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SEC Reveals Its 2018 Enforcement Priorities; Are You Ready?

Federally licensed investment advisors often grouse about the heavy hand of government regulation. But the good news is the Securities and Exchange Commission each year gives its licensees a heads up in terms of its enforcement priorities. If you pay attention, an SEC action should never take you by surprise.

To that end, the agency in early February 2018 released its examination priorities for the year. Among them are protecting Main Street investors; further tightening cybersecurity; making sure investment advisors comply with anti-money laundering regulations; assuring that FINRA and MSRB operate effectively; and making sure clearing agencies, securities exchanges, and transfer agents support the capital markets.

According to the SEC’s Office of Compliance Inspections and Examinations (OCIE), the agency’s work stands on four regulatory pillars: promoting compliance, preventing fraud, identifying and monitoring risk, and informing policies. Its 2018 priorities document is designed to provide transparency into its “thinking on issues and areas that we believe constitute an appropriate focus for us in the upcoming year and which entail the most effective use of examination resources . . . .”

The SEC’s enforcement document spells out its concerns in great detail. Five areas will receive the majority of its attention in 2018:

  • Retail investors, including seniors and those saving for retirement. The SEC says protecting Main Street investors will continue to be a concern in 2018. Look for the agency to address the disclosure and calculation of fees, expenses, and other charges; firm supervision of their investment advisor representatives; and the execution of customer orders in the fixed-income securities arena. In addition, OCIE will continue to keep a close eye on the growth of cryptocurrencies and initial coin offerings to make sure investors receive sufficient risk disclosures.
  • Cyber-security. Concerned that cyber-risks to the industry are increasing dramatically, OCIE says it will prioritize cyber-security governance, risk assessment, access rights and controls, data loss prevention, vendor management, training, and incident response.
  • Anti-money laundering programs. The SEC’s examiners will review licensee efforts to comply with all anti-money laundering requirements, including establishing written programs to identify their customers, performing client due diligence, and monitoring accounts for suspicious activity. If they spot such activity, they are required to file Suspicious Activity Reports (SARs) with the Financial Crimes Enforcement Network. In 2018, the OCIE will focus on making sure licensees are taking reasonable steps to understand the nature and purpose of customer relationships and to properly address risks. They will also assess wither RIAs are filing timely, complete, and accurate SARs.
  • FINRA and MSRB. Similarly, SEC’s OCIE will train its microscope on FINRA to make sure it is operating effectively and providing adequate oversight of broker-dealers and municipal advisors. The agency will also focus on the Municipal Securities Rulemaking Board’s (MSRB) internal policies, procedures, and controls.
  • Compliance and risks in critical market infrastructure. Finally, SEC’s OCIE will evaluate all entities that provide critical services to America’s capital markets, including clearing agencies, national securities exchanges, and transfer agencies.

You can find further information about these initiatives in the SEC document, 2018 National Exam Program Examination Priorities. If you have specific questions about how these priorities might affect your firm, please check with your registered investment advisor and/or with a consulting firm that specializes in investment-advisor compliance. Good luck!

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What is Click & Bind E & O Insurance?

The Age of Internet E&O Insurance Shopping

Today, consumers expect to be able to buy everything and anything on the Web: books, music, movies, clothes, shoes, and even cars. But it wasn’t too long ago that buying a product online was either impossible or clunky. That’s not surprising, since selling on the Web—also known as e-commerce—only began in 1994. That’s when several college grads set up a firm called NetMarket in Nashua, New Hampshire. Their first sale—on August 11, 1994—was for Sting’s music CD “Ten Summoner’s Tales.” The price was $12.48, plus shipping, and data encryption protected the buyer’s personal data.

And so it began. Soon, Amazon set up a website to sell books. Then as more consumers became comfortable using their credit cards online, sites that sold flowers, chocolates, wine, and many other products became ubiquitous. Within a few short years, Amazon expanded to become the Web’s first “superstore,” and online commerce became the preferred method of buying just about anything.

But one industry lagged behind: insurance. True to their conservative roots, insurance companies were uncomfortable selling on the Internet. They wanted to protect not only their current business models, but also their policyholders against unknown threats.  Web-enabled commerce was simply too new, too risky, and too faddish for them to jump in boldly. They would let other industries go first to make sure the “waters” were safe.

Years passed. Finally, in the first decade of the new millennium, insurers became more comfortable with the technology. What’s more, with buyer preferences changing, insurers were forced to quicken their pace of innovation, launching websites to help consumers shop for life, auto, and home insurance . . . the most common forms of insurance sold at the time.

Despite these initial efforts, insurance shopping sites often failed to provide a seamless customer experience. Insurers used their websites to collect consumer data for quoting, but still directed buyers to a live insurance agent to close the deal. That’s where Internet insurance sales remained until relatively recently.

Today, a growing number of insurers have begun to actually issue insurance online, not just provide quotes and referrals to agents. But this convenience is available mainly for simple types of coverage that require limited or no underwriting—sadly, not for E&O insurance for life agents.

The Click & Bind E&O Revolution

If insurers lagged behind other online innovators, E & O insurers literally brought up the rear. Here’s why. Professional liability insurance is a complicated coverage.  There are different policy designs for various business types. And potentially large settlements meant E&O insurers resisted simplified underwriting. Plus, they continued to work through traditional brokers who used complicated paper applications, sent the forms to several insurance companies, and waited days or weeks to receive quotes. Life insurance agents had to run a gauntlet to buy E&O insurance. Once the proposals arrived, the financial professional would compare them and select and pay for the best one.  Then came more waiting before the new policy arrived.

It took an entrepreneurial and nimble innovator to introduce a new Web-powered model for E&O insurance for life agents. In 2008, the National Ethics Association, an association of ethics-minded financial professionals, launched EOforLess.com, a shopping portal that allowed life and health insurance agents to purchase professional liability insurance in 10 minutes or less. We coined the phrase “click & bind insurance” to show just how easy it is to find and buy the E&O protection you need on our site.

Thanks to our platform’s user-friendly design, you can select an appropriate form of E & O insurance (now for multiple license types, not just for life/health), set up an account, complete an application, pay for the coverage, and then print out proof of insurance—within minutes. Consider the advantages such speed provides:

  • If you encounter a sales opportunity for which you need access to a specialized insurance product and carrier and if that insurer has specific E&O requirements, you can quickly find coverage and print out an insurance certificate in minutes.
  • If you’re new to the industry and don’t have the time to vet multiple E&O insurance brokers to find one you can trust, you can use EOforLess.com to do your shopping for you . . . again in just a few minutes.
  • If you have E & O insurance, but you’re unhappy with your current coverage or premium, you can find a replacement in short order, potentially saving money and upgrading your protection with little time or effort.
  • If you lapsed your E&O insurance by mistake, you can quickly get re-covered to minimize your liability using our easy buying process.

Why hassle with comparing brokers and policies the old fashioned way, when you can do it in minutes using a convenient site such as EOforLess.com

In short, the click & bind revolution has transformed the insurance industry, especially the complex E&O segment. Using the latest in user-experience design and efficient and secure e-commerce technology, EOforLess provides the utmost in choice, convenience, and security to any financial professional needing E&O insurance fast.

So the next time you buy, well, anything from Amazon, remember that the same level of convenience and safety is also available from EOforLess.com, the industry’s click & bind E&O insurance pioneer. Come visit us soon!

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E&O Insurance Can Mean the Difference Between Bankruptcy and Longevity

Don’t Let a Large E&O Judgment Kill Your Business

Most small financial-services businesses operate on slim margins. They lack a surplus of commissions, fees, and other income over their monthly expenses. What’s more, firms often have limited assets to convert into cash when emergencies arise.

Since they essentially operate on a high wire with no financial safety net, they are vulnerable to unexpected events, including demands from aggrieved clients. Such events, called errors-and-omissions claims, occur when a customer believes you either made a professional mistake or failed to deliver a promised service, which cost them money. The result of losing such a claim—a large settlement or legal judgment—can be severe.

Case in point: According to the National Center for State Courts, the average small-business E&O insurance judgment totals over $140,000, not including legal fees. If your company faced expenses this large, what would you do?

  • First, you could try to tap your cash accounts. But how many firms have that much ready cash or available cash equivalents?
  • Second, you could attempt to convert tangible assets into cash. But most financial-services practices typically don’t have assets other than their good name and future anticipated revenue in the form of commissions and fees. Quickly transforming these assets into ready cash can be difficult. If they own their building or the land it sits on, they could put those assets up for sale. But that could take weeks or even months, and might generate lower proceeds than expected based on current market conditions.

Bottom line, if you don’t have the cash and can’t liquidate assets, how would you pay for a large E&O settlement or legal judgment? You can’t! You’d declare bankruptcy—and try to get on with your life.

But even under that scenario, an E&O dispute can haunt you for decades. You might find it difficult to borrow money to restart your business. Or you might have trouble finding a job in a new industry.

Let’s now paint a happier scenario. Imagine you have an E&O insurance policy to pay for your attorney and settlement/judgment costs. What a difference! Now you can avoid bankruptcy and continue in your business as before. Sure, you might carry scars from the experience. But you’d have avoided bankruptcy. Which option is more appealing? The latter, of course. That’s because E&O insurance can spell the difference between bankruptcy and longevity.

A Full Policy of E&O Insurance Is Your Best Defense

A full policy of E&O insurance is your best defense against the scenario we just described.

It protects your financial-services business in three ways.

  • First, it insulates you against the financial impact of making a professional mistake.
  • Second, it protects you in the event you fail to deliver on your contracted promises.
  • Third, it covers you should you fail to perform your duties up to generally accepted industry standards.

Should any of the above events occur, your E&O insurance policy will kick in, paying for your attorney fees, court costs, and settlements or judgments, up to your policy limit.

And don’t forget. Typical E&O insurance policies include duty-to-defend language. This means the insurance company is on the hook not only for paying your legal fees, but also for providing you with an attorney. Not having to vet and retain your own lawyer is a huge plus when you’re in the middle of a nasty client fight.

E&O Insurance Can Keep Your Business Out of Court

Most people focus on the ability of E&O insurance policies to protect their assets should they lose in court. But an equally powerful benefit is their ability to provide cash to settle client disputes out of court.

With E&O insurance coverage, your insurer will provide you with an attorney to immediately manage communications with the plaintiff and that person’s lawyer. The goal: to reach a mutually agreeable settlement, which will prevent the delays, expense, and headaches of taking a case to court. It also allows a trained legal professional to handle negotiations rather than you, who might be unschooled in legal matters. Having your attorney negotiate for you will help both parties to agree on an optimal settlement amount—not too large, but not too little.

Now, consider what might happen if you didn’t have E&O insurance. The plaintiff might have been willing to accept a lower amount. But since you lacked the money to settle, the dispute might end up in court anyway, costing you more money in the long run—money you didn’t have.

Since E&O insurance can keep your business out of court, doesn’t it make sense to protect your future now with an affordable, comprehensive E&O policy? And if you’re looking to shop, apply, and pay for your E&O insurance in five minutes online, then consider visiting EOforLess.com today to take advantage of our user-friendly shopping portal. It’s easier and faster than buying from a traditional E&O insurance broker. Good luck!

 

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What Are the Situations You Need To Carry E&O Insurance In?

The Era of the Handshake Deal is Long Gone

Sad to say, the era of the handshake deal has passed. Decades ago, it took only a signature and a handshake for a financial professional to close a sale with a prospect. Those were the days when a person’s word meant something. Advisors would do their best to make suitable recommendations, clients would accept those recommendations in good faith, and a handshake would ratify the advisor/client relationship, which often lasted an entire lifetime.

Boy, have things changed! Now, closing a sale requires jumping through numerous compliance hoops. Both advisor and prospect must sign multiple forms: replacement, risk profile, suitability, and soon, family contact (for reporting of suspected senior abuse). All of this dotting of I’s and crossing of T’s has made the sales process more legalistic and adversarial. Result: the implicit trust financial professionals and their clients quickly established is now more fleeting. In short, the assumption today is that each party, given half an opportunity, is out to victimize the other, and that each has to adopt a defensive posture from the outset.

It gets worse. This compliance process makes the sales process longer and more complicated. And it gives prospects more opportunities to back out. But there’s an even larger issue at stake. By making the sales process more legalistic, companies have trained consumers to expect the worst. And when mistakes happen, consumers are more likely to feel aggrieved and to take legal action.

For this reason, even though they may feel their clients are reasonable, financial professionals must protect themselves against risky individuals who react negatively to problems real or imagined. This means purchasing high quality, affordable errors-and-omissions insurance from firms such as EOforLess.com, which works with financial advisors.

What Does an Errors & Omissions Policy Protect You Against?

Errors-and-omissions insurance is the answer for financial professionals who wish to build a sustainable business in this environment. Because there are more angry clients and lawsuits these days, advisors simply can’t afford to go uninsured.

What does an errors & omissions policy protect you against? Simply put, it generates funds that help advisors deal with the aftermath of making a mistake (or failing to act) that harms a client. Policies are designed to provide cash to hire an attorney to defend you and to make good on any judgments or settlements that emerge from a judicial process. They also pay for court costs and the fees incurred in finding and retaining expert witnesses.

Now, you may be thinking, “I know how to do my job and the chances of my making a mistake are slim.” We have two responses to that.

First, financial professionals are human, and as such, susceptible to making errors, period. They have lots of things on their plates and might forget to handle an important transaction for a client.

Second,  one of their staff members might drop the ball, financially harming a client. The possibilities are endless. For example, life and health insurance agents might recommend the wrong annuity for an elderly client or fail to stay on top of a customer’s changing needs for life insurance. Or they might neglect to execute a client request, which ends up costing the person money.

Similarly, on the property-casualty side, there are countless ways to make a mistake, including failing to . . .

  • secure appropriate coverage,
  • recommend policies with adequate limits, or
  • properly explain coverage exclusions or policy limitations.

Whatever the mistake, and whatever your license type, the combination of existing advisor/client chemistry, client anger, and financial loss can quickly explode into a damaging lawsuit. When this happens, you need an errors-and-omissions policy (and insurer) to preserve your precious financial assets.

Protect Yourself Against Negligence Claims

Given the high number of risks for getting sued today, it’s imperative to protect yourself against negligence claims. How? By assessing your needs for errors & omissions insurance and by selecting an affordable solution that meets those needs. As a first step, we recommend evaluating the policies available from EOforLess.com, an online shopping service for financial professionals.

Unlike working with a traditional E&O insurance broker, which involves filling out complex applications and waiting days or weeks for the broker to secure a quote from several insurance companies, buying errors & omissions from EOforLess.com typically takes 5 minutes or less. You simply . . .

  • visit our user-friendly website,
  • select your policy type and desired insurance coverage amount,
  • complete the application,
  • pay for the insurance, and
  • immediately print out your proof of insurance.

Nothing could be easier than purchasing E&O insurance from EOforLess.com.

In summary, everyone wishes the “good old days” came back—a time when advisors and their clients trusted each other and sealed deals with a handshake. But that time is gone forever. Now, consumers must do adequate due diligence on their financial advisors, and advisors must protect themselves against litigious clients. For financial professionals, this starts with protecting their current assets and future earnings potential with errors & omissions insurance.

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