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?

Has there ever been an easy-to-understand financial-services product? Even for those in the business, life insurance and investment products can be complicated. This is understandable, of course, because with so much money at stake, product providers must define their offerings using precise legal terms. Unfortunately, this can make their policy documents difficult for consumers to understand, let alone those who sell the products.

This holds true for E&O insurance, as well.  The insuring clauses (the contract language that determines for whom and under what circumstances the product will deliver benefits) and the exclusions (language detailing when policy benefits won’t be paid) for professional liability insurance can confound even experienced agents and advisors.

Given such complexity, it’s important to pull the camera back and view E&O insurance from a wider angle . . . to get the big picture, if you will. This can help you better appreciate what it does and why it’s so important to buy it for your business (and to keep it in force).

To that end, we’ve boiled down E&O insurance into a short FAQ. Obviously, there’s much more to know than what we provide here. However, view this as a refresher discussion on why E&O insurance is essential and how it works. If you have further questions, please explore the E&O HQ at EOforLess.

Q: What is E&O insurance?

A:   E&O insurance is a contract between a financial professional and an insurer in which the latter agrees to assume the former’s liability risks in return for one or multiple premium payments.

Q: What is the purpose of E&O insurance?

A:   An E&O policy provides cash in the event a court finds that an agent or advisor has financially harmed a customer and must now pay a settlement or judgment to that person or entity.

Q: Under what circumstances does an E&O insurance policy provide benefits to a financial professional?

A:   E&O insurance pays benefits after a business professional makes a mistake, fails to do something important, or is negligent about performing his duties, thereby financially harming a client.

Q: What types of benefits does an E&O insurance policy provide?

A:   An E&O insurance policy provides cash to pay an insured’s attorney fees, court costs, and court settlements and judgments, subject to the limits and exclusions stated in the policy.

Q: What are E&O insurance policy limits?

A:   E&O insurance policy limits define the maximum benefits payable under an E&O policy.  They’re typically expressed in terms of two numbers. The first is the per-claim limit, and the second is the maximum allowed for all claims during the policy period.

Q: What are some common exclusions stated in E&O insurance policies?

A:   Common exclusions include claims for litigation settled prior to an E&O policy’s inception date or that is pending at that date; claims that benefit an insured’s family member; claims relating to the insured’s regulatory infractions or fines; claims stemming from a financial professional’s dishonest, fraudulent, criminal, malicious intentional acts or those that willfully violate state or federal law; or claims involving actual or alleged bodily injury, sickness, disease, emotional distress, mental anguish, or the death of any person. Check your E&O policy document to review all exclusions that may affect coverage under your contract.

Q: What is a “claims made and reported” E&O insurance policy?

A:   This is a form of professional liability insurance in which only claims made and filed during the policy period will be covered. If the insured cancels the policy and a claim arises at a later point, there will be no coverage.

Q: Can an insured cancel an E&O insurance policy at any time?

A:   Yes, an insured can cancel an E&O policy at any time. In such an event, the insurer will refund a pro-rated share of the premium. However, if a client files a claim for an incident during the policy period, there will be no coverage unless the insured purchased extended-reporting period coverage.

Q: What’s extended-reporting period coverage?

A:   Extended-reported period coverage provides protection for claims resulting from work completed during a prior reporting period. However, it doesn’t apply to current or future client work.

Q: What is an E&O insurance retroactive date?

A:   An E&O insurance retroactive date refers to how far back the insurer will pay for claims. In many cases under a claims-made E&O policy, your existing insurer will pay for claims arising from prior policy periods with other insurers, as long as you have maintained continuous coverage.

Q: Does E&O insurance protect your firm against frivolous lawsuits?

A:   Yes, your E&O policy will provide you with a lawyer and pay that person’s fees to defend you against frivolous lawsuits.

Q: Are E&O insurance policy retentions the same as deductibles?

A:   Yes, an E&O insurance policy retention is the amount of the claim settlement or judgment the insured is responsible for after which the insurer is responsible for the balance.

Q: Why is E&O insurance important to have?

A:   E&O insurance is important to have because it provides four essential benefits: a reduction of financial uncertainty, assistance with handling a client dispute, personal stress reduction, and bankruptcy prevention.

Q: What is the most convenient method of purchasing E&O insurance?

A:   The most convenient method of purchasing E&O insurance is to buy it from an online provider such as EOforLess, which offers click-and-bind coverage within minutes of arriving at the site.

Remember when AARP used to send volunteer monitors into free-meal seminars to identify advisor wrongdoing? That move may not have endeared them to financial scammers. However, advisors with nothing to hide didn’t mind having an AARP “Secret Shopper” in their session. Now the 37 million-member affinity group has rolled out another initiative to protect senior investors: AARP Interview an Advisor TM.

The new program is designed to simplify and take the mystery and guesswork out of the process of interviewing and hiring a financial professional. It provides consumers with a short list of suggested questions about advisor’s qualifications, compensation methods, and standard of care. It also includes an introductory script for consumers to kick off their candidate interviews.

Free and available to AARP members and non-members, the online tool is optimized for mobile use. It also can run on any smartphone, tablet, or computer.

“Many people can benefit from working with a financial professional,” said Joseph P. Borg, NASAA president and director of the Alabama Securities Commission. “But they just don’t know where to start when it comes to selecting one. Interview an Advisor provides guidance on the types of questions to ask an advisor and helps frame the discussion to empower investors in the selection process.”

A key goal of the new tool is to spark a frank discussion about an advisor’s fiduciary or non-fiduciary status. “While registered investment advisors serve as fiduciaries who are required to provide advice that is in their clients’ best interest, many other financial advisors operate under different requirements that obligate them only to make recommendations that are ‘suitable,’” said Jean Setzfand, senior vice president, programs, AARP. “AARP’s new interactive guide will help investors avoid confusion about a financial professional’s standards and qualifications.”

Not only does the tool give consumers a questioning track, it also provides the capability to save advisor responses online for AARP and NASAA research purposes. However, to advisors’ relief, it lacks the ability to enter and save a financial professional’s name and contact information.

Advisors will also be happy to hear that the AARP guide includes only 13 questions, most of which are fairly straightforward.

Still, to make sure you’re not caught short, consider reviewing the AARP question list below and think through your answers in advance.

How many years have you been providing financial planning or investment advisory services? Less than 1 year? 1-5 years? 5 or more years?

What licenses or professional designations do you hold? 

Have you ever been disciplined by a regulator?

What financial services do you provide? (Check all that apply):

  • Comprehensive Financial Planning
  • Tax Planning
  • Mutual Fund Selection
  • Business Planning
  • Tax Preparation
  • Brokerage Services
  • Estate Planning
  • Insurance
  • Investment and Asset Management
  • Retirement Planning
  • Education Funding

What types of investments do you offer to clients? (Check all that apply):

  • Stocks
  • Municipal Securities
  • Futures/Commodities
  • Certificates of Deposit
  • US Government Securities
  • Mutual Funds
  • Limited Partnerships
  • Coins or Other Collectibles
  • Bonds
  • Options
  • Insurance Products
  • Direct Participation Programs
  • Other

How often will you meet with me to review my investments?

Are you limited to offering the investment products offered by the brokerage firm with which you are affiliated?

Are the returns on my investment guaranteed?

How are you compensated? (Check all that apply):

  • Percentage of assets under management
  • Commissions and loads for financial products purchased and sold
  • Salary

Will you break out all of your fees and commissions?

Do you charge for services like duplicate copies of investment statements, postage and handling, or transfer on death fees?

Does your relationship with me falls under a “best interests” or a “suitability” standard?


Most people understand the importance of buying auto insurance or even homeowner’s or renter’s insurance. They intuitively appreciate not only the reasons why protecting their car and home make financial sense, but also why insuring them is the right thing to do for society at large. (Example: it minimizes the number of uninsured drivers wreaking financial havoc on communities; provides for immediate funds in event a home burns down rather than forcing people to go on the public dole). Yet, some financial professionals elect to not purchase errors and omissions insurance because they either don’t think it will help them financially or because it doesn’t serve a societal purpose. Nothing could be further from the truth.

From a financial perspective, purchasing errors and omissions insurance provides four powerful benefits for life and health insurance agents, property-casualty agents, and registered investment advisors, including:

• The reduction of financial uncertainty. When you buy errors and omissions insurance, you trade a large, unpredictable risk—the possibility of getting sued and having to pay a cash settlement as a result—for a smaller, scheduled expense that is much easier to handle (i.e., a periodic E&O insurance premium). Just as with any other form of insurance, being able to transfer unknown risks to an insurance company for a known premium is a convenient and affordable option for most people. This is why the vast majority of financial professionals regardless of license type purchase errors-and-omissions insurance and then keep their coverage in force.

• Assistance with handling a client dispute. If you have no errors and omissions insurance, you must personally take charge of any client complaint against you, including hiring an attorney if the dispute is serious enough. This can take time away from your normal job duties, which can have an impact on your ability to close sales and book revenue. However, if you have errors and omissions insurance, you can rely on your insurer’s appointed attorney, as well as on its E&O claims adjuster, to handle every aspect of the process, saving you lots of time and money.

• Stress reduction. Getting into a “fight” with a client can be highly unpleasant. It can spark a lot of personal second-guessing, guilt, worries over the future financial implications, and lots of sleepless nights. With E&O insurance you’ll be much better equipped to manage the psychological impact of getting sued than are those who are uninsured. That’s because you will have trained professionals guiding you through the process whereas the uninsured will be on their own.

• Bankruptcy prevention. The most important benefit of E&O insurance is that it provides cash in the event a court levies a big financial judgment against you. Depending on the size of this payment, you could literally be wiped out and forced to declare bankruptcy. Fortunately, errors and omissions insurance can provide an immediate cash payment to help you pay the judgment without consuming all of your assets or declaring bankruptcy.

As powerful and important as these benefits are, the societal or ethical reasons to own errors and omissions insurance are equally compelling. Think about it. You have an awesome responsibility as a financial professional. You work with clients every day to address the risks of living too long, dying too soon or becoming disabled. Your advice often spells the difference between a client having a safe and secure retirement or having to live from one Social Security payment to the next.  If you make a mistake in discharging your duties, one that harms a client financially, it’s your responsibility to own up to it . . . and make things right with your client. Having errors and omissions insurance makes this possible.

Bottom line: between the four benefits of having errors and omissions insurance we just discussed and the societal or ethical reasons to have such insurance, it’s hard to imagine a scenario where going uninsured makes sense. To the contrary, going unprotected is a highly dubious decision for most financial professionals  . . . especially when in light of the potentially devastating impact on their business, customers, family, and future. What’s more, now that purchasing errors and omissions insurance online at is so convenient, there no longer is is any reason not to buy affordable, high-quality E&O coverage.

To learn more about your errors and omissions insurance options, visit today. At our site, you’ll be able to quickly apply and pay for your E&O insurance and then bind your coverage within minutes. If you’re currently uninsured, do the right thing and protect yourself today.