As we mentioned, in a prior article (Safe Solicitation), booby traps have been a part of war for centuries. They involve the setting of lures that the enemy hopes will attract their opponent. When the soldier touches the lure, the hidden bomb or other device goes off, killing or maiming the unwary soldier.

We also provided a case in point. In Vietnam, the Vietcong noticed that American soldiers liked to kick empty soda cans lying on the ground. Soon, they began leaving devices in cans so they exploded when kicked. Yet U.S. soldiers kept kicking those cans.

Today’s equivalent of kicking the can? Advisors falling into solicitation, disclosure, suitability, or servicing traps, which increases the odds of getting sued for errors and omissions. Having covered solicitation mistakes last month, let’s move on to disclosure.

What exactly should you disclose? That varies by license type, but generally disclosures fall into four basic areas.

  • Information about the product your prospects are considering purchasing, including specific details that define how the product works, its material risks, and its projected future performance.
  • Information about the carrier that will provide the product, including carrier ratings and track record.
  • Information about the application and any underwriting process, especially about the risks of providing false medical information for health, life, or disability insurance.
  • Information about the specific product illustration provided in your sales presentation, especially the difference between future values that are projected vs. guaranteed.

A fifth type of disclosure involves information about you and your firm.

Depending on your business type, you may be required to provide details on your background, business processes, fees, and conflicts of interest. For example, registered investment advisor representatives (IARs) must provide all this information and more in the so-called Part 2 of Form ADV and/or the adviser’s brochure. This document should clearly spell out the details of the advisory relationship and other business interests of the adviser. Disclosure requirements vary by business type and industry, so make sure you know what your regulators expect of you.

Disclosing the reasons for purchasing a product and getting a written sign-off on those reasons are other important disclosures. So is documenting instances when a prospect declines to buy a product you’re recommending. Both areas are important sources of client disputes. So to avoid legal problems and costly errors-and-omissions claims, always make required disclosures and get the client’s signature.

There are other disclosure items as well, which are beyond the scope of this article. But here’s the deal: To avoid booby traps around client disclosures, don’t “kick the can.” Be generous with information, especially if it deals with product needs, costs, or benefits. It’s much easier to share information now than it is to get sued later. Although your errors-and-omissions insurer will investigate a client’s allegations, settle the matter, and/or defend you in court, who needs the aggravation?

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

Booby traps have been a part of war for centuries. They involve the setting of lures that the enemy hopes will attract their opponent. When the soldier touches the lure, the hidden bomb or other device goes off, killing or maiming the unwary soldier.

Now here’s the thing about booby traps. The devices themselves are often simple. But the logic behind them is cunning. In Vietnam, for example, the Vietcong noticed that American soldiers liked to kick empty soda cans lying on the ground. Soon, they began leaving devices in cans so they’d explode when kicked. Yet U.S. soldiers kept kicking cans.

Why discuss booby traps? Because we believe many financial professionals today engage in dangerous, non-compliant behavior that could literally blow up in their faces. Like American troops in Vietnam, they kick the same cans down the path, even though the industry environment has changed. They keep committing the same lies, errors and omissions, and shortcuts. But the problem is, kicking those cans will likely trigger “explosions” today because regulators have much less tolerance for can kickers.

What kind of booby traps are we talking about? There are four main types:

  • Solicitation traps: in connection with advertising or other prospect approach techniques.
  • Disclosure traps: regarding what you say and don’t say about your background and business.
  • Suitability traps: made as you decide which product or products to recommend to a client.
  • Servicing traps: after the sale, particularly relating to client privacy and data security.

To help you avoid these traps, this article and three others to come will show you how to be a smart “soldier” during the sales process. This is especially important as it relates to preventing client complaints and avoiding errors-and-omissions insurance claims.

Let’s start with solicitation:

  • When promoting yourself, do it in a way that’s fair, accurate, and truthful. To save time, use company-approved materials. If you create your own, be sure to have them approved by your carrier.
  • In writing or conversation, avoid prohibited terms like “account” and “deposits” when referring to life insurance or annuities.
  • If you do cold calling, be sure to search the national Do Not Call Registry and any relevant state registry to make sure your prospects haven’t placed their names there.
  • When you buy leads from a marketing company, ask about the practices that generated the leads. Don’t buy from a company that uses deceitful or non-compliant practices.
  • When you create your own lead generation materials, make sure to disclose that you will be contacting the respondent.
  • If you conduct seminars, always clearly identify the product to be sold and explain the nature of your business.
  • Avoid all professional designations that lack substantial educational content and that appear to be just marketing gimmicks.

There are other techniques as well, which we can’t include due to limited space. But here’s the bottom line: To avoid booby traps during solicitation, don’t “kick the can.” Know the rules, tell the absolute truth, and be fair to your prospects. This will go a long way toward preventing legal disputes and large E&O settlements, which make E&O insurance more expensive for everyone.

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Your ultimate nightmare: despite your best efforts to sell the right insurance or investment product, your client is now unhappy about how things turned out. In the good old days, the person might scream at you and then badmouth you to 10 other people. Today, the person might also post his complaint on the Internet, where it will be seen by prospects who are Googling you before doing business. Complaint from Hell, meet marketing fiasco!

In Part I of this series, we said the best way to avoid this problem is to prevent complaints before they occur. How? By doing business by the book, acting with professionalism, exceeding client expectations, becoming a great communicator, and always doing what’s best for your clients.

But the problem is, you can do all of these things and still end up with a complaint. The challenge then is to keep it from going viral on the Internet, where it can do irreparable harm to your reputation. Here are five surefire strategies to implement as soon as a complaint arises.

  • Listen first, talk later. When a client calls you to complain, resist the urge to speak. We know . . . this isn’t easy to do. But if you can restrain yourself, you will have won half the battle. So as you let the client vent, listen very carefully. Also, try to discuss the complaint in person or over the phone rather than through text or e-mail. You’ll get a much better read on its severity AND demonstrate your heartfelt concern.
  • Apologize, then empathize. After the client has finished venting, make a sincere apology. Even if you feel you have done nothing wrong, apologize anyway. This will go a long way toward defusing the situation. Then after you apologize, say you understand the person’s frustration and are willing to resolve the situation.
  • Uncover the facts. Now, grab your pen and notepad and start fact-finding. What is the client’s central gripe? What happened exactly? Why? Were you or your staff to blame or was it a case of the client’s expectations being out of synch. Don’t defend the facts; just document them.
  • Reflect your understanding back to the client. Next, make sure your impression of the event matches up with the client’s. Say something like, “What I heard you say is X. Does that sound about right to you?” If it doesn’t, clarify where the understanding gap lies and then reflect the revised facts back to the client.
  • Take action now. If you know how to resolve matters, commit to doing so now. If you don’t, promise to do some research and then get back to the client with a satisfactory resolution in a reasonable and specific number of days.

But here’s the most important tip of all. Whether you did anything wrong or not, do the ethical thing and own the complaint. Avoid anger and verbal criticism, and do what it takes for an elegant win-win resolution. By taking responsibility and committing to a fair outcome, you will make sure the complaint from hell gets resolved quickly—and stays off the Internet, Not only that, you’ll also make sure it doesn’t become a full-blown errors-and-omissions lawsuit.

Restoring client satisfaction and not getting sued—it doesn’t get better than that.

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

Ah, complaints! Years ago, clients might file complaints with a state or federal regulator. You’d be called to account, but if you weren’t at fault, hopefully the regulator would dismiss it. If you were, you’d either make good or enter mediation (or court).

Now, we’re not minimizing the significance of old-fashioned complaints. In fact, a complaint left to fester can easily turn into an errors-and-omissions insurance claim, potentially costing you tens of thousands of dollars (or more) in indemnity costs and legal fees. And that doesn’t count the time and aggravation involved.

But boy, today’s complaint landscape is so . . . Web 2.0! Thanks to the Internet, even minor complaints have the potential to become complaints from you-know-where. That’s because social-media complaint sites are all the rage. Problem is, once your name gets published on such a site, your reputation takes a big hit, permanently. And even if you publish a rebuttal, people will assume you’re just lying to protect yourself.

Think I’m exaggerating? Check out these sites:,,, and Some of the complainants seem like reasonable people. They state their problems rationally, provide evidence, and only want a fair outcome. Others seem a bit unhinged, inflammatory, and, well, out for blood (yours!).

It gets worse. One site allows people to post complaints with your photo. Then the site automatically forwards the complaint to Google and sends e-mail copies to friends and family. How’s that for viral marketing?

Scary? You bet. But don’t let fear paralyze you. Act now to prevent complaints before they occur. Here are some guidelines to get you started:

  • Do everything by the book. Make sure your financial-product sales practices are locked down tight. Know your administrative procedures cold, especially regarding filling out forms and dealing with client funds.
  • Do business with professionalism. Part of this depends on you knowing your stuff. The other part depends on you acting with integrity. If you’re not sure what that means, review the National Ethics Association Ethics Pledge.
  • Meet and hopefully exceed client expectations. You can do a great job for your clients, but if they’re expecting something more, watch out. So always be sure to set—and reset— client expectations as needed.
  • Become “the great communicator.” Reach out to your clients frequently. Ask them how they’re feeling about the insurance or investment product they purchased—and about you! If they’re not happy, find out why and fix the problem immediately.
  • Always do what’s best for your clients. Never forget that it’s about them, not you. Whatever your insurance or investment license type, adopt a fiduciary mindset.

Unfortunately, even if you take all these steps, clients may stay angry and file a complaint. In Part II of this article, we’ll discuss how to handle them

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