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Rogue Advisors on Parade: 2018

A former Michigan life insurance agent will be taking an extended vacation behind bars for stealing $800,000 from his senior clients. According to state authorities, Paul Garceau, Jr., 51, of Grosse Point Park, pleaded guilty to perpetrating a Ponzi scheme against his mostly elderly customers. For his role embezzling money from a dozen Detroit-area clients, he was sentenced to a minimum of six years jail time and ordered to pay more than $600,000 in restitution.  A single complaint of embezzlement and forgery in October 2014 sparked a Michigan State Police investigation that uncovered a larger pattern of crime. Following the Ponzi template, Garceau approached his clients with promises of higher returns. After convincing them to cash out their legitimate investments, he pocketed the proceeds rather than invested them as promised.

A former University of Virginia athlete graduated from defending against opposing teams’ ground games to perpetrating a Ponzi scheme that won him a 40 year-prison term. According to federal prosecutors, Merrill Robertson, Jr., a former college linebacker, defrauded more than 60 investors to the tune of $10 million. His victims included his former coaches, fellow college alumni, and people he knew at his church and in his community. His scam took shape in the spring of 2016, when he began telling investors he could provide them with returns of between 10 to 20 percent in low-risk unregistered debt securities. He backed up his claims by publishing a website that displayed sham investments. He also convinced them to buy shares in a fake public energy company that purported to own technology that energized water and in a minority-owned investment firm that didn’t exist. After amassing $10 million in investor funds, Robertson and his co-conspirator Carl Vaughn, spent $6 million on expensive cars, residences, college tuition, shopping extravaganzas, and spa treatments. When earlier investors requested their money back, he used new-client money to cover the redemptions.

A former Pennsylvania life insurance agent was arrested for submitting 29 fraudulent life applications to three insurance companies. As a result of his crimes, Keynan Kinard received approximately $8,000 in commissions. After receiving insurer complaints, the Pennsylvania Criminal Law Division pulled Kinard’s license and referred the matter to Pennsylvania’s Criminal Law Division. According to its complaint, the agent used the personal information of friends, acquaintances, and former clients to produce applications he then sent to life insurers. He also included phony bank account information on the applications to make sure the policies would not be issued or would lapse when premium-payments failed to go through. Kinard was charged with one count each of identity theft, theft by deception, criminal solicitation, insurance fraud, and forgery.

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Give Your Clients Peace of Mind with E&O Insurance

Six Trust Building Strategies for Life Insurance Agents

Trust doesn’t just happen. You can’t create it with a snappy call to action or a clever objection response. It’s something you have to earn daily through your words and actions. For this reason, building trust requires a deliberate, multi-faceted strategy, nurtured steadily over months and years. What goes into this effort? Five powerful trust-building tactics, ending with an E&O insurance kicker.

Adhere to Five Ethical Practices to Instill Trust

It’s hard to deny that contemporary selling depends less these days on product appeals and hard persuasion techniques and more on information sharing and low-pressure counseling. This is especially true with Millennial clients, the industry’s prime target market now that Baby Boomers are retiring in great numbers. The last thing such prospects want is a life insurance agent launching aggressive sales salvos at them. Instead, they want to collaborate with their agents to solve problems. For this reason, ethical sales practices are an absolute requirement for creating trust with such buyers. Here are five essential ways to accelerate this process, especially with younger prospects.

1. Commit yourself to total credibility throughout the sales process. In today’s environment, it’s important to avoid misleading statements or exaggerations. This means you should avoid dubious claims and support your statements with third-party, objective evidence. In short, your words and actions must always be 100 percent beyond reproach.

2. Be completely reliable in terms of the promises you make. Put yourself in your clients’ shoes. How will they feel when their life insurance agent fails to return calls, to complete the research he committed to, or forgets to execute a requested service transaction? Disappointed is probably an understatement. Frankly, it won’t take many dashed promises for them to lose all faith. Lacking faith, they will be more likely to defect to a competitor. Solution? Sweat the small stuff, so clients can count on you every time.

3. Become client focused, not self-focused. We all know how much fun it is to speak and how boring it can be to listen to others. But listening to your clients is crucial if you want to establish long-term trust. It’s the only way you’ll really understand their fears, problems, objectives, and constraints. But listening is just the starting point. You have to commit to becoming a “high-touch” agent, staying in close contact, especially when markets are volatile. Finally, being client-focused hinges on you safeguarding their personal information, documents, and confidences. Never sharing client details with a colleague, family member, or friend will accelerate the trust-building process.

4. Commit to total transparency both during and after the sales process. The more information you convey about yourself and your firm, above and beyond the required disclosures, the quicker you’ll attain trusted-advisor status. To this end, encourage prospects to check you out using third-party sources such as FINRA’s BrokerCheck, the Better Business Bureau, and the National Ethics Association (sponsor of EOforLess).

5. Adopt a fiduciary mindset. Even if you are not legally required to act as a fiduciary, consider acting as one anyway. When prospects and clients see you are putting their needs ahead of your own, that you place ethics above self-dealing, they will come to trust you implicitly.

Position Yourself as a Responsible Life Insurance Agent

In addition to the above steps, strive to demonstrate you are a responsible financial professional. In others words, show prospects that your business practices are reasonable and that if you make a mistake or fail to do something important, you will make things right.

Start by discussing how you do business—that your recommendations derive from rigorous fact-finding and that all the financial products (and companies) you recommend have been rigorously vetted. What’s more, convey that everything you do on their behalf is mainstream and that your operations and procedures are bulletproof, especially when it comes to data security.

Then make a point of saying that you practice what you preach as a life insurance agent. Not only do you help your clients mitigate their financial risks through sound planning, you also do the same for your own business. This means you have financial backstops in place in case a financial-product company fails, a client gets hurt while visiting your office, or you make an error that financially harms a client. These protections take the form of SIPC insurance on securities purchases, state insurance guarantee funds for life policies and annuities, commercial general liability insurance (CGL) for office visitors, and E&O insurance for your professional mistakes and omissions.

Now here comes the kicker. Having E&O insurance from EOforLess may well be the most important element of all. Not only does it give clients peace of mind, it frees you to do your best work. In other words, E&O insurance coverage helps you  focus exclusively on your work rather than always second-guessing whether a recommendation exposes you to professional liability.

At the end of the day, building trusting client relationships will accelerate your success in the life insurance industry and help you to achieve your long-term financial objectives. If this doesn’t create peace of mind for you and your family, what will?

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Advisor Alert: Have You Done Enough About Senior Fraud?

Financial institutions, advisors, and regulators can all do more to protect America’s seniors against financial fraud. That’s the conclusion of a new survey of state securities regulators by the North American Securities Administrators Association (NASAA).

According to its survey of 36 state regulators, most (97 percent) believe the majority of cases of senior financial fraud go undetected rather than get discovered before they cause serious problems.

The same percentage—97%—say there’s a greater awareness of senior investment fraud today than there was a year ago. However, that hasn’t translated into a widespread decrease in senior fraud complaints. Sixty-nine percent said they have experienced about the same rate of senior fraud, while 29 percent said their cases have increased and 3 percent said they’ve decreased.

The results come from NASAA’s recent Pulse Survey conducted on member regulators from July 24 to August 4, 2017.

The survey also uncovered broad support for the notion that broker-dealers and investment advisors should do more to help prevent senior fraud, with 75 percent agreeing with that statement. The survey respondents also said state legislators could play a larger role since only 48 percent of jurisdictions had adopted NASAA’s Model Act to Protect Vulnerable Adults from Financial Exploitation. Yet those who had enacted the rule said they’d had success stopping the disbursement of senior funds to scammers using the law’s provisions.

What more can securities brokers and investment advisors do? A prior NASAA study provides an action blueprint for securities brokers and their broker-dealer firms to consider:
• Institute a formal policy defining senior clients and, if so, what age designates senior status.
• Create a department, committee, task force, or other group or person responsible for identifying and addressing senior-related issues.
• Devise a policy to collect information about trusted or emergency contacts.
• Determine what additional documents required when opening or updating accounts for senior customers.
• Establish a policy that sets frequency standards for reviewing, updating, and documenting senior investment objectives.

• Define a process for reporting concerns regarding potential diminished capacity and/or elder financial abuse.

The National Ethics Association also suggests that advisors consider it their fiduciary duty to take extra care when working with senior clients. They should do their best to act prudently regarding their resources, to do rigorous due diligence before any proposed actions, and to act in good faith at all times. Related to this is a special duty to help seniors stay safe in a dangerous marketplace.

The protective role suggests a more aggressive educational and counseling stance with senior clients than might be warranted with younger clients. The National Adult Protective Services Association suggests advisors watch for the following scams that strangers, financial/business professionals, and family members often perpetrate on seniors.

Common Scams by Strangers
• Lottery & sweepstakes scams—“You’ve already won! Just send $2,500 to cover your taxes”

• Home repair/traveling con men—“We’re in your area and can coat your driveway/ roof really cheaply”

• Grandparent scam—“Your grandchild is in jail and needs you to send money immediately”

• Charity scams—Falsely soliciting funds for good causes; very common after disasters

• Utility company scams—“I need you to come outside with me for a minute” (while accomplice steals valuables)

• House scams—Overpriced or unneeded roof or driveway repairs, yard work, or other maintenance items.

• Phone scams—fraudulent telemarketing appeals, phony IRS accusations, or other threats

• Money-transfer schemes—Pitches to have senior send money via PayPal or other means to fraudster accounts.

Common Scams by “Professionals”
• Predatory Lending—seniors pressured into taking out inappropriate reverse mortgages or other loans

• Annuity sales—seniors pressured into using the equity realized from a reverse mortgage (or other liquid assets) to buy an expensive annuity which may not mature until they are well into their 90s or older.

• Investment/securities schemes—pyramid schemes; unrealistic returns promised; dealer is not licensed

• Internet phishing—false emails about bank accounts

• Identity theft—credit cards opened fraudulently

• Medicare scams—which can be the costliest in terms of the dollar amounts

Common Ways Family Members and Trusted Others Exploit Vulnerable Adults
• Using a Power of Attorney—given by the victim to allow another person to handle his/her finances, as a license to steal the victim’s monies for the perpetrator’s own use

• Joint bank accounts—taking advantage in the same way

• ATM cards and checking accounts—using those vehicles illegally to access and withdraw a senior’s money.

• Violence—threatening to abandon, hit or otherwise harm victims unless they give the perpetrators what they want

• Medical Blocks—refusing to obtain needed medical care and personal services for the victim in order to keep the senior’s assets available for theft

• In-home care providers—Charging for services, keeping change from errands, asking the vulnerable adult to sign falsified time sheets, spending work time on the phone and not doing what they are paid for

Finally, according to EOforLess, an online provider of E&O insurance for financial professionals, failing to detect obvious signs of senior financial exploitation might raise legal issues for advisors should their clients’ money be stolen. As always, EOforLess urges life insurance agents and investment advisors to identify and mitigate the risks of working with older clients and their families.

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The Benefits of Being Covered with E&O Insurance

E&O Insurance for Your Successful Business

In a recent article we discussed the unique E&O insurance risks that start-up insurance and financial advisors face. Their lack of knowledge, low income, and new client base mean they are subject to high levels of E&O insurance risk. If they wish to survive beyond the start-up phase, they need to buy high-quality and affordable E&O insurance as quickly as possible from an insurer they trust.

But what about those professionals who survive the new-business shake out? Do their needs for E&O decline over time? Actually, no . . . and there are five reasons why.

First, experienced financial professionals—life/health and P&C insurance agents, investment advisors, and real estate agents/brokers—will, as they gain knowledge and skills, take on higher-income clients with more complex financial needs. For example, a life insurance agent might move from selling products for death protection only to middle-income clients to providing life insurance solutions for estate planning purposes to affluent clients. This might involve complicated products that cover both spouses, but that only pay a death benefit upon the death of the second spouse. Whenever you’re dealing with more complex needs and insurance solutions, along with wealthy clients who stand to lose much more, your E&O risk will expand geometrically.

Second, as you gain experience and grow an increasingly affluent client base, your income will grow also. This is normally a good thing, but not from an E&O insurance perspective. That’s because the more money you make, the more financially successful you will appear to be in your clients’ eyes. And the more successful you seem, the more likely you will become a litigation target. Clients might file a lawsuit against you because they assume you have plenty of money and/or insurance to make their claim “go away.” But without an E&O insurer and company-provided attorney and claims adjuster in your corner, it will be a major headache to dispense with these “nuisance lawsuits” while still doing your regular work.

Third, as you become more successful, you will naturally become busier than you were when you first started out. If you’re smart, you’ll hire administrative staff to handle all your paperwork. But many agents and advisors resist this step initially because they’re reluctant to delegate their work and to spend the money on an assistant. Big mistake. If you mess up the process of helping clients apply for insurance or of filing for claims, those who don’t receive what they expected may turn to the courts for relief. If they can prove you made a mistake or forgot to do something that hurt them financially, they might win their lawsuit. If you don’t have E&O insurance, the court judgment and administrative costs, plus legal fees, will be your responsibility.

Fourth, as your tenure increases and you begin to address more complex client needs, your insurance and investment-product portfolio will increase both in terms of width and breadth. In other words, you will need solutions for a wider range of situations and within each situation, you will need sub-solutions that work for a wider range of clients. Result: each time you add a product or service, you will face a learning curve that puts you at greater risk of making a mistake. If you attempt to add multiple products or services at the same time, your E&O insurance risk will multiply significantly. This means the helpful process of becoming more responsive to your clients’ needs ironically results in you shouldering more E&O insurance risks.

Fifth, as your firm grows, not only will your clients’ needs and your product portfolios become more complex, so will your computer hardware, software, and networks. You will begin storing more personal client information on your hard drives and you will tend to have more computers and devices connected to the Internet. The minute you expose your firm’s proprietary information and your clients’ persona data to the outside world via the Internet, the more at risk you will be for a potential cyber-breach. If you’re unlucky enough to have one, you will face a nightmare of remediation and regulatory-reporting requirements, not to mention the possibility of getting sued by clients whose information was compromised.

A Perfect Storm of E&O Risk

Put these five factors together and what do you have? A potentially perfect storm of E&O risks for successful entrepreneurs in the insurance/financial/real estate space. But please don’t take this as us raining on your entrepreneurial parade. If you’re fortunate enough to pass unscathed through the start-up years, you have great cause to celebrate. That’s because only about 50 percent percent of U.S. small businesses survive for five years, according to the Small Business Administration. But don’t let your success lull you into complacency. The fact that you emerged in one piece means you are now playing a more nuanced and potentially more damaging E&O game. Now, not all clients will be out to get you, but a small fraction will. And the one that catches you off-guard may be the one that puts you out of business.

Bottom line: don’t assume your success will inoculate you against client lawsuits. Make sure you’re doing business ethically and in full compliance with the law. Work hard to assure that your prospect/client fact-finding is thorough and that your product recommendations are in sync with client needs and risk tolerance. And make sure you have processes in place to identify and resolve client complaints before they turn into E&O insurance claims.

Finally and most importantly, shop for comprehensive, affordable E&O insurance designed for your business type and available online from EOforLess.com. Being successful now means you have to work harder to stay successful. And a big part of that is being insured against the E&O risks that can derail growing firms such as yours. Good luck!

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