Posts

Keeping Your Business Safe with E&O Insurance

As a new insurance agent, you’ve decided to enter a highly rewarding industry, both financially and psychologically. However, to attain these rewards requires a huge investment of time, energy, and fortitude. Because these sacrifices can be intense, you might have difficulty managing the three key challenges facing new insurance professionals:

  • Managing the risks of entering the business,
  • Making the most of your limited time, and
  • Building the goodwill of your prospects and clients.

Fortunately, buying (and keeping) E&O insurance will help you surmount each challenge. Here’s how.

First, new agents will typically have fewer assets and less disposable income than more experienced agents. As you’re working hard to adjust to a new industry—learning about its products and under intense pressure to close sales—the chances of making a mistake can be huge. This poses a large financial risk.

Since you have fewer financial resources and less knowledge, it’s crucial you protect yourself with E&O insurance. Going without coverage is an unwise choice for most agents. And those who have made and lost that bet rue the day they stayed uninsured. However, E&O insurance for new agents must also be affordable, since they don’t have a lot of money. “I need cheap E&O insurance” is a phrase heard often around new-agent offices. Online E&O providers address that need because they have less overhead than traditional E&O insurance marketers, which translates into lower prices.

Second, having limited time is a common problem for new agents. Why? Because becoming a successful producer forces you to quickly learn a great deal of information: product specifications, marketing and sales systems, new-business procedures, regulatory compliance, market and buyer needs, and much more. And while you’re learning all that, you must also identify prospects, set up meetings, do needs analyses, determine and present solutions, and close cases, not to mention handling service requests from existing clients.

For these reasons, new agents tend to be quite busy, which makes it hard to shop conventionally for E&O insurance through an insurance broker, a tedious and time-consuming experience at best. Given these problems, many new agents choose to buy E&O insurance from an online provider such as EOforLess. This lets them select, pay for, and then bind their E&O insurance in just a few minutes . . . literally saving days or weeks compared with a broker-mediated sale.

Third, because new agents are in an inherently risky position and are short of time, the last thing they need is a client dispute. Responding to client complaints and defending themselves in court is a huge time drain, something they can ill afford at this point in their careers.

Fortunately, having E&O insurance is a powerful way to prevent client problems. As soon as you suspect a customer is unhappy with something you did or failed to do, call your E&O insurer. The company will then evaluate the problem; appoint a defense attorney, if needed; and contact the unhappy customer to see if it can defuse the dispute before it becomes a formal lawsuit. If you don’t have E&O insurance, you’d have to handle these steps yourself, which might not happen. By not having E&O insurance, you actually increase your chances of getting sued.

In summary, as a new agent, job one is to get up to speed quickly with your job and your industry: learning the business, mastering your product portfolio, learning how to sell, and knowing how to get policies on the books and customer service requests fulfilled. It’s hard to do all that without the peace of mind that E&O insurance brings.

So, if you’re a new agent who still hasn’t purchased E&O insurance, consider buying from EOforLess, the online click-and-bind pioneer. And if you already have coverage, take advantage of our Renewal Reminder, which will prompt you to visit our online store before your existing policy renews. Either way, you’ll be doing your career a big favor by reducing the risks, costs, and problems all new agents face. Good luck!

Do You Really Need a Full Policy of E&O Insurance for Your New Business?

 

As a financial professional, do you lead a full life—rich with family, friend, hobbies, travel, and the like?

Do you enjoy buying gifts for your small children or helping your grown ones achieve their life goals?

Do you still get a lot of enjoyment from your career, both from a financial and client-service perspective?

If you answered, “yes” to all these questions, then you have a life full of meaning and joy. But what would happen if you lost your job or if your firm went under? Or what if you lost all your savings due to a prolonged client dispute? What would your life be like then? Would it be as enjoyable and worthwhile as it is today? Probably not. Which is why you should take steps today to protect your business, career, and family against the devastating impact of a client lawsuit. How? By purchasing affordable and comprehensive E&O insurance.

This recommendation is even more important for financial professionals who are new to the industry or who have just set up their own firms. These transitions greatly increase the risks of getting sued, making the need for insurance much more acute.

What a Full Policy of Errors & Omissions Insurance Can Do for Your New Business

You’ll notice our repetition of the world “full.” That’s because when it comes to protecting your busy, enjoyable life, there’s no substitute for a high-quality, comprehensive E&O insurance policy, especially one provided by a top-rated insurer and a well regarded administration firm. What can a full policy of Errors & Omissions insurance do for your new business?

For starters, it can provide peace of mind. You can go about working in your business without constantly second-guessing yourself and worrying about whether an unhappy client will sue you.

E&O insurance also provides financial benefits in the event you do get sued. These take the form of helping you retain and pay for an attorney, covering the administrative costs that your attorney might incur while defending you, and paying for legal judgments should you lose a case in court. Plus, in the latter case, your E&O policy will pay for any court costs a judge imposes on you.

Errors & Omissions PolicyAnd there’s the value of not having to deal directly with a plaintiff and keeping tabs on your case while it wends its way through the legal system. With E&O insurance, your insurance company will assign a claims adjuster to help manage the details of resolving your claim so you can focus on continuing to work in your business.

What’s more, E&O insurance policies typically cover other expenses that many financial professionals never think about:

  • The costs of retaining an expert witness to buttress your case.
  • Money needed to hire an arbitrator or mediator should you and the plaintiff decide to pursue an alternate path to dispute resolution.
  • Finally, expenses incurred during the process of settling the claim.

Put all that together and it’s easy to see that a full policy of errors & omissions insurance will greatly preserve your ability to enjoy life, both today and decades from now.

The Best Way to Limit Your Accountability for Errors & Omissions

Buying and keeping an E&O insurance policy in force is the best way to limit your accountability for errors & omissions. However, as important as that is, it’s also important to prevent the need for ever having to use your E&O policy. Appropriate risk management is the answer. To that end, here are ten tips to help you avoid client disputes from interfering with your life:

Tip #1: Be a True Professional.
There is no short path to professionalism. Do your homework and know what your clients need and which products best meet those needs. Keep expanding your knowledge base by earning industry designations and completing continuing-education coursework. And always stay up to date with your regulatory requirements.

Tip #2: Take Responsibility for Due Diligence.
Never delegate due diligence to a third party. This means don’t take another advisor’s or another company’s word at face value. Investigate all product claims and fine print yourself so you can be sure your clients will be well served. Also, make sure all products and investment programs you offer are legitimate and fully compliant with regulatory requirements.

Tip #3: Don’t Stray from Your Specialty Area.
Only recommend products you are comfortable with and have sold in the past. If you’re uncertain, get support from your marketing organization or from another advisor in your office.

Tip #4: Follow All Solicitation Rules.
Make sure your solicitation materials are clear and don’t misrepresent your offerings. And avoid designing your own marketing materials; instead, rely on company-provided materials. But if you do create your own, be sure to secure all required approvals.

Tip #5: Engage in Full Disclosure.
Provide all required disclosures and candidly answer all client questions about your track record, business approach, and third-party relationships.

Tip #6: Complete Thorough Fact-Finding
Always schedule enough time to do comprehensive fact-finding with a prospect. Dig up and record all relevant facts, especially regarding appetite for risks. Then link all recommended solutions back to the facts you uncovered.

Tip #7: Always Make Suitable Recommendations
Make sure to present only suitable solutions, giving the prospect several from which to choose. After prospects agree to purchase your product, review their reasons for buying and get their agreement in writing.

Tip #8: Educate Clients about What They Bought.
Make sure clients understand how their products work—benefits, costs, exclusions and the like. Misunderstanding features and benefits is a major cause of E&O disputes, so be sure to fully educate your clients early in the game.

Tip #9: Leave a Paper Trail.
This may well be the most important technique of all. Always document key decisions, including those to refuse coverage, in writing. You’ll need this paper trail in order to defend your actions in court.

Tip #10: Avoid and Then Resolve Client Complaints.
The best complaint is the one you never have to deal with. Try to smoke out client dissatisfaction early in the relationship before it progresses into a legal dispute. How? By paying close attention to what they say about what they bought and about your personal service. Also, observe what they don’t say – their expressions, body language, etc. In most cases, there will be weeks, if not months, of warning before a client sues you. Take action during this period to resolve any festering discontent before it becomes a formal complaint or legal action.

The point is this: everyone wants a life full of joy and satisfaction. But it’s hard to live that life when you have financial risks hovering over you. It’s even harder to enjoy yourself when you’re looking at spending your life’s savings on a legal judgment that could have easily been funded with high-quality, affordable E&O insurance. Bottom line: the best way to limit your accountability for errors & omissions is to purchase comprehensive protection through a firm such as EOforLess.com, backed by top-rated insurers and professional administrators.

With the clock ticking on the U.S. Department of Labor’s proposed fiduciary standard, financial professionals have become increasingly nervous about the rule’s impact on their business models and revenues. But advisors who hold only insurance licenses and who don’t pursue 401(k) rollover business may think the impending storm will leave them largely unaffected. Think again.

That’s because a Pennsylvania judge ruled last September that an insurance agent can create a fiduciary obligation simply by conducting a financial analysis or plan prior to selling insurance. If a client accepts the agent’s recommendations and buys a policy and then is unhappy with some aspect of the purchase, he or she can then sue the agent for failing to uphold fiduciary duty.

This is important because in Pennsylvania and other states, the courts have held that buying insurance is an arm’s length transaction in which the insurer and agent are obligated only to uphold the promises embodied in their policy contracts. However, they are not held to a fiduciary standard if something goes wrong later, says William Mahoney and Brandon Riley, securities attorneys in the Philadelphia office of Stradley Ronon Stevens & Young LLP. In their view, the Pennsylvania case creates a new liability for insurance agents who do financial planning or create financial analyses prior to selling a life insurance policy, annuity, or other form of insurance.

Attorneys Mahoney and Riley analyzed the case in detail for Law360.com. But to summarize, an Ameriprise financial planner persuaded a couple (the Yenchi’s) to purchase a financial analysis for $350. After submitting information about their financial standing, the agent worked up a financial plan that purported to help them better manage their money and prepare for retirement. One of the recommendations was to surrender several existing life insurance policies and use the proceeds to buy a new policy. The agent claimed the premiums would never increase and end after 11 years. The advisor also recommended the purchase of a variable annuity that would mature when the couple turned 65.

Fast forward several years. The couple retained another advisor to review their holdings. That person not only discovered that the life insurance policy was under-funded, but also that its premiums would never cease. Furthermore, the advisor found that the variable annuity wouldn’t mature until the insured turned 84 and that if funds were withdrawn funds before then, there would be a substantial surrender penalty.

Feeling aggrieved by these findings, the couple filed suit claiming the initial advisor failed to uphold his fiduciary duty. Ameriprise made the standard argument—that buying a life insurance policy or annuity does not automatically create a fiduciary relationship unless a consumer cedes all decision-making authority to the insurer, which did not happen in this case. The trial court granted the defendant’s motion, but the plaintiffs appealed to Pennsylvania Superior Court . . . and won.

The nub of the appellate court’s decision was as follows. The advisor initiated the client relationship by selling them a financial plan. The couple considered that plan to be independent, financial-planning advice, which they trusted and upon which they based their purchase decisions. The court decided those facts established a fiduciary relationship. Furthermore, the court found that the existing blanket rule applied to insurance transactions was too rigid since it didn’t allow the court to consider cases where evidence existed of a broker’s “over-mastering influence” on a client or of a client’s “weakness, dependence or trust, justifiably reposed” in the broker.

According to Attorneys Mahoney and Riley, this case represents a significant expansion of liability for insurance companies and the insurance agents who sell their products. In cases where “a supposedly independent financial plan is prepared,” they write, “the financial planner is now open to a breach of fiduciary duty claim, together with its potential for punitive damages.” How should advisors protect themselves? The attorneys suggest a six-step mitigation approach:

  1. Have an in-depth knowledge of the products being sold.
  2. Establish a solid understanding of every client’s financial situation and needs.
  3. Have a thorough and honest discussion about how the financial plan will be implemented.
  4. Have a candid and explicit discussion about potential conflicts of interest.
  5. Explain that insurance agents and their customers have traditionally had non-fiduciary relationships.
  6. Maintain a written record of all customer interactions and communications in order to defend against specious claims of fiduciary duty.

Although this case occurred in Pennsylvania and will presumably impact advisors operating there, it may eventually affect those in other states. Consequently, if you do business outside Pennsylvania and use financial planning as the front end to life insurance, annuity, or other insurance-product sales, caution is the watchword. Because when all is said and done, you don’t want your sincere efforts to help clients with their finances turn into a nasty lawsuit and resulting E&O insurance claim. Good luck!

For more information on affordable E&O insurance for low-risk financial advisors, visit EOforLess.com. For information on ethical sales practices, please visit the National Ethics Association’s Ethics Center

 

When you’re on your deathbed, will you regret having spent so much time at the office? Probably not, say healthcare workers who counsel patients in their final days. In fact, one such worker, Bronnie Ware, an Australian palliative care nurse, collected her patients’ disappointments on her blog, eventually publishing a book on the topic called “The Top Five Regrets of the Dying; A Life Transformed by the Dearly Departing.” LifeHealthPro.com recently published a discussion of her work here.

According to Ware, the top five regrets in ascending strength are:

5. “I wish I had let myself be happier.
4. “I wish I had stayed in touch with my friends.”
3. “I wish I’d had the courage to express my feelings.”
2. “I wish I hadn’t worked so hard.”
1. “I wish I’d had the courage to live a life true to myself, not the life others expected of me.”

These are powerful insights—and a learning opportunity for the rest of us. So much so that we’d like to pose a related question: “What are the top five regrets of (you guessed it) unethical advisors?”

This question flows from our hope that even rogue advisors have consciences and might look back with sadness on their dubious business practices. Furthermore, ethical advisors who understand and learn from those regrets will be better able to resist temptation—and errors-and-omissions problems—as their own careers play out.
So without further adieu, here’s our take on the top five regrets unethical advisors feel when they leave the industry:

1. “I wish I had spent more time getting to know my clients’ needs, rather than selling products that served my needs.” This is an issue because advisors who pursue their own agendas rather than their clients’ lose sight of the noble purpose of our industry: to help people achieve their cherished dreams through wise leverage of financial resources. Advisors who tap into that purpose go to work every day truly energized. Those who don’t are instead motivated by greed, a shallow emotion that makes them small.

2. “I wish I hadn’t misrepresented my products in order to close sales.” Advisors who lie about product features and benefits will make sales, but come to regret their predatory “techniques.” At the end of their careers, they will feel sadness because they’ll never know if they could have succeeded by applying legitimate knowledge and skills rather than by lying.

3. “I wish I’d been more transparent about my track record and business practices.” Unethical advisors often tout sham expertise and dubious credentials, while making promises in the sales process they have no intention of keeping. Looking back, these advisors will regret their clients never knew the “real” human being behind their scammer’s mask.

4. “I wished I hadn’t replaced and/or churned so much business.” These advisors will eventually realize they never added sustainable value to the industry and worse, made their clients poorer and less able to enjoy a safe and secure retirement.

5. “I wished I’d done more due diligence on my FMO, broker-dealer, or other business partners. Such advisors often fall prey to deceptive partners hawking fraudulent schemes. In hindsight, they’ll wish they’d been more skeptical of those bearing too-good-to-be-true offers.

In short, the best way to avoid end-of-career regrets —and errors-and-omissions claims, for that matter—is to simply do business the old-fashioned way—with a commitment to quality and adherence to compliant business practices and ethical values. Here are some steps to take as the new year unfolds:

  • Develop a written code of ethics.
  • Promote an ethical office culture.
  • Hire honest cmployees.
  • Do business transparently.

For specific guidance on these points, watch for Part 2 in this series.

For information on ethical sales practices, please visit the National Ethics Association’s Ethics Center. For more information on affordable errors and omissions insurance for low-risk financial advisors, visit E&OforLess.com.