­A Cautionary Tale: After 50+ Disclosure Events, Rogue Broker Finally Gets the Boot

For years, we’ve been preaching to financial professionals about the importance of keeping their compliance records free of black marks. Our argument: that all it takes is one bad disclosure to besmirch your record. And now that sanction reports live forever on the Internet, one event can make it impossible to generate new business . . . for years, if not decades, to come.

However, sometimes we run across news that makes us question this advice. For instance, Financial Advisor IQ recently reported the case of a renegade broker who racked up more than 50 disclosure events over a 14-year-time period, all easily found on his FINRA BrokerCheck record. The fact that the broker operated beyond the regulatory pale for years makes one question whether government agencies are capable of protecting consumers against rogue advisors. In this particular case, the answer, apparently, is no.

The more you learn about this broker’s track record, the more shocking his story becomes. According to Financial Advisor IQ, FINRA recently threw Anthony Diaz, a Pennsylvania broker last registered with IBN Financial Services, Inc., out of the business. But it took him repeatedly selling unsuitable securities to at least 17 clients since 2000 for FINRA to act. To its credit, FINRA ordered him to refund $4.3 million to his clients, including $1 million in compensatory damages, $2.9 million in punitive awards, and $413,000 in legal fees. But it tolerated his behavior for years.

Over the course of his career, Diaz repeatedly made inappropriate recommendations. He pushed clients to make variable annuity exchanges with no reasonable basis. He misrepresented products to clients. He lied about their net worth so he could sell them alternative investments. He deceived his product firms and broker-dealers. He falsified signatures on annuity applications. He also got embroiled in numerous client disputes, including a 2017 complaint alleging he made poor recommendations, had a client sign a blank form, and put false information on their documents.

During his career, Diaz worked for 11 different securities firms and was fired from five of them. Apparently, the broker-dealers didn’t care about his atrocious disclosure history; they were more impressed with his sizable client list. And regulators only got serious about policing him over the last couple years, when FINRA finally barred him and the New Jersey and Pennsylvania securities agencies pulled his license.

But think about the impact he had on those 17 clients—how much they must have worried about losing their money, how aggravated they were filing FINRA claims, how much they shelled out in legal fees. If regulators had done their jobs years ago, clients could have entirely avoided this nightmare.

Now, surely the broker-dealers and the clients themselves share culpability. Why did firms keep hiring and firing this guy? And why did consumers retain the guy when even a cursory BrokerCheck read would have revealed his true nature? His track record should have disqualified him from holding even a janitorial position in the securities business.

So what are the lessons learned from the Diaz case?

  • First, if you’re insurance licensed and refer clients to a broker to purchase securities, please do careful due diligence on that person. Eliminate those with anything more than a trivial complaint in their past. And given the number of brokers who have flawless records, perhaps adopt a zero-tolerance posture regarding customer disputes.
  • Second, encourage your friends, family members, and colleagues to do serious research on potential brokers. The BrokerCheck system is user-friendly. There’s absolutely no excuse for a consumer not to do a deep dive into a broker’s compliance history to see if the person is trustworthy.
  • Third, if you’re securities licensed, supplement your BrokerCheck file with other sources of information your prospects might find useful. For example, give your prospects access to a comprehensive background check on you, available through the National Ethics Association. Also, consider joining the Better Business Bureau. And as long as you don’t have an investment-advisory license, give your prospects the names of several clients who can vouch for your integrity.
  • Finally, as disappointing as the Diaz story is, it highlights the tremendous opportunities financial professionals with clean records have. With so many ethically flawed competitors in the marketplace, those committed to doing business ethically and legally will have a huge competitive advantage over the unethical bottom-feeders. When consumers finish checking you out, they will know you’re the real deal—a financial professional who will serve their best interests and in whom they can place their trust.

To read more about ethical business practices, visit the Ethics Center at the National Ethics Association, sponsor of EOforLess. 

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?

Beware Illegal Gifts . . . and Not Just During the Holidays

Not all gifts are wise, especially if you’re an insurance agent. That’s because giving something of value to prospects and clients can lead you to violate your state’s anti-rebating statutes. And this can land you a state insurance department fine regardless of whether your intent was innocent or not.

Although you no doubt learned about rebating in Compliance 101, it can’t hurt to review key concepts. Let’s start with what rebates actually are. Most regulators consider rebates to be giving value in various forms to a customer relating to a purchase of insurance. For example, all of the following would be considered an illegal rebate in most states:

  • Any gift designed to induce an insurance purchase, especially when the value of the gift is significant in relation to what the prospect will pay in premiums.
  • Any return of agent commissions to the buyer.
  • Any offer of free insurance that is contingent on buying insurance.
  • Any agent or agency premium payment on behalf of a prospect.
  • A refund of premiums resulting from favorable policy persistency.

The key point: regulators will normally view anything an agent introduces into the purchase process that is not defined in the contract as either a rebate or an inducement. What is the difference between the two? The former involves returning a part of a person’s premium payment after the sale, whereas the latter provides for the delivery of value in order to motivate someone to buy. In either case, regulators enforce anti-rebating statues in order to create a level, competitive playing field for all producers and companies and to assure that all consumers have access to the same policy terms.

So how do you know when you’re in danger of violating your state’s anti-rebating statutes? According to the white paper[1], “Understanding Concepts of Rebates, Gifts, and Inducements,” by Currin Compliance Services, Inc., start by answering the following five questions. A “yes” to any of them suggests you may be on dangerous ground.

  1. Are you giving, paying for, allowing, or offering anything of value that is not defined in the insurance contract?
  2. In considering the items in #1 above, would prospects be more likely to purchase the insurance on offer?
  3. Are you offering value in order to acknowledge or reward your existing client base?
  4. Is the offer unrelated to the insurance offer you’re making?
  5. Does your offer include a game of chance such as a raffle or lottery?

Although a “yes” answer points to a rebating violation, this is not a foolproof conclusion. That’s because two states—Florida and California—do not prohibit rebating at all. For example, in Florida, you can offer a rebate to one customer as long as you do so for all customers. Similarly, California agents can engage in rebating as long as their carriers allow it. There are other regulatory nuances in these two states, which the Currin white paper explains in greater detail.

The paper goes on to list a number of do’s and don’ts when it comes to the topic of rebates and inducements. It will be well worth your time to adhere to the following guidance:

  • Don’t make offers of cash or cash equivalents, even if the payments are nominal. The closer you get to cash payments, the more likely you’ll run into trouble.
  • Do check with state rules about item giveaways to attract prospects. These are often permitted, especially if they carry a company or agent/agency logo.
  • Don’t make offers contingent on an insurance purchase. That is a huge red flag to insurance departments.
  • Do try to make offers as far away from the sales process as possible.
  • Don’t make them specific to individual consumers or groups of consumers. The broader your scope, the better.

The point is, whenever you’re tempted to give something of value to a prospect in order to close a sale, think twice. And since insurance departments treat this issue differently, be sure to consult your own state’s anti-rebating statute before going ahead with a promotion. Still uncertain? Check with your agency, FMO, or carrier compliance department.

You can read more on ethical practices and tips at

Technology has reshaped almost every aspect of insurance and financial sales. From the advent of the personal computer and spreadsheet software to the rise of the Web and mobile technology, it has become easier and more efficient to run a financial-services business today than at any time in the past.

However, sometimes the development of new technology raises more questions than it answers. That’s the case with facial expression software, which financial firms are using to uncover people’s emotions about money. Does this new application make traditional fact-finding more revealing and productive? Or does it undermine the financial advisor/client relationship . . . perhaps jeopardizing advisors’ standing in the industry of tomorrow?

One cause for concern: facial recognition software is entering a finance domain that until now has been old school—needs assessments. Until recently, this process has been human-directed. Flesh-and-blood advisors typically sit down in actual rooms and ask real customers questions to identify their financial needs and concerns. The best advisors are skilled at detecting client worries, both through their words and body language. They’re also adept at asking probing questions to clarify when words and and posture conflict.

In fact, the entire industry depends on thousands of financial advisors sitting across from prospects and clients, asking questions and encouraging clients to reveal their concerns. Problem is, the field of behavioral economics has poked holes in this methodology. In repeated studies, it has shown that clients have trouble making rational money decisions. More often, emotional and cognitive errors cloud their thoughts, leading them to make sub-optimal decisions. And the traditional fact-finding interview may not help advisors much, since emotional and cognitive errors may not be visible to the naked eye.

Making matters worse, sometimes clients hide their emotions when meeting with their advisors, either deliberately or unconsciously. This leads advisors to make off-the-mark recommendations that end up poorly serving their clients.

What if there were a way to better assess client emotions prior to making recommendations? If software could deliver that, would you use it? The financial professionals at independent advisory firm Cetera Financial Group are answering that question now. Their firm has introduced a new software program designed to analyze a client’s facial expressions during fact-finding meetings. The goal: to shine a light on people’s money emotions in order to build a deeper relationship between them and their advisors.

How does it work? Cetera’s Decipher application runs on any device that has a web camera. The financial advisor simply asks clients to watch a series of videos about financial scenarios. The software then maps minute changes in their facial expressions to reveal their underlying emotions toward money.

“Decipher is transformative for the advice industry,” says Robert Moore, CEO, Cetera Financial Group. “It takes the relationship with the advisor to the next level. A lot of information is conveyed non-verbally. This is a tool for relationship building that will help the advisor really know what is in the best interests of the client.” A side benefit is that it will make the entire investment recommendation process more transparent and compliant with the Department of Labor’s Fiduciary Rule.

Moore adds that the program will be available to any advisor and client who’d like to use it. Plus, it will not be used to create financial plans. Instead, its function will be to increase an advisor’s understanding of a client’s perceived problems. And he says the company may eventually integrate Decipher into its online risk profiling application, giving a future automated investment platform greater ability to retain client assets during times of market volatility.

Although Moore says Decipher will not replace advisors, it’s not hard to envision a scenario in which the software might decrease the advisor’s role during fact-finding. It’s possible Decipher may prove to be more efficient than a human advisor at detecting emotions. And how will advisors react to partnering with a computer? Will they assume the software is smarter than they and defer to it? Or will they stubbornly rely on their own instincts even when the computer says otherwise?

Another implication: how will clients react to interacting with a computer instead of a human advisor? Will they be comfortable with a machine “reading” their deepest emotions? Will they buy it when the computer says they’re feeling something they don’t believe they’re feeling? Or will they make an issue out of it, thereby derailing the sales process?

Finally, how will all concerned react to automating what used to be the living, beating heart of financial planning—the advisor/client needs discussion? Will people view the transference of part of this process to a computer as a good or bad thing? And ultimately, if the technology catches on at other firms, will it actually help clients and advisors build stronger relationships or will it undermine them? Only time will

To read on ethical business practices, visit the Ethics Center at the National Ethics Association, sponsor of EOforLess.