing financial plans, regulatory filings, or other documentation; and 48 percent say they have to generate at least one full page of notes after every client interaction. Is it any wonder documenting may not be your favorite activity?

Fortunately, taking and storing notes isn’t as hard as it used to be. Today, you have customer relationship management (CRM) applications to help with the generation, filing, and retrieval of meeting notes. In fact, according to Nuance, more than two-thirds of the financial advisors it surveyed use CRM software. However, the majority are less than satisfied with their CRM application, saying it’s frustrating and difficult to use.

In response, financial-services firms give their advisors a host of additional documentation tools, including standardized templates, disclosure forms, and the like. They also deploy smartphones and mobile apps to help advisors and agents complete their documentation tasks while on the road. This is important because making notes right after a meeting instead of when you return to the office minimizes forgetting.

Still, according to Nuance, 78 percent of advisors surveyed said they would be open to using additional tools such as speech recognition to make their documentation lives easier.

So what’s the bottom line? That documentation is a pain, but it’s also crucial. Which means you should make full use of all the tools at your disposal—your company’s CRM software, mobile note-taking apps, and speech recognition technology (if available)— to take the best notes possible. As a refresher, here are some of the items you should record:

  • The “Who”: customer name and title; personnel tasked with action.
  • The “What”: the specific prospect/client inquiry/decision that prompted the action, including accountabilities.
  • The “Why”: the reason(s) the prospect/client initiated the request.
  • The “When”: the time at which the request was made and completed.
  • The Need: the specific issues your fact-finding meeting uncovered; the needs the client specifically expressed.
  • The Recommendation: the recommendations your research and analysis produced?
  • The Decisions: whether the client decided to buy or not. If the latter, why.
  • The Questions: the questions/concerns discussed and the outcomes agreed to.
  • The e-mail/fax communications: the electronic or faxed communications that took place between you and the client.
  • The “moments of truth” in the client relationship: differences of opinion between advisor and client or between client and family members; new issues arising during annual update meetings; coverage change requests; carrier underwriting decisions, especially if negative.
  • The policy illustrations: the projections used to illustrate policy performance, including the client’s signature.
  • The unusual: atypical client situations or requests, including anything that seems weird or that suggests potential future problems.
  • The arguments or complaints: any negative interactions with a prospect or client, especially those relating to a breached duty (perceived or real).

Finally, if documenting all of the above is stressing you out, remember this: if you’re ever sued, your E&O insurance defense will only be as strong as the thoroughness of your notes. Good luck!

For information on affordable E&O insurance for low-risk insurance agents, financial advisors, and real estate broker/owners, please visit For information on ethical sales practices, please visit the National Ethics Association’s Ethics Center.

If you’re an investment advisor, one of the quickest ways to run afoul of the Securities and Exchange Commission (SEC) is to make statements in your Form ADV that you fail to execute. When this happens in connection with investment-advisory fees, the SEC will be especially unhappy with you. To motivate advisors to not play games with their fees, the SEC recently published a Risk Alert detailing the most frequent advisory fee and expense compliance issues they encounter.

Based on a review of 1,500 examinations and resulting deficiency letters over the last two years, the SEC’s Office of Compliance Inspections and Examinations identified the most common compliance issues that arise out of sloppy or deceptive advisor billing of consumer fees and expenses. They include:

  • Inflating the value of an account in order to generate higher fees. This results from practices such as using a different valuation metric than what was defined in the advisory agreement; calculating the account value at the end of a billing cycle rather than using the average daily balance; or including asset types such as cash equivalents, alternative investments, or variable annuities in the value calculation in violation of the agreement.
  • Manipulating the timing and frequency of fee billing in order to benefit the firm. For example, advisors may bill advisory fees on a monthly basis instead of the required quarterly basis or bill new clients in advance for an entire cycle rather than making a pro-rata adjustment.
  • Applying an incorrect fee rate. This tactic may include applying a higher rate to the calculated account value than is stated in the advisory agreement or Form ADV or charging a non-qualified client performance fees based on a share of capital gains in violation of the Advisors Act.
  • Omitting rebates and applying discounts incorrectly. Here, OCIE staff said advisors sometimes fail to aggregate account values as promised for multiple family members in the same household or never reduce the fee rate when the account value reaches an agreed-upon benchmark. They also may charge clients brokerage fees when they are in the advisor’s wrap fee program.
  • Making disclosures in their Form ADVs that conflicted with actual practices. For instance, advisors sometimes charge a fee rate higher than the maximum promised in their advisory agreements. Or they may bill for expenses unmentioned in their agreements (example: billing for third-party execution and clearing services that exceed actual fees charged by an outside clearing broker).
  • Misallocating expenses to clients rather than to advisors. This occurs in connection with distribution and marketing expenses, regulatory filing fees, and travel expenses that advisors charge to clients rather than properly allocating to themselves.

What should you do with this information? The OCIE provides three pieces of advice:

  • Assess one’s advisory fee and expense practices (and disclosures) to make sure they comply with the Advisor’s Act and related rules.
  • Based on this review, change or enhance your practices and procedures to assure compliance.
  • Reimburse clients for the overbilled amount of advisory fees and expenses.

This may not be what you want to hear, but it’s good advice. Full compliance with the law and if not, mitigation of any problems, including refunds paid to consumers, will always be the smartest strategy. Questions? Contact your compliance officer or attorney as soon as possible so you can avoid problems in case the SEC comes calling.

To read more on ethical business practices, visit the Ethics Center at the National Ethics Association, sponsor of EOforLess. 

A federal court has vacated the Department of Labor’s fiduciary rule for retirement accounts. But the fiduciary principle is far from dead. Not only are state jurisdictions adopting their own fiduciary standards, but the Certified Financial Planner Board of Standards has just approved a new Code of Ethics and Standards of Conduct. The code requires CFP® certificants to uphold a fiduciary standard when providing financial advice to clients. The Board’s prior code only required advisors to act as fiduciaries when performing comprehensive financial planning.

After a two-year process, the CFP-granting organization decided to move to a more comprehensive fiduciary standard that will assure that its 80,000 planners serve the public interest.

“(The) CFP Board took a bold step more than a decade ago in requiring a fiduciary duty when CFP® professionals provide financial planning services. We are raising the bar even higher now with a fiduciary standard that will apply anytime a CFP® professional gives financial advice,” said Richard Salmen, CFP®, Chair of the CFP Board of Directors. “This is a monumental step forward in the evolution of not just the CFP® certification, but also of the profession of financial planning. Consumers, advisors, and firms alike will all benefit from these new standards.”

According to Salmen, the CFP Board spent more than two years working on the revised Code. Starting with the December 2015 formation of the Commission on Standards, the Board held more than 17 public forums and multiple comment periods and received more than 1,500 written comments and hundreds of oral comments. It also conducted a survey and provided multiple opportunities for the public to provide input.

The new CFP Code of Ethics and Standards of Conduct, which will take effect on October 1, 2018, requires CFP® holders to;

  • Place the interests of their clients above their own interests or those of their firms.
  • Strive to avoid conflicts of interest (or if they can’t be avoided, to fully disclose them), to obtain the informed consent of clients regarding the conflicts, and to properly manage the conflicts.
  • Act without regard to the financial or other interests of the CFP® holder, of that person’s firm, or of any individual or entity other than their clients.
  • Perform their duties with integrity, which must transcend personal gain or advantage.
  • Provide professional services with competence, which means with relevant knowledge and skill.
  • Do their jobs with diligence, which entails responding to reasonable client inquiries in a timely and thorough manner.
  • Exercise sound and objective professional judgment, refusing any gift, gratuity, entertainment, non-cash compensation, or other consideration that might compromise a financial planner’s objectivity.
  • Treat all clients, colleagues, and others with dignity, courtesy, and respect.
  • Comply with the laws, rules, and regulations governing the financial-services industry.
  • Keep confidential any non-public personal information about a prospective, current, or former client.
  • Provide sufficient information to all clients confirming the scope of all financial-advice and financial-planning engagements.
  • Provide accurate information to clients in a manner and format that fosters understanding.
  • Refrain from making false or misleading statements regarding methods of compensation, especially regarding claims of operating on a fee-only or fee-based basis.
  • Exercise reasonable care and judgment when selecting, using, or recommending any software, digital advice tools, or other technology to clients.
  • Refrain from borrowing or lending money to a client.

The Code also defines the financial-planning process, applying standards to its seven underlying steps, which include:

  • Understanding the client’s personal and financial circumstances.
  • Identifying and selecting goals.
  • Analyzing the client’s current course of action and potential alternative courses of action.
  • Developing the financial planning recommendation(s).
  • Presenting the financial planning recommendations(s).
  • Implementing the financial planning recommendation(s).
  • Monitoring progress and updating the client.

Finally, the new code reviews a CFP® planner’s duties owed to firms and subordinates, as well as to the CFP Board.

To learn more about the CFP Board’s new Code of Ethics and Standards of Conduct, read the complete document here. You can also review a commentary version, a redline version, and a side-by-side document comparing the new and prior documents.

Continue to keep up to date with ethical practices by reading the latest news on  National Ethics AssociationFor information on affordable E&O insurance for low-risk insurance agents, investment advisors, and real estate broker/owners, please visit