Financial technology (FinTech)—which delivers innovations in banking, investing, and insurance—has had a large impact on America’s financial-services consumers. But it is also posing risks to the public, especially to millennial consumers, according to a new survey of securities regulators from the North American Securities Administrators Association (NASAA).

NASAA’s recent Pulse Survey of state and provincial regulators in the United States, Canada, and Mexico revealed that one-third (34 percent) believed the rapid development of financial technology is a positive development for investors. However, 20 percent expressed concern over the potential negative impact on investors.

Roughly one-half (46 percent) of regulators said it was too early to know for sure, but cited benefits such as lower costs and greater accessibility to investments among clients not previously accessed via traditional methods. Still, they believed it was crucial to have strong investor protections in place so that greater access does generate greater fraud risks.

According to Investopedia, the FinTech landscape is especially wide-ranging. It includes:

  • Cryptocurrencies and digital cash.
  • Distributed ledger technologies (blockchain).
  • Smart contracts (using computers to automate contracts between buyers and sellers).
  • Open banking (joining banks to third-party providers such as Mint).
  • InsurTech (streamlining the insurance industry).
  • RegTech (applying technology to regulatory compliance).
  • Robo-advising (using algorithms to deliver investment advice without face-to-face human involvement.
  • Unbanked/underbanked (providing financial access to populations that traditional banks and insurers ignore).
  • Cybersecurity (assuring that fintech applications and data are protected against cyber-criminals.

Other findings from the NASAA survey are as follows:

  • Millenials have the greatest risk of fraud. The regulators viewed Millennials (consumers reaching young adulthood in the early 21st century) as the most likely consumer group to use FinTech products (84 percent). But they also believed they are the most likely to become  fraud victims (41 percent). Meanwhile, Baby Boomers were seen as the least likely to use FinTech, but the second most likely to become victims (37 percent).
  • Some FinTech is riskier than others. Regulators viewed financial technology as having a high (28 percent) or moderate (72 percent) chance of fraud. But risks were perceived to be high for specific applications, including initial coin offerings (ICOs) and cryptocurrencies (94 percent) and low for others (3 percent for robo-advising).
  • Fraudsters have the edge. Not surprisingly, more than half of regulators (56 percent) said fraudsters were the most knowledgeable about FinTech and that consumers were the least knowledgeable (94 percent).
  • Regulators and law enforcement have their work cut out for them. Three-fours of survey respondents (75 percent) said they believe preventing FinTech fraud is getting more difficult.

“The survey results show that our members are focused on the potential for fraud when it comes to new technologies and products,” said Joseph P. Borg, NASAA President and Alabama Securities Commission Director. “But the results also reflect recognition that these innovations may benefit investors, which makes appropriate regulation and investor education critical.”

Are your customers heavy or light users of FinTech? In either case, now may be a good time to warn them about the dangers of using such tools without sufficient understanding of the risks involved.

For complete survey results, go here.

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

Principled Selling: Why Insurance Professionals Need a Personal Ethics Code

The demands placed on life, health, P&C agents, and investment advisors can be intense. But even worse, they can be in conflict with each other. Your client may want you to do something that your agent or company prohibits. You may wish to do something that ill serves a client. Or your FMO, broker-dealer, or RIA may want you to sell something that you believe will harm a client. How do you resolve all these conflicts? By creating a personal ethics code and committing it to paper.

Having your own ethics code means you’ll know what you stand for. It will remind you of the values and principles you hold dear so that when caught in an ethical dilemma, you’ll have guidance for resolving it. Don’t think for a minute that your ethics code should be a long, complex document. Or that it should be full of legalese or tedious information. Instead, it should be short, high-level, but deeply inspirational.

Now, you may be thinking,

“Why do I need an ethics code when I already do what my compliance department requires?”

That’s a great question, which gets at the difference between compliance guidelines and ethical values. Compliance guidelines are the black-and-white legal requirements you must follow in order to stay in business. They are rules-based and have sanctions attached if you violate them.

Ethics refer to the personal values you bring to your business career. They aren’t the rules a third party demands you follow. Rather, they are the values you voluntarily adhere to because they’re meaningful to you.  And since there isn’t a compliance rule for every contingency, ethical values help guide you in the gray areas between legal requirements.

In fact, we’d argue that the most effective and successful financial professionals combine compliance rigor with ethical principles to create a highly professional operation. Since many agents and advisors are content to just follow the regulations pertaining to their license, those who integrate their ethical values into their business models almost always will achieve a competitive edge.

Now, what should your ethics code look like in terms of format? We hesitate to provide firm guidelines because it should be something that’s deeply meaningful and relevant to you. Printing it on an index card, as a PowerPoint slide or on a sheet of 8 x 10 glossy paper that you put in a frame are all possibilities. The point is, your code should be whatever will be most useful and motivating to you. And if it’s in a form that you can share with clients and colleagues, all the better.

How do you develop this document? Again, that’s a deeply personal matter. But consider following this process:

First, do some brainstorming around the ethical principles that have resonated with you over the years. Uncover them by . . .

  • Writing down the values and principles that make you feel good about your work.
  • Defining the qualities that have allowed you to outshine others in your market.
  • Thinking about your favorite motivational writers, leaders, or philosophers and write down any of their teachings that have stayed with you for years.
  • Considering the teachings or your faith community (if any) relating to how to treat your fellow man.
  • Recalling the life lessons your parents gave you and that you’ve given to your own children.

Second, review your master values list and circle those that have persisted longest, meant the most to you, had the broadest application, and helped you resolve ethical dilemmas in the past. Select perhaps 10 of these statements and type them up on a single sheet of paper.

Third, share your list with four to five people with whom you are extremely close, including work colleagues, friends, and family members. Ask them what they think of your list. Have them pick out the top three or four ethical values that speak most powerfully to them and that reflect your unique character.

Fourth, capture the principles that were selected most often and put them on a single sheet of paper, index card, or however you’d like to format it.

Fifth, let this list “germinate” for a few weeks. Then revisit it to see if you still like the items it includes. Eliminate those that have lost potency for you, and add others that have come to mind since the prior exercise.

Sixth, compile your final ethical principles list and format it as your official Ethics Code. Phrase each statement in the form of a manifesto or a “This I Believe” so that you and the people reading them will know you stand for these things.

Seventh, print out your code in a format that promotes sharing, that’s visible to you throughout your work day, and that makes you feel really good.

Now that you have an Ethics Code, refer to it frequently when faced with difficult business decisions. Always ask yourself whether a potential action tracks with or violates your Code. Then make the appropriate call consistent with your code.

Finally, congratulate yourself for having developed a tool that the vast majority of your competitors lack . . . a highly motivating Ethics Code that will help you become an admired and successful financial professional. It will also discourage unhappy clients from suing you and making you use your E&O insurance. Sounds like a win-win, right?

Building Client Trust

Are you focused on increasing client trust as a business success strategy? If not, you should be, two recent industry reports suggest.

The first, a Vanguard study entitled “Trust and Financial Advice,” strongly confirms the relationship between deeper consumer trust and positive business outcomes for financial professionals. Based on a mix of qualitative and quantitative research with some 4,000 U.S. investors, the research identified the top drivers of advisor trustworthiness.

Interestingly, the Vanguard researchers found that behaviors that strengthened the advisor/client relationship and highlighted an advisor’s professional integrity were more commonly viewed as trust drivers than were an advisor’s functional business strengths (i.e., his or her ability to successfully complete financial transactions or plans).

For example, of the top ten drivers of financial advisor trustworthiness, only one related to functional skills. The remaining nine fell either into the emotional realm (6 drivers), and three dealt with the advisor’s perceived ethical characteristics. Conversely, of the least effective trust drivers, six were functional, one was emotional, and two were ethical.

The point is, if your goal as a financial advisor is to build trust, then it’s important to engage in explicit trust-building behaviors, especially those that deepen trust most efficiently. According to the Vanguard study, which was conducted by Anna Madamba, Ph.D., and Stephen P. Utkus, those 10 drivers include:

  1. Serving as an advocate for your clients—i.e., pursuing their goals as if they are your own.
  2. Acting in your clients’ best interests at all times.
  3. Relating well with your clients; connecting with them on a personal basis.
  4. Deliver a tangible sense of personal relief and heightened security.
  5. Providing products and services that are in tune with their financial goals and risk profiles.
  6. Acting with integrity and morality.
  7. Being generous with your time.
  8. Conveying to clients that their portfolio is important, regardless of its size.
  9. Knowing how to conceive, execute, and reassess client financial plans.
  10. Being compensated in a fair and reasonable matter.

The most important takeaway of the Vanguard study? Trust building isn’t just a feel-good exercise. Rather, it’s a way to generate more positive business outcomes for advisors.  For example:

  • 97 percent of clients with high levels of trust were satisfied with their advisors vs. only 2 percent of those with low trust levels.
  • 94 percent of high-trust clients recommended their advisors to someone else vs. 0 percent for low-trust clients.
  • 70 percent of highly trusting clients were highly likely to give their advisors extra money to invest vs. only 11 percent for clients lacked trust.
  • 70 percent of clients with low levels of trust said they were extremely or somewhat likely to switch financial advisors. However, only 2 percent of high-trust customers said they were extremely or somewhat likely to defect.

If those aren’t strong business reasons to raise your trust-building game, we don’t know what is. In short, if your goal is to increase customer satisfaction, grow referrals, capture additional client funds to invest, and minimize customer defections, then increasing your trust drivers is extremely important, especially those that fall into the emotional or ethical domains.

A second industry report highlights another trust building driver—adhering to fiduciary principles in your client work. According to an article in Financial Advisor magazine, brokerage firms, which are regulated under the so-called suitability standard, are selling for perhaps 1 times revenue. This compares with investment-advisory firms, which operate as fiduciaries, typically selling for 1.5 to 2.5 times revenue.

It’s not hard to see why buyers are willing to pay more for investment-advisory firms. Since they are required to put client interests first, their customers have more faith in them and are more willing to invest additional funds with them, for longer periods of time. Securities broker-dealers, on the other hand, do not benefit from this level of trust. Consequently, their clients are more prone to take their assets to other firms when they have a falling out with their broker. As a result, a broker-dealer’s deposits are much less sticky, making them less valuable to a purchaser.

Any way you look at it, assuming an advisor stays in the business or is planning to sell out, behaving in ways that grow consumer trust makes a tremendous amount of sense. In fact, it could well be the ultimate way to grow your firm or transfer your business to the next generation.

What is E&O Insurance and What Does It Deal With?

As providers of E&O insurance, admires the time and effort financial professionals invest in their firms. We also admire their courage in going out on their own when the majority of people today opt for the security of working for someone else. And we really admire the confidence entrepreneurs have in their own abilities. They believe the future will be theirs, and in most cases, it will!

But in watching entrepreneurs launch new businesses for years, we also know they can be prone to hubris. They often bite off more than they can chew, while also believing nothing bad will ever happen to them. The first trait can lead financial professionals to make mistakes, and the second to foregoing E&O insurance. Together, they can spell big problems for entrepreneurs who get embroiled in client disputes.

If you think your company can do without E&O insurance, think again!

Now, don’t be offended by our plainspoken language. We are coming from a place of deep respect and admiration for the entrepreneurial spirit. We want you to succeed and fully expect you to. But we also realize there’s a chance you’ll commit an error or omission, which will generate a client financial loss. And if the mistake or omission is serious enough and the client is angry enough, there’s a chance you’ll get sued—and lose. So the question is, how much will you be on the hook for and where will you find the money?

Many financial professionals decide to either ignore the risks of doing business or to assume nothing bad will ever happen. Others will do the responsible thing and insure themselves against the potential negative consequences of getting sued. They buy E&O insurance so they can literally sleep well at night.

What does E&O insurance provide? It provides a promise of a financial backstop should you get sued. It generates funds to hire an attorney to defend you in court, as well as cash to cover any damages a judge may order paid to the plaintiff. Finally, it also will pay for court costs should you lose.

But the biggest thing E&O insurance provides is stress reduction in case a client brings an action against you. One of the first things financial professionals worry about is what attorney to hire to mount a defense. Sure, most towns have multiple attorneys available. But defending insurance agents, financial advisors, stock brokers, and real estate brokers/owners is a specialized discipline. Most communities won’t have a lawyer available with the expertise to handle your case. So what will you do then?

The other concern is to secure cash quickly to pay for your attorney’s retainer. Since lawyers often charge hundreds of dollars per hour, you can imagine that reserving a significant block of their time at hundreds of dollars per hour can produce an large retainer fee. With E&O insurance, you will not be personally responsible for paying this and future fees billed to your case.

Finally, should you elect to defend yourself against an E&O insurance claim, you would have to manage all interactions with the plaintiff’s attorney as well as with the judge. Since you also have your regular job duties to handle, defending yourself can quickly produce a time crunch, leading you to neglect your business duties. Less time working your normal job means less money in your pocket . . . at a time when you need more for legal expenses.

Errors & Omissions Are Inevitable, but the Responsibility Is Yours

Here’s the bottom line: errors & omissions are inevitable, but the responsibility is yours. By “responsibility” we mean ethical financial professionals must be accountable for their actions. If they make a mistake, they need to own up to the problem they caused and reimburse their aggrieved client for their losses. If they’re falsely accused of an error, they owe it to themselves to mount an aggressive defense so the client doesn’t benefit financially from a false or nuisance claim. By having E&O insurance, professionals assure they can follow each scenario through to its logical conclusion so that justice is done. Without E&O insurance, the risk is high that financial disputes won’t be litigated and settled quickly and fairly, whoever is at fault.

Going without Errors & Omissions is a Faulty Idea

Hopefully, it’s clear that going without errors & omissions is a faulty idea. Solution? Find comprehensive, yet affordable E&O insurance protection designed specifically for your license type. Also, consider shopping for coverage at an online E&O marketplace such as This will allow you to find an appropriate policy with a minimum of time and effort. Here are some pointers to consider as you begin the process of buying E&O insurance online.

First, take a look at group insurance. These will likely be the most affordable E&O insurance plans because they’re inherently more efficient than individual policies.

Second, look for companies that offer streamlined E&O insurance underwriting. In other words, find firms that are willing to issue coverage based on your answers to a limited number of risk-assessment questions. Ideally, they should also consider your preferred-risk status when determining the premium they charge.

Third, think about buying online vs. buying through a traditional bricks-and-mortar insurance agency. The difference? The former will be quicker and less involved from a process standpoint; the latter more complicated and time consuming. However, for a financial professional with sub-agents or advisors, it may be necessary to deal with a broker. Just budget extra time for filling out a complicated insurance application and for the broker to shop your applications at a number of different insurers before returning with multiple quotations for your review.

In short, don’t sweep your E&O liabilities under the rug. Own up to them as a responsible, forward-thinking entrepreneur. If you’re as good as we think you are, then chances are nothing bad will happen. But in the unlikely event you get sued, you’ll know your business and assets will be well protected. Regardless of a court’s judgment, you will be able to keep doing what you love most—running your own show and reaping the rewards for doing it!