• Would a surgeon recommend an appendectomy to fix your pesky gallbladder?
  • Would an accountant propose amending your taxes when what you really needed was to file an extension?
  • Would an attorney recommend that you sue somebody when you just needed a new will? (Sorry, this one’s arguable, but please read on.)

These are outlandish examples. But they illustrate a key point: True professionals make suitable recommendations to their clients. If they begin recommending products or services that serve other agendas, they no longer are true professionals.

“Suitability” implies a financial advisor has listened to a client’s desires, personal resources, and constraints. It also implies the professional’s recommendations fall within generally accepted standards of practice. Finally, it implies the person serves the customer’s agenda, not his or her own.

Insurance agents, financial planners, investment advisors—none of these is a professional in the classic sense (doctor, attorney, and accountant). But they must subscribe to the same “suitability” philosophy those professionals share. To do otherwise is foolish. It invites client complaints, lawsuits, and, ultimately, errors-and-omissions insurance claims.

Sadly, some in business today have pushed the suitability envelope, if not broken through it entirely. We’ve all read of cases where advisors have sold products and services to people who don’t need them . . . just to make a buck. Worse, sometimes they sell products to customers that are grossly inappropriate for those people’s needs. This is not only wrong, but it makes absolutely no sense from a business-building perspective, let alone an errors-and-omissions perspective.

If you were truly serious about building a successful business, why would you sell inappropriate products and services? Yes, you’d increase revenue in the short term. But over the long haul, you’d run the risk of creating unhappy customers who will be more than happy to share their negative opinions about you with others. Doing business this way is like building a house on a foundation of sand. It yields money in the short run, but sets the stage for a future collapse. Unless you enjoy getting sued—and filing errors-and omissions insurance claims—just don’t do it!

The better approach: Get serious about suitability. Don’t give regulators any more ammunition. Recommit yourselves to carefully figuring out what customers need. Always document the needs you hear expressed. Get super-familiar with the products you sell and what’s available elsewhere. Think long and hard before you recommend products and services to your clients. In short, just do what’s right.

And when all else fails, just say no to unsuitable sales. Your good name—and the survival of your business—depends on it.

For more information on reducing your errors-and-omissions insurance liabilities, please visit our E&O Headquarters at EOforLess.com.

You want to believe that people are inherently good. Unfortunately, there will always be employees who lie, steal, cheat, and do as little work as possible. There’s no point bemoaning this. However, please be careful. Recruit and select new employees carefully, using every tool possible to deter unethical and unproductive conduct. This will not only protect your finances, it will minimize the chance of employees triggering customer lawsuits and errors-and-omissions insurance claims.

The investment you make in hiring quality employees will literally pay for itself. You’ll reduce the risk of embezzlement, as well as of losses due to employees “slacking off,” using drugs at work, or engaging in other unproductive or illegal behaviors.

But here’s the rub. “Bad” employees don’t just cost hard dollars . . . they also do irreparable harm to a financial professional’s reputation. When employee crime becomes news, potential customers will hear about it on the Internet. Why would they choose a tarnished advisor when so many other options are a Google search away?

Solution? Protect your reputation by only hiring the best employees. This means you’ll need to integrate ethics/honesty screening into every step of your hiring process.

What to Do:

  1. Be clear about the type of employee you want to hire. Ahead of time, write out a detailed profile of the desired attitudes, skills, and moral values you’re looking for. Then during the hiring process, don’t settle for anything less than your ideal candidate. Most importantly, listen to your “gut.” If a candidate feels wrong, terminate the process immediately.
  2. In your help wanted announcements, make clear your firm believes in ethical business practices. Also point out that you will be conducting full background checks and drug screens on all candidates.
  3. Go over the submitted resumes. Winnow out clearly unqualified people. But also look for ethical red flags: unusual career transitions, decreasing accountabilities, and long, unexplained periods between jobs. Also look for job titles and accountabilities that seem out of proportion to the candidate’s training and experience. Conversely, people who have been entrusted with large projects and budgets and many employees to supervise have shown they are trustworthy.
  4. After you screen out inappropriate candidates, candidates who generally fit with your requirements will remain. Invite a manageable number in for interviews.
  5. Have them fill out an application. Knowing that many people “fudge” their answers, “sell” them on the importance of being honest. Say something like: “We take honesty seriously around here. So please fill out this application, making sure your answers are totally accurate and complete. Also, answer all the questions about recent jobs and please include the actual reasons for leaving. We will be checking with prior employers, so again, please be truthful.”
  6. After they complete the application, have a short meeting to review the information and explain your selection process, which should include administering an honesty assessment. The reason for a short meeting (half an hour or less) is you don’t want to waste time with people who won’t pass your test. If you’re not currently using one, search the Internet for possibilities. Three well-known and well-respected instruments are the Personnel Selection Inventory (PSI), the Reid Report Risk Assessment, and the Veracity Analysis Questionnaire (VAQ).
  7. Once you receive the honesty test results, screen out the problematic candidates. Then call the remainder in for more detailed interviews. Go over all prior jobs and discuss their reasons for leaving and future career goals. But also probe for ethical job behaviors and attitudes. Here are some good questions to ask:
  • Have you ever observed a work colleague stealing? What did you do about it?
  • Have you ever had a boss, colleague, or vendor ask you to do something wrong? How did it make you feel? What did you do about it?
  • Have you ever done anything yourself at work that bothered your conscience? What was it and how did you respond?

The goal with these and similar questions isn’t just to hire someone who’s honest. Rather, it’s to hire someone who shares your core values. You can always train someone who’s missing desired skills. But it’s impossible to implant core values into someone who lacks them. And when those values are missing, watch out!

OK, you’ve reached the end game. The last remaining candidates have great skills, interviewed well, and have no apparent ethics problems. But don’t relax yet. Now you need to check their references and order background and credit checks.

Reference checks are important because they verify information uncovered elsewhere in the process. Try to speak to people’s direct supervisors, then probe for excessive absences, productivity issues, and most importantly, disciplinary problems. If the person will only confirm employment dates, see if they will answer just one question: “Is the person eligible for rehire?”

Similarly, background checks are essential for rooting out criminal convictions or problematic civil lawsuits. Credit checks indicate financial instability. If you uncover large indebtedness, compare it with the candidate’s starting salary. If your job doesn’t pay enough to reasonably cover living expenses and debt payments, you’re asking for trouble. You can purchase all of these checks at a modest cost using services available on the Internet.

If a candidate survives all of the prior steps, then make the person an offer. If he or she accepts it, congratulate the person for making an excellent decision—and yourself for bringing such an excellent person on board, while reducing your E&O business risks.

Lower your Errors & Omissions exposure and save money.

The issue of promises made and kept is important in all areas of business. For example, when a company claims that its widget does X, consumers expect it to actually do X. If it doesn’t, the company will have a big problem on its hands.

Take the financial services industry. Although at a macro level this industry has a good record of keeping its promises, individual advisors sometimes make promises they have no business making. A classic case is when they project unrealistic or deceptive performance results. Recently, Business Week shined a spotlight on what it calls “401(k) predators.” These advisors put on seminars for corporate employees on how to retire early using their existing 401(k) savings. Problem is, to lure clients, they project unrealistic investment returns (14% in one case) and promote aggressive withdrawals from 401(k) accounts. Can’t you just see the approaching train wreck?

We can never understand why advisors use unrealistic projections. Since investment asset classes all have a range of reasonable and expected results, which most clients accept, why jeopardize your business by projecting results that teeter on the leading (bleeding?) edge of the bell curve?

Another type of broken promise is when advisors fail to follow through on commitments made as a financial professional. These are the promises contained in the National Ethics Association Ethics Pledge . . . things such as doing comprehensive fact-finding before recommending a solution, fully disclosing their background and product details, and providing ongoing service reviews.

Not following through on these fundamentals can be as damaging as hyping results. That’s because clients feel let down when their advisor says one thing during the sales process and behaves differently afterward. This disconnect, much like a politician’s broken promises, generates ill will—and encourages client defections. In extreme cases, they can even produce lawsuits and errors-and-omissions insurance claims.

Bottom line, keeping promises is fundamental to your business success. Here are some techniques that can keep you safe:

  • Never promise something you can’t fulfill.
  • Always under promise and over deliver.
  • View your client promises as a sacred trust.
  • Get better organized so you don’t forget the promises you made.

If you can do these basic things, you will develop a reputation for being a businessperson of integrity . . . someone whose word outlives the average political promise and who will rarely, if ever, see the inside of a courtroom.

For more helpful articles be sure to visit the E&O Headquarters.

“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?”

Prevent liabilities by arming yourself with knowledge.