It’s hard to avert one’s eyes when rogue advisor accounts appear in the press. In the same way people stare at twisted car wrecks, ethical advisors want to read about how rogues scam the old, the disabled, and the gullible. And what do they learn from these stories? That self-centeredness is a plot twist with tragic consequences. Consider these true-life examples:

  • A Long Island, N.Y.-based broker agreed to settle SEC charges that he defrauded elderly nuns in the Bronx, NY.  The SEC claimed the broker churned low-risk accounts and charged excessive fees, consuming 10 percent of the accounts’ value in a 13-month period. Without admitting or denying wrongdoing, the broker agreed to an order banishing him from the securities business.
  • A New York financial advisor pleaded guilty in federal court to stealing nearly $200,000 from an investment account held in trust by guardians of disabled children. The trust contained money from medical malpractice settlements. Although the funds were supposed to be invested only in U.S. Treasury Bonds or New York Municipal Bonds, the advisor made unauthorized trades to receive higher commissions, generating fund losses of between $400,000 and $1 million.
  • The Securities and Exchange Commission charged a 77-year-old financial advisor for defrauding 2,600 mostly Amish investors. The Ohio advisor raised $33 million from his clients, promising them he’d purchase risk-free government securities. Instead, he made high-risk investments, sustained $15 million in losses, and then provided account statements showing fabricated gains.

What made these advisors do what they did? Did they act out of greed, stupidity, or a lust for power? All of the above. But we believe another factor was more important: self-centeredness. Their purpose in life was to bask in self-generated glory. Blinded by their own light, they viewed clients as a means to selfish ends. And their distorted view ended up wrecking their lives and the lives of their loved ones.

So how do you avoid self-centeredness? Here are a couple suggestions from

  • Synch your self-confidence with reality. If you find yourself having grandiose self-beliefs, ask a trusted friend or advisor to put them (and you) in proper perspective.
  • Resist the tendency to pursue power at all costs. Hurting others in the pursuit of ambition is wrong. Just don’t do it.
  • Don’t treat people right only when it serves your own purposes. Do it all the time because it’s the right thing to do.
  • Don’t make decisions based solely on internal beliefs. Your “gut” will often mislead you. Instead, draw upon the external values you learned at home, at church, and at school.

Most importantly, don’t let self-centeredness sabotage your life. Those who serve their clients’ best interests get to write their own happy endings—and they avoid errors-and-omissions claims, too!

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&


For many insurance and financial advisors, misrepresentation has become just another sales technique. For financial institutions, it’s become an accepted cost of doing business. For consumers, it’s become something bad advisors do—and have always done. But for errors-and-omissions insurers, it’s always bad news.

Despite this, some advisors say whatever it takes to close a sale. Here are a couple cases in point:

  • According to On Wall Street, Donna Jessee Tucker, a Virginia-based broker, “allegedly … engaged in unauthorized trading and other financial transactions and misrepresented her actions to customers by forging documents and lying to them.” Authorities claimed Tucker stole $730,000 from elderly clients, using the money for vacations, a country-club membership, three vehicles, and other personal expenses. She also allegedly hid her tracks by sending false account statements via e-mail, which she believed her elderly clients wouldn’t read. In one case, she is accused of misappropriating $347,000 from a blind couple by forging their checks and cashing them at a credit union. Then she concealed her activities by issuing fabricated documents.
  • In Scotrun, Pennsylvania, a financial advisor generated more than $2 million in commissions by selling unsuitable investments and by fabricating client records. According to Financial Advisor, authorities charged Anthony Diaz with selling 80 clients variable life policies with large surrender fees even though they were near retirement. He also lied to insurance companies about his clients’ incomes and assets in order to qualify them for higher amounts of insurance. Making matters worse, Diaz also misrepresented an investment by telling clients it paid a guaranteed income of 9.1 percent and a 100 percent return of principal within five years. The investment did not guarantee either of those features.

Given such advisor conduct, is it any wonder misrepresentation has been the top controversy driving FINRA arbitration cases over the last four years? What’s more, it commonly sparks a major percentage of errors-and-omissions claims. In one prominent group of financial advisors, it was implicated in 25 percent of all claims, according to the program’s sponsor and insurer.

How do you feel about this? Hopefully, you are outraged and believe the time for blasé acceptance is past. Advisors and product manufacturers can no longer afford to view deceptive sales practices as “the new normal.” They must do what’s needed to root out this damaging behavior and rebuild how the public—and regulators—view our industry. Why is this especially important now? For four crucial reasons:

First, survey after survey has found that working baby-boomers are woefully unprepared to retire. We believe one reason is they’re afraid to entrust their finances to a financial advisor who might lie to them. The longer they put off getting the help they need to devise an income strategy, the more perilous their retirement will be.

Second, as more boomers retire and more aging financial advisors do the same, the advisors who continue working will need to transition their practices to a younger clientele. Problem is, millennials know all about Bernie Madoff and Ponzi schemes. In order to attract and build relationships with them, financial advisors must stop saying whatever it takes to close a sale, especially spreading falsehoods.

Third, the advent of robo-advisors is poised to reshape the investment-advisory business. Among the many strengths of this advice model is its ability to hard wire compliance into the system. Much as healthcare technology is reducing drug errors by abolishing doctor-scrawled scripts, robo-advisors will also bake ethics and compliance into every client interaction. Given the choice of dealing with an electronic platform that dispenses honest advice every time or with a human advisor who may or may not tell the truth, whom do you think tomorrow’s consumers will prefer?

Fourth and finally, as boomer advisors age out of the industry, distribution capacity will become an even larger growth constraint. Overcoming it will demand a financial-advisor force dedicated to integrity and truth, since deception-based sales will produce less consumer satisfaction, poorer client retention, lower production, and reputation problems for the industry.

Our takeaways?

  • If you’re in the habit of making products look better than they are in order to close a sale, you’ll probably never quit doing so. However, you should turn yourself in now and request leniency because you will get caught.
  • If you’re an ethical advisor, don’t assume you’ll never misrepresent an offering. Even though you’d never do it intentionally, it’s easy to do it accidentally by not knowing your product provisions. If you’re serious about being a truth-based advisor, then get equally serious about mastering your products’ features, benefits, and contract language. Pay special attention to surrender penalties, fees and expenses, guaranteed vs. illustrated dividends, and medical underwriting requirements.
  • If you want to keep a clean record and stay out of court, just say no to misrepresentation. Your errors-and-omissions insurer will appreciate that!

Because at the end of the day, the only way to banish lying advisors from the industry is for the honest ones to outperform them. Are you up to the challenge?

For more 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&

As a financial advisor, you’ve no doubt read a compliance manual or three in your time. These documents are typically rule-driven, which means they can be long and dense to work with. The good news: You can also lower your errors-and-omissions insurance risk by adopting ethical values and business practices. This article (Part 4) provides 20 more quick pointers for doing just that. Watch for the fifth and final installment next month.

Tip #61

Don’t Become a Satan of Spam

Once you’re in a social network, never spam your fellow members or use automatic friend-adding software. Offering helpful ideas and links will win you more adherents than flooding a site with advertising messages.

Tip #62

Don’t Mix Business and Pleasure

To avoid confusion, use a professional identity online, not a personal one. This will prevent you from sharing irrelevant and potentially inappropriate personal information with business contacts.

Tip #63

Be 100% Transparent Online

When you’re networking online, never pose as a prospect or client and never leave a positive comment or testimonial for yourself. If you get caught misrepresenting yourself or masquerading as someone else, the viral web will destroy your reputation fast.

Tip #64

Be Kind Online

Online communities can be nasty places, with people feuding, hurling insults, and spreading lies and innuendo. When you’re online, follow the “Golden Rule.” Treat others (including competitors) as you want to be treated.

Tip #65

Solicit the Right Way

When prospecting for clients, be fair, accurate, and truthful. To save time, use company-approved materials. If you create your own, be sure to run them by your broker-dealer, RIA, insurance FMO, or product firm.

Tip #66

Watch Your Language

When discussing life insurance or annuities with clients, avoid prohibited terms like “account” and “deposits.”

Tip #67

Check Before You Call

Before cold calling, search the national Do Not Call Registry and any relevant state registry to make sure your prospects haven’t placed their names there.

Tip #68

Avoid “Dirty” Leads

When you buy leads from a marketing company, ask how they got them. Don’t buy from a company that uses deceitful or non-compliant lead-generation practices.

Tip #69

Disclose Your Follow-Up Call

When you create your own lead-generation materials, disclose that you may be contacting the respondent in the future.

Tip #70 

Be Honest at Your Seminars

When giving a seminar, always clearly identify the product to be sold and the fact that you’re an insurance agent (if you are one).

Tip #71

Avoid Bogus Credentials

Avoid all professional designations that lack substantial educational content and that appear to be marketing gimmicks.

Tip #72

Disclose Product Information

Be sure to disclose full information about the products you sell. Focus on their moving parts, material risks, fees ,and other costs, and guarantee provisions.

Tip #73

Disclose Carrier Information

Be sure to disclose full information about the issuing company, including ratings and track record.

Tip #74

Educate Clients about Underwriting

Explain the insurer’s underwriting process. Make sure the client understands the importance of providing accurate health information.

Tip #75

Explain How to Read an Illustration

Make sure clients understand the difference between projected vs. guaranteed values.


Tip #76

Suitability Is Job One

Make sure all your product recommendations are suitable for the client. Make no exceptions.

Tip #77

Uncover Client Facts

Fully understand clients’ financial objectives and concerns. How? By encouraging them to express their hopes and dreams for the future. If applicable, get heirs involved in these discussions to prevent complaints or lawsuits.

Tip #78

Know Your Suitability Forms

Yes, these forms can be annoying, but they help you recommend appropriate products to your clients.

Tip #79

Keep Great Records

For every client, make sure to save copies of solicitation materials, meeting notes, needs analyses, and signed letters refusing coverage. This will establish a paper trail in the event the person complains or sues.

Tip #80

Commit to Service

Educate your clients through periodic mailings and phone calls. Respond quickly to their service requests. Conduct periodic account reviews. Do these three things and your risk of complaints and lawsuits will plummet.

For more information on reducing your errors-and-omissions insurance liabilities, please visit our E&O Headquarters at (financial professionals only). For more information on ethical selling practices, visit National Ethics Association’s Ethics Center.

Many financial advisors view E&O disputes as something that only happen to incompetent or criminal financial advisors. In reality, the odds of incurring a claim or lawsuit are quite high, with insurer statistics suggesting as many as one in seven advisors experience a claim at some point in their careers[1]. Accepting this fact will equip you to respond effectively to a client claim if and when it occurs.

To help you manage an E&O incident, here are some do’s and don’ts that will protect your interests, as well as help your insurer process your claim.

Things to do during an incident:

  • Do manage your emotions. Never lash out in anger or frustration at a client who is filing a lawsuit or arbitration claim against you. Do your best not to take the situation personally. By keeping a level head, you will better position yourself to cooperate with your E&O insurer and attorney to put the matter to rest.
  • Do give prompt notice of the claim to the insurer. Check your policy to see how your company defines “prompt.” And file all required claim forms and supporting documents in order to get the claim started.
  • Do report both real and potential claims. Failing to report the latter may void your coverage for actual claims that arise later.
  • Do provide a comprehensive account of the incident to your E&O claims rep. To collect this information, tap the collective brainpower of all team members involved with the client and collect all relevant documents. Then create and present a chronological narrative that walks your claim rep through the entire event.

Things NOT to do during an incident:

  • In speaking with your customer about the incident, don’t admit wrongdoing. However, continue to be sympathetic to the person. Also, don’t try to defend yourself or provide documents that prove your point.
  • Once you learn of the problem, don’t attempt to “cover your tracks” by augmenting or fixing errors in the customer file. This will make it look as if you have something to hide.
  • Don’t volunteer the fact that you have E&O coverage. However, don’t deny it if directly asked. In either case, don’t provide actual E&O policy language to the customer or to the plaintiff’s attorney. Refer all such requests to your claims representative or defense attorney.
  • Don’t offer to settle the claim yourself by providing funds to the customer. This holds true even if the settlement amount is small. And don’t discuss settlements directly with the claimant. Always refer such discussions to your insurer and attorney.
  • Don’t give a written or recorded statement to the client’s attorney without the guidance of, permission from, and involvement of your own counsel. The same holds true if the request comes from the client’s insurance company or investment provider, who may be fishing to see where culpability lies.
  • Don’t get involved in the day-to-day management of your claim. Let your E&O claims rep manage the process. That person has the training and experience to facilitate the process.
  • Don’t discuss your claim with anyone other than your claims rep, defense attorney, or staff members involved directly with the client account. As the old saying goes, “loose lips sink ships.”

Also keep in mind that E&O incidents, if well handled, should be only temporary problems. By cooperating fully with your E&O carrier and defense attorney, you will speed the process to a hopefully positive conclusion. But remember,  the best strategy for handling E&O disputes is to prevent them from happening in the first place. In this regard, compliant sales practices and disciplined practice management will be your best allies. Good luck!

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

[1] Swiss Re Corporate Solutions, “E&O Happens,” retrieved 10/27/14