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Warn Your Clients Now: FINRA Does NOT Guarantee Investment Opportunities

The ingenuity of investment scammers has no limits. Now they are invoking the names and logos of regulatory agencies in order to entice their victims—your clients—to part with their hard-earned cash.  To help them stay safe, caution them to watch for solicitations that use a regulatory tie-in to promote an investment’s safety.

In a recent case, fraudsters used FINRA’s name and logo in correspondence, including a phony signature from FINRA’s top executive—to create the false impression it guaranteed the performance of what was actually an advance-fee scam.

“Financial fraudsters go to great lengths to appear legitimate, making it difficult for investors to recognize their ruses,” says Gerri Walsh, FINRA’s Senior Vice President for Investor Education. “That’s why we are telling investors flat out that FINRA does not guarantee investments, and our officers play no role in facilitating investment opportunities. We want people to know that and to understand how they can verify who the real FINRA is.”

According to FINRA, advance-fee scams typically involve criminals enticing consumers into sending in funds to pay for administrative or regulatory charges relating to a stock share buyback, which is either worthless or under-performing. Once investors send their money in, they never see it again or receive any returns from the stock buyback.

One way for your clients to stay safe from such schemes is to carefully examine solicitations for telltale signs of fraud. These include the use of quasi-legal language, repeated use of the word “guarantee,” and failing to correctly identify the regulator or its executives.

In a FINRA Investor Alert on regulator scams, the agency pointed to a recent attempt to defraud an investor. The scammer emailed the person a document supposedly from the FINRA CEO in an effort to build trust. Close inspection of the letter revealed improper use of the FINRA logo, incorrect executive titles, repeated use of the word “guarantee” (something FINRA would never do), and reference to the Financial Securities Rule-Making Board (FSRB), a fake agency.

In another fraud, scammers sent email pitches that purported to come from the office of FINRA President and CEO Robert Cook. They portrayed FINRA as a “recognized financial manager of the IMF” (false) and informed recipients that it has granted the release and payment of outstanding inheritance funds. The catch? The investors needed to fly to another country. But before they could, they needed to send in more personal information and a copy of their passports. Those who did would be at high risk of having their identity stolen, FINRA said.

How to help your clients avoid advance-fee, phishing, or other types of investment frauds? Encourage them to view every solicitation skeptically, watching for typos and other scam tipoffs. And they should be wary of any offer that touts guarantees or otherwise sounds too good to be true. If they’re not sure the offer is legitimate, encourage them to run it by you. Or they can use FINRA’s Scam Meter here.

To help your clients learn more about investment scams, send them to FINRA’s “Avoiding Investment Scams” page here.


For information on affordable E&O insurance for low-risk insurance agents, investment advisors, and real estate broker/owners, please visit EOforLess.com. For information on ethical sales practices, please visit the National Ethics Association’s Ethics Center.

FINRA Shows Regulatory Hand: Brokers, Pay Heed or Watch Out!

One of the benefits of working in financial services is that regulatory agencies are usually transparent about their concerns. They communicate well in advance when they’re about to crack down on something, giving agents, advisors, and brokers more than enough time to respond. FINRA is an excellent case in point.

In early January 2018, the securities self-regulatory organization released its annual Regulatory and Examination Priorities Letter, which tells member firms and registered representatives what it intends to focus on during the year. The letter, in effect, is a great resource for resolving compliance issues before FINRA gets involved.  It also helps firm executives prepare for their FINRA examinations.

The regulator’s 2018 letter was wide-ranging. FINRA announced it will focus its efforts on fraud, high-risk firms and brokers, and operational and financial risks, including technology governance, cybersecurity, and market regulations. Other priorities will include:

  • Sales practice risks, especially recommendations of complex products to unsophisticated, vulnerable investors;
  • Protection of customer assets and the accuracy of firm’s financial data; and
  • Market integrity, including best execution, manipulation across markets and products, and fixed-income data integrity.

In the body of the letter, FINRA provided further details on each regulatory concern. Several that bear a strong relationship to broker sales activities follow.

Fraud: FINRA announced that once again, fraud will be a high enforcement priority. These include activities such as insider trading, microcap pump-and-dump schemes, issuer fraud, and Ponzi-type schemes. Also, a focus will be continuing to identify cases of potential insider trading, which FINRA refers to the U.S. Securities and Exchange Commissions (SEC). Reining in scams targeting senior investors will receive a strong emphasis, as well.

High-Risk Firms and Brokers: FINRA will focus on protecting investors from firms and brokers that take advantage of their customers. Specifically, it will look at practices such as hiring, supervision of high-risk brokers, supervision of point-of-sale activities, and branch inspection programs. Also a focus will be sales of advanced securities products to unsophisticated investors.

Sales Practice Risks: This is an especially wide-ranging area. In 2018, FINRA says it will pay serious attention to suitability violations, especially to the business practices and processes that produce suitable sales. Suitability in the context of employer-sponsored retirement plans and IRA rollovers will be hot-button issues too, as will be sales of initial coin offerings, cryptocurrencies, the use of margin loans in the sales process, and proper use of securities-backed lines of credit.

Cybersecurity: 2018 will continue to see high FINRA involvement in protecting customer assets and information against hacking and other cyber-crimes. As in prior years, FINRA will continue to evaluate the effectiveness of firms’ cybersecurity protocols—specifically their preparedness, technical defenses, and resiliency measures.

To further help member firms and their brokers, FINRA released a Report on FINRA Examination Findings. Based on what it finds when it visits firms at least once every four years, this document can also be a helpful resource in assuring firm compliance with FINRA rules in 2018 and beyond.

For further information about FINRA’s 2018 priorities, please visit its website here.

Continue to keep up to date with ethical practices by reading the latest news on  National Ethics AssociationFor information on affordable E&O insurance for low-risk insurance agents, investment advisors, and real estate broker/owners, please visit EOforLess.com.

A Contrarian View: Top Ten Reasons NOT to Buy E&O Insurance

On most days, you’re likely to hear us speak of the benefits of owning E&O insurance. But today, we’d like to take a contrarian (and somewhat lighthearted) view. To that end, here are 10 reasons why financial professionals should avoid buying E&O insurance. Ready?

Reason #1. You’re tired of being a life insurance agent, investment advisor, P&C insurance agent, or a real estate agent or broker/owner. You want out of your career, but can’t quite figure out how to extricate yourself.

Have you ever felt trapped in your current career, knowing you’ve had enough, but unsure of how to break free? Well, not buying E&O insurance or failing to keep your policy in force can be a perfect solution. If you get embroiled in a client dispute and end up losing your case without E&O protection, you might end up totally liberated! For example, all of your personal and business assets may need to be liquidated to satisfy court judgments or settlements. With no assets to speak of, including no business resources, you won’t be able to work in financial services or perhaps in any field. In short, you’ll be free of everything you’ve grown tired of and able to try something new . . . or nothing at all!

Reason #2. You have so much debt now that an E&O judgment will likely bring bankruptcy relief.

If you’re like many Americans, you probably carry too much debt, both personally and professionally. Most people soldier on with their heavy debt loads, paying the minimum amount due each month and looking at nothing but years of unrelenting loan payments. However, without E&O insurance, a legal judgment may be a great excuse to file for bankruptcy and get your financial life back.  Also, don’t minimize the personal satisfaction of telling one’s creditors to get lost. Declaring bankruptcy can be worthwhile from this perspective alone!

Reason #3. You’d rather just concede defeat to a client suing you than be forced to participate in a boring court proceeding.

We get this! Having interminable conversations with a lawyer who’s trying to protect your assets is SO boring. And sitting in a courtroom for hours when you could leave work early to play golf or have a beer at the brewpub is SO annoying. For those financial professionals who’d rather hand over everything they own than spend even a minute speaking with their attorney or sitting in a courtroom, this reason is for you!

Reason #4. You believe in the carpe diem philosophy (“seize the day”). In other words, you see no reason to spend money to protect your future security when you can spend it to enhance your current happiness.

In other words, you’re the kind of person who lives for today because who knows what tomorrow will bring. You’re more than happy to go unprotected because chances are nothing bad will happen. Plus, it’s a lot more fun to spend your money on food, drink, and vacations than to make sure your future is safe and secure. Right?

Reason #5. You believe your mistakes are best put behind you, not taken responsibility for.

As part of the human condition, mistakes happen. For this reason, they’re hard to prevent and pointless to get worked up over.  As a result, when you make a mistake, you believe it’s best to move on and let the chips fall where they may. This being true, what’s the point of having E&O insurance, a policy that helps you take full responsibility for your mistakes? Other people can clean up after you so you can just get on with your life. In this regard, paying for E&O insurance is pointless and stupid.

Reason #6. Client disputes are entertaining and best prolonged for maximum enjoyment.

You’re a big fan of Judge Judy. You find human conflict to be fun and love watching courtroom battles on TV. Because of your fascination with legal drama, you’d prefer to prolong the experience if you’re ever sued. You’d do this by defending yourself in court rather than allowing a trained attorney to more efficiently represent you.

Reason #7. Similarly, you believe the only person who can competently defend you in court is you.

In part, you believe this because you have found that the smartest person you know is you. You have also found that no one knows more about winning than you. With bottomless self-confidence, you see no reason to waste money on E&O insurance, which, frankly, will only saddle you with an attorney who’s dumber than you.

Reason #8. It’s best not to have E&O insurance because clients will be motivated to sue you.

It’s a dark view of humanity, but it’s your view. You sincerely believe that everyone is selfish and, given half an opportunity, out to hurt you.  Consequently, you’re convinced that if your clients learn about your E&O coverage, they will ignore your years of service and good advice and contrive a reason to sue you. And all of your clients are like this. 

Reason #9. You’ve never been sued before, and you don’t plan on being sued now.

You’ve been in the industry for decades and have never been sued. Why would clients start suing you now? What could possibly change?

Reason #10. E&O insurance is too expensive for the value received.

Since it’s unlikely you’ll ever get sued, you probably will never use your policy. Paying for a service you’ll never need is a gross extravagance. Why waste the money? And under what scenario would you ever need to use your policy?

With 10 reasons like these, it’s surprising any financial professional buys E&O insurance, ever. They wisely put their money toward more productive uses and let the legal chips fall where they may.  Yet hundreds of thousands do purchase E&O insurance and continue to pay for their E&O premiums year after year, despite never getting sued and having many other legitimate uses for their money.

Hmmm, what do these sensible financial professionals know that the naysayers do not?

Principled Selling: Why Insurance Professionals Need a Personal Ethics Code

The demands placed on life, health, P&C agents, and investment advisors can be intense. But even worse, they can be in conflict with each other. Your client may want you to do something that your agent or company prohibits. You may wish to do something that ill serves a client. Or your FMO, broker-dealer, or RIA may want you to sell something that you believe will harm a client. How do you resolve all these conflicts? By creating a personal ethics code and committing it to paper.

Having your own ethics code means you’ll know what you stand for. It will remind you of the values and principles you hold dear so that when caught in an ethical dilemma, you’ll have guidance for resolving it. Don’t think for a minute that your ethics code should be a long, complex document. Or that it should be full of legalese or tedious information. Instead, it should be short, high-level, but deeply inspirational.

Now, you may be thinking,

“Why do I need an ethics code when I already do what my compliance department requires?”

That’s a great question, which gets at the difference between compliance guidelines and ethical values. Compliance guidelines are the black-and-white legal requirements you must follow in order to stay in business. They are rules-based and have sanctions attached if you violate them.

Ethics refer to the personal values you bring to your business career. They aren’t the rules a third party demands you follow. Rather, they are the values you voluntarily adhere to because they’re meaningful to you.  And since there isn’t a compliance rule for every contingency, ethical values help guide you in the gray areas between legal requirements.

In fact, we’d argue that the most effective and successful financial professionals combine compliance rigor with ethical principles to create a highly professional operation. Since many agents and advisors are content to just follow the regulations pertaining to their license, those who integrate their ethical values into their business models almost always will achieve a competitive edge.

Now, what should your ethics code look like in terms of format? We hesitate to provide firm guidelines because it should be something that’s deeply meaningful and relevant to you. Printing it on an index card, as a PowerPoint slide or on a sheet of 8 x 10 glossy paper that you put in a frame are all possibilities. The point is, your code should be whatever will be most useful and motivating to you. And if it’s in a form that you can share with clients and colleagues, all the better.

How do you develop this document? Again, that’s a deeply personal matter. But consider following this process:

First, do some brainstorming around the ethical principles that have resonated with you over the years. Uncover them by . . .

  • Writing down the values and principles that make you feel good about your work.
  • Defining the qualities that have allowed you to outshine others in your market.
  • Thinking about your favorite motivational writers, leaders, or philosophers and write down any of their teachings that have stayed with you for years.
  • Considering the teachings or your faith community (if any) relating to how to treat your fellow man.
  • Recalling the life lessons your parents gave you and that you’ve given to your own children.

Second, review your master values list and circle those that have persisted longest, meant the most to you, had the broadest application, and helped you resolve ethical dilemmas in the past. Select perhaps 10 of these statements and type them up on a single sheet of paper.

Third, share your list with four to five people with whom you are extremely close, including work colleagues, friends, and family members. Ask them what they think of your list. Have them pick out the top three or four ethical values that speak most powerfully to them and that reflect your unique character.

Fourth, capture the principles that were selected most often and put them on a single sheet of paper, index card, or however you’d like to format it.

Fifth, let this list “germinate” for a few weeks. Then revisit it to see if you still like the items it includes. Eliminate those that have lost potency for you, and add others that have come to mind since the prior exercise.

Sixth, compile your final ethical principles list and format it as your official Ethics Code. Phrase each statement in the form of a manifesto or a “This I Believe” so that you and the people reading them will know you stand for these things.

Seventh, print out your code in a format that promotes sharing, that’s visible to you throughout your work day, and that makes you feel really good.

Now that you have an Ethics Code, refer to it frequently when faced with difficult business decisions. Always ask yourself whether a potential action tracks with or violates your Code. Then make the appropriate call consistent with your code.

Finally, congratulate yourself for having developed a tool that the vast majority of your competitors lack . . . a highly motivating Ethics Code that will help you become an admired and successful financial professional. It will also discourage unhappy clients from suing you and making you use your E&O insurance. Sounds like a win-win, right?