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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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Fiduciary Standard Refuses to Die

Fiduciary Standard Refuses to Die; Should You Modify Your Sales Practices in 2018?

Many in the financial-services industry assumed that the election of Donald Trump as president in November 2016 would spell the end of the Department of Labor’s recently enacted Fiduciary Rule. And in part, they were right, since the agency has put important parts of the standard on hold until July 2019.

Despite this, the movement toward a uniform fiduciary standard apparently continues along three fronts: state securities departments, the Securities and Exchange Commission (SEC), and state insurance commissioners. Whether these efforts reinforce each other or produce a uniform standard is anyone’s guess. But it’s becoming clear that putting client interests first is becoming a core financial-services sales practice that may be difficult to water down. If you are an insurance agent or securities broker, 2018 may be the year to adopt a fiduciary orientation even though you aren’t legally required to do so.

One impetus for this is a movement among state securities administrations to require broker-dealers to uphold a fiduciary standard when recommending investment products. States such as Nevada took this position after they saw the federal government back away from the DOL standard after years of rule making. In April 2017, the Nevada securities department passed a law that expanded which financial professionals will be held to a fiduciary standard. Before April, only so-called “financial planners” were.

After the bill was enacted, broker-dealers and registered investment advisors were subject to the standard, as well. Nevada joined four other states that now require broker-dealers to operate as fiduciaries (through case law, not statute). These include California, Missouri, South Carolina, and South Dakota. An additional three states are currently developing fiduciary rules: New York, New Jersey, and Massachusetts.

The second impetus is that the SEC has announced it will be developing its own fiduciary standard, which may harmonize with the rule revision in process at the Department of Labor. This rule will not be confined to investment advisors in the retirement marketplace. It presumably will cover any entity providing investment advice and products in all contexts, not just retirement.

The third impetus is underway at the National Association of Insurance Commissioners, which guides individual insurance departments on the development of insurance statues. Its Life Insurance and Annuities Committee is now working on revising its Suitability in Annuity Transactions Model Regulation. One potential addition will be adding a best-interest standard to all agents selling annuities.

The current annuity suitability model law was approved in 2010 and is now in effect in 39 states and the District of Columbia. However, after members of the Annuity Suitability Working Group learned that President Trump intended to delay implementation of the DOL’s fiduciary rule, it decided to add a best-interests component to the annuity model law.

Broadly speaking, this would require life insurance agents to verify that the annuities they sell meet the needs of their clients. Based on language now being considered, they would have to “at the time the annuity is issued (act) with reasonable diligence, care, skill, and prudence in a manner that puts the interest of the consumer first and foremost.”

The draft rule revision would not require agents to sell annuities with the lowest possible commissions or the highest possible stated interest rates. However, it would prohibit agents from receiving “more than reasonable cash compensation.  In a potentially explosive move, the measure will require agents to disclose their annuity commissions if they exceed a three percent threshold.

As these regulatory strands wind together over the coming year, how should financial professionals respond? Conservatively, says the National Ethics Association, sponsor of EOforLess. Even if you don’t sell annuities or other retirement products, it’s advisable to comply with the DOL’s best-interest standard, which went into effect this year. This involves always:

• Giving one’s clients advice that serves their best interests.
• Charging only “reasonable” compensation.
• Never making misleading statements.

Keeping your client’s best interests in mind at all times not only should keep you out of regulatory hot water in 2018, it should also help you to avoid damaging E&O insurance disputes. Bottom line: until the DOL, SEC, and state securities and insurance administrators determine their respective fiduciary postures, make sure your sales practices always align with the interests of your clients. As long as you’re sitting on the same side of the table as your customers, you should be fine wherever the regulators land.

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Rogue Advisors on Parade: Blind-Widow Bilker, California Trust Fraudster, New Jersey Securities Scammer

FINRA has fined a Northport, N.Y. stock broker for slamming a blind, elderly widow’s account with excessive fees. According to regulators, Hank Mark Werner convinced the woman to buy an unsuitable variable annuity and then used the account to generate excessive trades and fees for himself. Werner began churning the widow’s account in 2012 after her husband, who was also blind, died. Werner had served both clients until that point. Regulators say the broker bought and sold securities every week or so, generating more than 700 trades from October 2012 to December 2015. His churning produced $210,000 in commissions for himself and $175,000 in losses for the widow.

A California insurance broker has been sentenced to 60 months in jail for stealing $1 million from a widow’s trust account.  The broker, Gary Thornhill, of Santa Clara, was convicted of wire and mail fraud, according to U.S. attorneys on the case. Prosecutors say Thornhill sold life insurance to a married couple in 1998. The husband died seven years later, leaving the wife as the only insured on the policy. In 2008, the agent was named trustee of the entity that became legal owner of the policy. Using that position, Thornhill withdrew $1.5 million from the policy’s cash value without securing the widow’s permission. As part of his punishment, Thornhill was ordered to pay $1.4 million in restitution and serve three years of supervised release after completing a 60-month jail term.

A New Jersey financial advisor has been arrested for selling clients more than $1.8 million in fake securities, annuities, and life insurance. According to federal authorities, the advisor, William E. Fitzpatrick, was charged with one count each of mail, wire, and securities fraud. The advisor’s crime was long-standing in nature. Starting in 2007, he owned and operated at least three financial advisor and tax-return firms. After persuading clients to invest with him, typically in non-traditional investments such as a video-game production company and a movie financing firm, as well as in traditional mutual funds, annuities, life insurance, and money market funds, he failed to invest their money as promised, Fitzpatrick used their checks, which were made out to him personally, for his own purposes. The advisor is currently facing a maximum jail term of 30 years and a $1 million fine for the mail and wire fraud counts. He’s also facing a maximum penalty of 20 years in prison and a $5 million fine for the securities fraud count.

 

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The Dangers of Hyping Your Awards and Designations

Financial professionals—life, health, and P&C agents and registered investment advisors—must promote themselves in order to grow their firms. That means selling their capabilities using multiple promotional methods. One of these is seeking professional awards and designations they can use to enhance their credibility and differentiate themselves from their peers. But doing this can be a slippery slope, leading to mistakes that attract regulator attention. A new SEC investor bulletin explains why.

According to the report, “Financial Professionals Use of Professional Honors: Awards, Rankings, and Designations,” advisors using these techniques often imply they have a higher degree of sophistication, knowledge, or success than their competitors. “While in some cases this type of information may help an investor make an informed decision in choosing a financial professional,” writes the SEC, “in some cases it can be misleading (since) some professional awards, rankings, and designations provide little or no basis on which to judge the skill or abilities of the (advisor).”

The SEC’s problem is that many awards, rankings, or designations provide no way for consumers to determine just how meaningful they are or even if they’re meaningful at all. That’s because:

  • The standards for receiving the honors are so minimal just about any advisor off the street could apply—and qualify—for them.
  • Many advisors simply pay a fee to receive the award, ranking, or designation.
  • Or all they have to do is join the organization that sponsors the honor.
  • Sometimes advisors claim they are among the top winners of the honor when in fact there is no ranking method in place.
  • Many also misrepresent local or regional honors for national ones.
  • Some apply for honors using false or misleading information, leading to awards, rankings, or designations that are unfounded.
  • And others continue to use professional designations after they lapse.

The SEC ends its alert by urging consumers to probe for what an advisor’s honors really mean. For example, what was the application process, what standards were in place, what group bestowed the honor, and what money may have exchanged to “procure” the award? It also encourages consumers to do their due diligence on advisor designations by visiting the FINRA online resource, “Understanding Investment Professional Designations.”

The SEC’s alert reinforces what the National Ethics Association has been saying for years. Insurance and financial professionals have much more to gain by playing straight with their prospects and clients than by misleading them. Exaggerating their credentials only creates false expectations that can lead to consumer disappointment, E&O insurance claims, and regulatory sanctions down the road. Don’t subject yourself to these risks. Always “sell straight” by presenting only verifiable facts about you, the products you sell, and the companies you represent. This is the best way to build a successful and sustainable financial services firm. Good luck!

 

For more information on ethical business practices, visit the Ethics Center at the National Ethics Association, sponsor of EOforLess. 

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