As a financial advisor, you’ve no doubt read a compliance manual or three in your time. These documents are typically rule-driven, which means they can be long and dense to work with. The good news: You can also lower your errors-and-omissions insurance risk by adopting ethical values and business practices. This article (Part 1) provides 20 quick pointers for doing just that. Watch for Parts 2 and 3 in our E&O HQ in the coming weeks.
Tip #1: Sell Straight
Make sure your solicitation materials play it straight. You never want to misrepresent who you are, what you do, or what you sell.
Tip #2: Dig for Needs
Do a complete fact-finder and document the needs you find. Then link your recommendations to the client’s documented needs.
Tip #3: Enlighten Your Clients
Educate your clients about what they bought. Make sure they understand what it covers and doesn’t cover, as well as all moving parts, fees and expenses, and risks and guarantees.
Tip #4: Stick to Your Expertise
Always stay in your area of expertise. Dabbling in products you don’t understand is an invitation to trouble.
Tip #5: Document Your Decisions
Put everything in writing. Make sure your client file documents every contact.
Tip #6: Document the “No’s”
Make sure to document when clients decline insurance (example: long-term care). This will protect you from a litigious beneficiary if a client dies without key protection.
Tip #7: Put Companies Under the Microscope
Always do your due diligence on the insurers and investment companies you recommend. Don’t do business on faith alone.
Tip #8: Never Outsource Due Diligence
Read the fine print yourself. If you don’t like what you see, don’t do business.
Tip #9: Transparency is Good
When in doubt, disclose more information to a client than less.
Tip #10: Hedge Ratings
Don’t place too much weight on any one financial rating agency. Rather, weigh the preponderance of data from multiple sources.
Tip #11: Trust But Verify
Don’t trust blindly. Make sure the products you sell have track records—and that your carriers and marketing firms are strong enough to fulfill their promises.
Tip #12: Get Serious About Risk
Challenge clients to defend their need for aggressive returns. And don’t proceed until both of you are clear about the amount of reasonable risk they—and you—are willing to take.
Tip #13: Be an Honest Broker
When recommending products, always lay out the advantages and the disadvantages of each alternative. Use facts as your main sales tool, not fear or deception.
Tip #14: Get Real about Expectations
Many clients have difficulty adjusting to economic realities. If your clients still believe unrealistic results are likely, adjust their attitudes.
Tip #15: Lose the Hype
Don’t publish hype on your web site. Stick to hard-core facts, and let understatement rule.
Tip #16: Never Lie
Never lie to or for a client. Once you compromise “your word,” clients will never fully trust you again.
Tip #17: Be Authentic
The more time you spend in authentic client interactions, the more clients will sense you have their best interests at heart.
Tip #18: Scrub Your Web Site
Verify your online content. Be sure it’s current and in compliance with regulations.
Tip #19: Embrace Transparency
Fully disclose your licenses and experience. However, rely on the substance of your character, not just the flash of your credentials.
Tip #20: Take Your Time
Accept a longer sales process. The more time you spend in discovery, the stronger your client relationships will be. And since your recommendations will be more suitable, the less likely you’ll find yourself entangled in an errors-and-omissions insurance complaint or lawsuit.
For more information on reducing your errors-and-omissions insurance liabilities, please visit our E&O Headquarters at EOforLess.com (financial professionals only). For more information on ethical selling practices, visit National Ethics Association’s Ethics Center.
