Reduce E&O Insurance Liability by Avoiding Unethical Clients

When we talk about ethics, we often train our spotlight on financial advisors. We assume unethical conduct usually starts inside them and spreads like the gathering gloom of a winter evening. But clients can trigger misconduct, as well. In their desire to make money or save money, they can push their providers into ethically gray, if not black, areas. And because many advisors believe the client is always right, they go along. Wrong!

The fact is, unethical clients can entrap you:

  • By pushing you to sell them something for which they don’t qualify.
  • By asking you to hide a material piece of information.
  • By asking for a cut of your commission check.
  • By using you as a vehicle to commit fraud.
  • By hiding information you need to do your job properly (or disclosing intentionally inaccurate information).

Once clients pull you into the shadows, it can be hard to find the light again, especially if you’ve lied, violated policy, or broken the law on your clients’ behalf. And if you get caught, you may get involved in a lawsuit and be forced to file an errors-and-omissions insurance claim.

The good news: Integrity can illuminate a path through the darkness. Here are some tips to keep you straight:

  1. Check out prospective clients. In fact-finding, listen carefully to what they say. Are they playing you? Are they asking you to do unreasonable things? Do they seem to be honest? If you pick up a strange vibe from a prospect, don’t dismiss it. Walk away from the relationship. One of the beauties of business is that advisors have the ability to choose their clients just as clients get to choose them. Don’t hesitate to invoke that privilege if your ethics alarm goes off.
  2. Take control of your client relationships. From the outset, set the tone of your relationships. Let clients know you are committed to business ethics, transparency, and trust. If your clients believe you are highly ethical, they will be less likely to challenge you with unethical requests.
  3. Never, ever lie for a client. The client is not always right, especially when they ask you to lie for them. And nothing justifies lying . . . not a client’s desire to win financially or your need to retain the client’s business. If someone persists in asking you to lie, say: “If I would lie for you, how do you know I wouldn’t lie to you?”
  4. Nip ethical challenges in the bud. Don’t cast a blind eye to unethical client behavior in the hopes it will soon go away. The minute you accept such conduct, you’ve allowed them to drag you into the night, where you may lose your good name, integrity, and livelihood, not to mention be forced to use your errors-and-omissions insurance.

Finally, even though unethical clients can get you in trouble, ultimately you are your own moral beacon. So if a client asks you to do something wrong, don’t walk—run —for the light.

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