As a financial professional, you understand why it’s important to maintain a clean compliance record. Without one, it’s hard to grow your business from among today’s skeptical prospects. But do you also know why it’s equally crucial for all of your intermediary firms to be as committed to compliance as you are? Unless your broker-dealer, registered investment advisor (RIA), and insurance field marketing organization (FMO) are as squeaky-clean as you, you may face regulatory trouble down the road.

Here’s the problem. When your intermediary firm has a checkered compliance history, they automatically become the focus of regulator attention. And when regulators become suspicious of your broker-dealer, RIA, or FMO, they tend to also become suspicious of you. This has real consequences for your ability to do business, says Jon Henschen, in a recent article.

  • First, intermediaries who don’t comply with regulations or that hire agents or advisors with the same disregard spark extra regulatory sweeps and audits. These will distract their management teams and make it harder for advisors with clean backgrounds to get their business on the books and their compensation processed.
  • Second, the more regulatory scrutiny a firm receives, the more money it will spend on legal and compliance services. These costs will ultimately come out of advisor compensation—out of your wallet or pocketbook.
  • Third, when regulators find evidence of wrongdoing, they often will push for the removal of the responsible parties. If they have long tenure, their leaving will weaken the company’s institutional memory and bench strength. This may not bode well for its ability to compete in the future.
  • Fourth and finally, every time a broker-dealer, RIA, or FMO gets into regulatory hot water, it will generate negative publicity that lives forever on the Internet. As the firm’s reputation weakens, so will yours because you are tied to the firm. It’s hard enough to generate new clients without giving prospects an additional reason to question your integrity.

Solution? Do thorough research on any intermediary firm before joining it. If you’re considering a broker-dealer, conduct a thorough BrokerCheck review to uncover the scope of disclosure events among its registered representatives. Simply go to, click on the individual tab, then type in the broker-dealer’s name where indicated. The result will be pages showing all the firm’s registered reps and indicating those with disclosure events. If you see “yes” in the disclosures field, click on “more details” to learn about the person’s infractions.

Now, this process can be unwieldy because there’s no way to retrieve a summary report showing the percentage of reps at a firm with disciplinary issues. Best you can do is scan the individual reports and then click on the “Yes” to see how and why an individual representative got into trouble. However, if you scan the broker-dealer’s registered representative summaries long enough, you’ll be able to see if the firm has dubious ethics.

According to Jim Eccleston of Eccleston Law, as you’re doing this, watch for disclosures that indicate:

  • Serious negligence or financial abuse of clients, including churning, borrowing from a client, forging documents, or selling unapproved products from an outside organization (selling away).
  • A pattern of paying fines for violating industry rules.
  • Personal bankruptcy or other credit-related problems that suggest the representative is financially stressed or has exercised poor financial judgment.
  • Repeated firings from prior broker-dealers and/or working for many different firms in various states over a short period of time.

It’s also important to evaluate a broker dealer’s own compliance record, not just those of its representatives. To do that, return to the main BrokerCheck page, click on the “Firm” tab, and then enter the firm name or CRD# where indicated. Hitting “search” will return the firm’s disclosure history (if any), where you’ll get a sense of its own adherence to industry regulations and business ethics.

You can do the same individual and firm-level analysis for investment advisor representatives and their RIA firms by visiting the SEC’s Investment Adviser Public Disclosure website. For insurance FMOs, your sleuthing will be much trickier because there is no single government agency or database to check. Since FMOs often operate in multiple state jurisdictions, it can be tough to get a handle on how many of their agents have run afoul of the law . . . or whether the firm itself has. Best advice: let Google be your friend.

Hopefully, researching FINRA, SEC, and state insurance compliance records will reveal whether signing with an intermediary firm is risky. If so, doing business anyway might result in you paying more for your E&O insurance. On that basis alone, it’s wise not only to do your due diligence before joining a broker-dealer, RIA, or insurance FMO, but also to take what you find seriously. No point paying more than necessary for your E&O insurance.

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

Years ago, an NEA team member worked for a large auto insurance company as a claims service representative. He was part of the front line team responsible for taking accident reports from the company’s customers. It was a low-paying, high-stress job, held by a motley staff of college students, teachers, and working moms.

The team occupied a small corner of a cavernous office, held captive by a dinging bell that indicated an insured on the line waiting to file an accident report. On a busy day, the bell would sound incessantly, and team members would hit *7 in Pavlovian fashion to pick up their next call.

Working under stress brought out the best—and worst—in the team members. Most worked hard to complete the accident reports fully and accurately, while expressing empathy for the customers who suffered losses. Other team members behaved poorly . . . deliberately disconnecting consumers in the phone queue, pounding desks with their fists when dealing with difficult customers, and even deliberately sabotaging files.

In one case, a member took a voluminous accident file—one in which there had been a fatality—into the men’s room, ripped its hundred pages into tiny pieces, and then flushed them down the toilet. We offer this story to suggest that customer service isn’t just a matter of having service standards and then hiring, training, motivating, and supervising customer-service personnel. It’s also about dealing with the dark side of human behavior: the tendency of certain people to behave badly—unethically—while serving customers. You must anticipate this dark side in order to deliver exceptional service. And if you succeed at this, you will also great reduce your errors-and-omissions risk exposure.

Ethics is a crucial dimension of customer service, suggests Christopher MacDonald, Ph.D., a business ethics consultant and professor at the University of Toronto. He believes there are at least three ways customer service can become unethical:

  • Front-line service representatives can do unethical things like lie to customers or even sabotage their own work, as the insurance rep mentioned earlier did.
  • Company management may commit to providing post-sale service, but then provide fewer resources than needed for the customer service team to function properly. Naturally, if resources are constrained, service quality will suffer.
  • Management can make policy decisions that result in the unethical customer treatment. For example, they may institute policies that make it difficult for customers to request service or that limit the amount of time devoted to each customer interaction.

Whether unethical customer service happens at the front line or in the executive office, the result is the same: victimized customers, a gap between expected and received customer service, and a negative business reputation waiting to go viral on the Internet.

So how do you make sure the highest standards of professionalism and ethics hold sway in your firm’s customer-service function? By including customer service in your overall ethics and compliance program, promoting your desired values (ethics), and making sure front line workers follow the rules (compliance). Here are some steps to take:

  • Identify customer-service behaviors that you believe are unethical and include prohibitions in your company code of ethics. These might include things like not lying to customers, safeguarding work files, and displaying empathy and concern to customers with problems, etc.
  • Make sure customers know that their satisfaction is guaranteed and that if a service rep fails to perform adequately, they should ask to speak to a supervisor.
  • Develop a mechanism whereby you can monitor customer service interactions to identify ethical lapses, especially when service volume—and stress levels—are high.
  • Train employees on appropriate ways of dealing with—and speaking to—valued customers. Make sure your training promotes desired behaviors and then gives employees ample opportunities to acquire and practice those skills.
  • Lead by example. A company’s owners/leaders should walk the talk of ethical customer service by dealing forthrightly and competently with customer complaints and other problems.
  • In high-stress customer-service work, structure shifts to give workers adequate time off the phone or computer and instruction on how to reduce their stress levels both on the job and off.

Finally, recognize that managing the dark side of customer service will have a huge upside bonus: fewer complaints and errors-and-omissions claims from unhappy clients. What’s not to like about that?

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

“Firing clients.” Now that’s something that gets a lot of attention these days, in part because it conflicts with the traditional notion of the customer always being right. But experts say some clients are so troublesome and so expensive to serve that you must fire them in order to protect your bottom line, your staff morale, and your own sanity. What’s more, firing a bad client removes people from your life who sap your energy and motivation, making it harder for you to serve the customers with whom you really enjoy working.

An even bigger reason to fire bad clients is to reduce errors-and-omissions claims. That’s because they are so painful to work with that advisors are tempted to spend less time with them, increasing the likelihood of mistakes and failure to perform required tasks. Both can result in client complaints and lawsuits.

Bad clients exhibit all kinds of irksome behaviors. Some refuse to follow your investment or insurance advice. But then they blame you when their decisions don’t work out. Others have toxic personal habits such as gambling addictions or a self-destructive appetite for market risk. Then there are those who hide information from you (example: off-the-books spending). Finally, some clients simply abuse their advisors—yelling and screaming at them, hurling personal insults, or attacking their racial backgrounds or religious beliefs.

In the face of such nightmares, it’s easy to become unhinged yourself—criticizing “those crazy clients” behind their backs, arguing with them or badmouthing them to others in the community. And if you decide to fire them—we prefer softer terms such as “resigning the account” or “disengaging with clients”—it’s tempting to do it in anger. But this will only breed resentment and result in the terminated client tearing you down on the Internet. Then you’ll pay twice for jettisoning that customer—with lower revenue AND a tarnished professional reputation. Surely, there must be a better way.

Indeed, there is—“conscious uncoupling,” a term popularized by actress Gwyneth Paltrow last year when she announced her divorce from Coldplay rocker Chris Martin. Applied to the challenging tasks of dismissing a bad client, conscious uncoupling implies a mindful, calm, and amicable approach to winding down unproductive and frustrating client relationships. It also suggests an ethical mindset where the advisor expresses concern for the client’s future welfare—and takes steps to assure the client isn’t left in the lurch.

What constitutes a mindful and ethical approach to firing, umm, dismissing a client? Here are the major elements:

First, your decision must be fact- not emotion-driven. Upon a careful review of the client’s account, you must be able to demonstrate that the financial costs of keeping the client exceeds the financial return of servicing the client. If the facts don’t support this finding, then you should postpone a decision until they do.

Second, you should make a good faith effort at reconciliation. Always notify clients of your concerns and then give them multiple opportunities to change their behavior. If they fail to, then you are justified in taking action. And don’t forget to leave a paper trail during the remediation process to protect yourself. Remediation should also include an effort to find alternative ways of working together. Perhaps the relationship would work better via e-mail exchanges rather than phone conferences. Or maybe the client would accept a lower level of customer service, presumably at a lower cost to you. The point is, you want to demonstrate your reasonableness and flexibility to the client, even though the person may be utterly lacking in both qualities.

Third, give the person one last chance . . . in writing. If the problem persists, then begin the dismissal process. Now, having made the decision doesn’t mean you need to execute it immediately, especially if doing so would cause a problem for you or traumatize the client. For example, if the account is very large, you might want to forego the financial hit until you’ve replaced the revenue with new clients. Or maybe the person is facing some life challenges and would be hard-pressed to deal with finding another advisor at the moment. By all means, show flexibility by putting the termination off for a few weeks or months until things calm down.

Fourth, after you make your decision, request to meet with the client in person. Winding down the relationship over the phone or e-mail may seem easier, but actually may cause more blowback in the long run. Remember, during the termination process, you don’t want to create an enemy. You simply want to extricate yourself from a troublesome and costly situation.

Fifth, during the meeting, keep the discussion pointed and brief. Explain why you have decided to end the working relationship. Don’t lay blame; rather, explain how things aren’t working to the benefit of both parties. If the customer now promises to change, stick to your decision, since you’ve already given the person multiple chances to turn things around.

Sixth, offer to help the person find another financial advisor. Give referrals to several colleagues who might be a better fit. However, encourage the person to do their full due diligence before making a decision as you are unable to warranty another advisor’s competence.

Seventh and finally, resolve to conduct the meeting without angry words, frustration, or personal attacks. Again, the last thing you want is to turn a client into a foe. Rather, treat the person with professionalism so he or she sees no need for revenge later. In fact, consider going a step further and treating the person with compassion. This might be hard to do with a nightmare client, but doing so might result in the person accepting your decision and perhaps even sending you referrals in the future.

Once you finish the meeting, allow yourself to breathe a sigh of relief. However, don’t discuss your decision with anyone outside the office. Keeping client matters confidential is a crucial ethical practice. Just because clients are a problem doesn’t give you the right to complain about them to others, either while they’re clients or after their departure

The key takeaway: whatever you think of Gwyneth Paltrow’s acting talents, you have to admit her approach to divorce showed common sense. Whether you need to end a marriage or a client relationship, conscious uncoupling is a reasonable, low-stress method of problem solving that achieves results while avoiding drama and errors-and-omissions claims. Give it a try with your next problem client. Perhaps you can leave your Iron Man suit at home.

For more information on ethical business 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&

In your final days, will you regret having worked too hard? Bronnie Ware, the Australian palliative care nurse we wrote about in Part 1 of this series, says many people have that and several other common regrets at the end of their lives, which she discusses in her book “The Top Five Regrets of the Dying; A Life Transformed by the Dearly Departing.”

Ware’s thoughts so inspired us that we began to wonder what regrets unethical advisors might have. After discussing the top five in our last column, we listed four strategies for building a “no-regrets” career in financial services, while reducing your errors-and-omissions risk.

This month, we’d like to expand upon each strategy and then provide tips for executing them.

First, develop a written code of ethics. Is this necessary when so many advisor associations promulgate their own codes? Yes! Writing your own clarifies what YOU stand for and makes you accountable TO YOURSELF. This will help you became an advisor without peer when it comes to assuring ethical business practices.

Second, promote an ethical office culture. The goal is to make ethics part of your firm’s normal behavior. That means ethical conduct will occur even when you (or Compliance) aren’t around to watch.

Third, hire honest employees. Ethics codes are powerless against people who are inherently unethical. This happens when parents fail to lead by positive example. For this reason, make a strong effort to weed out candidates for whom ethical conduct doesn’t come naturally.

Fourth, do business transparently. This means your clients should know who you are, where you’ve been, what you stand for, how you operate, and what exactly they’ve bought. This knowledge is a powerful regret killer, both for your clients and for you.

How to execute these strategies? Here are a few pointers to guide you.

  • In developing a personal code of ethics, think expansively. Consider every phase of the customer relationship and the values you want to express at each point. Then define the behaviors that will be required to convey those values. Now, for each behavior, define a standard. Finally, capture these thoughts (values/behaviors/standards) in writing and print out a polished document.
  • To promote an ethical culture, share your written code with your team and model ethical behavior every day. Then, reward exemplary conduct and expose undesirable conduct wherever and whenever they occur. If someone violates a code provision, make sure the consequences fit the crime.
  • To surround yourself with honest people, develop a detailed profile of the desired attitudes, skills, and ethical values you’re looking for. Then during the hiring process, don’t settle for anything less than your ideal candidate. Most importantly, listen to your “gut.” If a candidate feels wrong, terminate the process immediately. Also, administer an honesty assessment early on. Three well-respected instruments are the Personnel Selection Inventory (PSI), the Reid Report Risk Assessment, and the Veracity Analysis Questionnaire (VAQ).
  • To do business transparently, make sure to comply with all mandated disclosures. But go well beyond them by explaining your background in depth, your new-business and post-sale procedures, and what drives you to serve your clients.

These tips can only scratch the surface of a tremendously deep topic. So we hereby make this challenge: Consider what a “no-regrets” career means to you personally and to your firm’s errors-and-omissions exposure. Take steps now to prevent the behavior that spawns regrets and lawsuits. And try to remediate past mistakes that will sadden and potentially cost you big money later. Because as Bronnie Ware knows so well, it’s hard to make amends when your time has run out.

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&