A Former Ameriprise Financial broker has been kicked out of the industry for excessive and unsuitable trading of senior accounts. FINRA also sanctioned broker Larry M. Boggs for exercising account discretion without written authorization. Case in point: Boggs made 101 transactions on the account of an 82-year-old university professor whose investment objectives were growth and income and who had a moderate risk tolerance. In order to pocket commissions of $34,889, the broker generated client losses of $19,391.

A Washington state investment advisor lived the high life at his clients’ expense, sparking an SEC fraud charge. According to authorities, Ronald A. Fossum, Jr., stole hundreds of thousands of dollars in client funds in order to pay his taxes, jet around the world, and live rent-free. The government claims Fossum persuaded more than 100 investors to invest $20 million in three unregistered funds he owned and controlled. His modus operandi was to offer clients promissory notes paying 8 to 12 percent returns and then invest the proceeds in distressed oil and gas firms, real estate ventures, and derivative instruments. However, instead of making the promised investments, he pocketed his clients’ money in order to buy a home; make mortgage payments; travel to Fiji, Africa, and Mexico; and buy cars. Fossum also used classic Ponzi tactics, using money from new investors to pay the returns of older investors. Fossum and a partner,  Alonzo R. Cahoon, of Morgan, Utah, face individual counts of fraud, multiple violations of the Exchange, Securities, and Advisers Acts, disgorgement of ill-gotten gains, and civil penalties.

A Baton Rouge, Louisiana investment advisor is in hot water for using client funds to pay for his lifestyle, to make other investors whole, and to invest in a high-risk real estate scheme. Ralph Willard Savoie is now looking at one count of wire fraud, according to acting U.S. Attorney Corey Amundson. Authorities say Savoie raised more than $150,000 from investors. But instead of investing their funds in securities, insurance, and in industrial cooling towers, he wrote checks to himself and to his family. He also used client money to pay off prior investors. When one customer suspected something was wrong, Savoie responded by promising to return the man’s money “as long as (the client) did not report the matter to law enforcement.”

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.

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

Building Client Trust

Are you focused on increasing client trust as a business success strategy? If not, you should be, two recent industry reports suggest.

The first, a Vanguard study entitled “Trust and Financial Advice,” strongly confirms the relationship between deeper consumer trust and positive business outcomes for financial professionals. Based on a mix of qualitative and quantitative research with some 4,000 U.S. investors, the research identified the top drivers of advisor trustworthiness.

Interestingly, the Vanguard researchers found that behaviors that strengthened the advisor/client relationship and highlighted an advisor’s professional integrity were more commonly viewed as trust drivers than were an advisor’s functional business strengths (i.e., his or her ability to successfully complete financial transactions or plans).

For example, of the top ten drivers of financial advisor trustworthiness, only one related to functional skills. The remaining nine fell either into the emotional realm (6 drivers), and three dealt with the advisor’s perceived ethical characteristics. Conversely, of the least effective trust drivers, six were functional, one was emotional, and two were ethical.

The point is, if your goal as a financial advisor is to build trust, then it’s important to engage in explicit trust-building behaviors, especially those that deepen trust most efficiently. According to the Vanguard study, which was conducted by Anna Madamba, Ph.D., and Stephen P. Utkus, those 10 drivers include:

  1. Serving as an advocate for your clients—i.e., pursuing their goals as if they are your own.
  2. Acting in your clients’ best interests at all times.
  3. Relating well with your clients; connecting with them on a personal basis.
  4. Deliver a tangible sense of personal relief and heightened security.
  5. Providing products and services that are in tune with their financial goals and risk profiles.
  6. Acting with integrity and morality.
  7. Being generous with your time.
  8. Conveying to clients that their portfolio is important, regardless of its size.
  9. Knowing how to conceive, execute, and reassess client financial plans.
  10. Being compensated in a fair and reasonable matter.

The most important takeaway of the Vanguard study? Trust building isn’t just a feel-good exercise. Rather, it’s a way to generate more positive business outcomes for advisors.  For example:

  • 97 percent of clients with high levels of trust were satisfied with their advisors vs. only 2 percent of those with low trust levels.
  • 94 percent of high-trust clients recommended their advisors to someone else vs. 0 percent for low-trust clients.
  • 70 percent of highly trusting clients were highly likely to give their advisors extra money to invest vs. only 11 percent for clients lacked trust.
  • 70 percent of clients with low levels of trust said they were extremely or somewhat likely to switch financial advisors. However, only 2 percent of high-trust customers said they were extremely or somewhat likely to defect.

If those aren’t strong business reasons to raise your trust-building game, we don’t know what is. In short, if your goal is to increase customer satisfaction, grow referrals, capture additional client funds to invest, and minimize customer defections, then increasing your trust drivers is extremely important, especially those that fall into the emotional or ethical domains.

A second industry report highlights another trust building driver—adhering to fiduciary principles in your client work. According to an article in Financial Advisor magazine, brokerage firms, which are regulated under the so-called suitability standard, are selling for perhaps 1 times revenue. This compares with investment-advisory firms, which operate as fiduciaries, typically selling for 1.5 to 2.5 times revenue.

It’s not hard to see why buyers are willing to pay more for investment-advisory firms. Since they are required to put client interests first, their customers have more faith in them and are more willing to invest additional funds with them, for longer periods of time. Securities broker-dealers, on the other hand, do not benefit from this level of trust. Consequently, their clients are more prone to take their assets to other firms when they have a falling out with their broker. As a result, a broker-dealer’s deposits are much less sticky, making them less valuable to a purchaser.

Any way you look at it, assuming an advisor stays in the business or is planning to sell out, behaving in ways that grow consumer trust makes a tremendous amount of sense. In fact, it could well be the ultimate way to grow your firm or transfer your business to the next generation.

E&O Insurance for Your Business

Do you need E&O insurance for your business? Almost all financial professionals ask themselves this question at one point or another in their careers.  Many answer, “yes” because they perceive themselves to be operating in dangerous times.

Think about it. Insurance and financial advisors deal with complex client needs—savings for retirement, protecting estates, insuring valuable property, etc.  The products they sell can be difficult to understand and explain. Marketplace volatility can produce client losses. And the manufacturers of insurance and financial-services products can fail to stand behind their promises to both the people who sell their offerings and the ultimate consumer. Take all these factors into account and what do you have?  An extraordinary degree of risk for insurance and financial advisors doing business today.

As a result, financial professionals must ask themselves how comfortable they are dealing with such risks. Are they so confident in their expertise that they believe they’ll never make a mistake? Or do they realize that mistakes can happen to any financial practitioner at any time . . . even to those with high degrees of integrity and competence? If you fall into the latter camp, then you fully understand why buying E&O insurance for your business is a wise decision. It simply reflects the inherent risks implicit in doing business, as well as the impossibility of performing flawlessly with every client, in every transaction.

As if this weren’t disturbing enough, consider the types of mistakes financial practitioners are prone to make.

Worst-Case Scenario

According to one major E&O insurer serving the life/health insurance segment, there are at least 11 potential mistakes an agent can make. They range from . . .

  • misrepresentation,
  • due diligence problems,
  • premium errors,
  • office mistakes,
  • failure to explain or provide coverage,
  • tax losses,
  • beneficiary-related mistakes,
  • policy change errors,
  • suitability issues, and
  • business management lapses.

Of all those mistakes the top three most common are misrepresentation (25 percent of the total errors), failure to provide coverage (13 percent), and failure to explain coverage and office errors (both tied at 11 percent).

Compounding the risk is this fact: E&O mistakes carry high price tags. For example, the same insurer found that the average cost of an E&O disability-insurance claim was roughly $149,000. For pension products and individual life policies, the average claim costs were $71,000 and $40,500, respectively. Worst-case scenario? Making multiple mistakes within a single customer account, which could add up to hundreds of thousands of dollars in personal liability, potentially leading to the death of your business and a devastating personal bankruptcy.


Faced with risks such as these, most savvy financial professionals decide that buying an E&O insurance policy is a wise decision. What exactly does an E&O policy provide? Simply put, it provides protection—money that cushions the costly financial aftermath in the event you lose a lawsuit in court. E&O insurance provides money . . .

  • to hire an attorney to defend you,
  • to pay for legal judgments and settlements, and
  • to pay for court costs levied in the proceeding.

By having E&O insurance, you avoid being personally liable for the direct and indirect financial costs resulting from your error or omission. Your E&O insurance policy should cover these obligations for you, up to your policy’s limits.

Two other benefits of E&O insurance are less obvious. The first is having an E&O insurance claims adjuster on your side to help manage the claim-settlement process. This can be an enormous time saver. The second is the fact that having E&O insurance for your business reduces your stress and worry should you ever get sued. Not only will you sleep easier at night, you’ll also have more time and energy to spend working on your business rather than hassling with a customer complaint or lawsuit.


Given the risks and costs just discussed, what strategy should you follow to mitigate your E&O risks? Many experts suggest finding high-quality coverage, at an affordable price and then buying it in the most convenient way possible. To secure high-quality coverage, make sure the policy is designed to precisely accommodate the needs of your business model and license type. For example, if you provide investment-advisory services, then trying to save money by purchasing E&O coverage for life/health agents may be penny-wise and pound-foolish. Also be sure to read the specimen policy to see exactly how the insurer frames the “insuring clause” (what it promises to cover) and its exclusions (what it will not cover).

To secure affordable protection, investigate programs available through professional associations devoted to your business. Such protection is typically issued on a group basis and can be more cost-effective than individually issued policies.  Also, check to see if the E&O provider attempts to reward financial professionals who adhere to low-risk business practices. Typically, such insurers offer streamlined underwriting screens in which answering no to, say, 10 risk-assessment questions will qualify you for “preferred-risk” pricing. The savings in this case can be substantial.

Finally, consider whether you want to purchase your E&O insurance through a conventional insurance broker or on an online E&O insurance platform. The former method may be appropriate for advisors with complex businesses with large risks. But the downside of buying through a broker is that it will take more time for the person to submit a long application form to one or several carriers and then to receive a proposal back from. Buying through an online E&O provider is typically much faster. For example, at, you can typically input your information, answer the underwriting questions, and then pay and bind your coverage in 5 minutes or less.

Whatever you decide, the important thing is that you protect your business against the many risks it faces in today’s risky environment.  If you want to assure your professional future, buying E&O insurance for your business is truly the most sensible way to go.

Buy E&O insurance for your business