Chapter 6 — Conducting an Ethical Review of Your Practice

• An ethical audit involves three steps: collecting information about tools and practices, evaluating them against ethical guidelines, and reforming any that are non-compliant
• Three areas carry the greatest ethical and compliance risk: how you identify your products, how you identify yourself, and how you present your products’ features and benefits
• All communications must meet three standards: be honest, convey information fully and fairly, and not mislead
• Stationery and business cards must clearly identify the practitioner, the company, and what is being sold — titles must not imply credentials or skills not actually possessed
• Products must always be referred to by their correct names — a life insurance policy is a policy, not a plan, program, or private pension
• Presentations must be factually correct, understandable to the target audience, and avoid superlatives that cannot be substantiated
• An ethical practice is not just a legal obligation — it can be a powerful and genuine marketing advantage
• Being proactive with prospects about the industry’s ethical challenges can differentiate your practice and build lasting trust

The first step in an ethical audit is to systematically inventory all of your sales tools and practices. The best method is to walk through how you sell, what you use, and the sales interviews you conduct. Sales tools to review include:

• Stationery and business cards
• Referral letters and direct mail pieces
• Advertising (print, digital, social media)
• Personal brochures and bio sheets
• Telephone scripts and voicemail messages
• Testimonial letters and endorsements
• Third-party motivational pieces and articles
• Data-gathering and fact-finding forms
• Product illustrations and supporting materials

For each tool and practice, ask: Is it honest? Does it convey information fully and fairly? Could it mislead a reasonable person? An Ethical Review Form can help you systematically list each tool and evaluate it against these three core standards. A form is available that you can use to identify and list each of the tools and practices that you use as we proceed.

All communications must: be honest; convey information fully and fairly; and not mislead. Three areas carry the greatest risk:

Ethical Guidelines for Product Identification

• Always refer to products by their common names — if it is life insurance, call it a policy, not a plan or program
• Avoid terms not specific to the product — call a premium a premium, not a contribution or deposit
• Never use the phrase “vanishing premiums” — premiums don’t truly vanish unless the policy is paid-up; they are being paid by dividends that reduce cash value
• When identifying the results you seek to achieve, indicate the specific products being used to achieve those results
• Non-guaranteed elements such as dividends must be clearly identified as projections, not promises

Ethical Guidelines for Self-Identification

• Stationery and business cards must clearly identify you, your company, and what you sell
• Titles used must not state or imply anything untrue about credentials, licensing, or special skills
• Do not identify yourself as a “financial planner” or “financial adviser” unless you are a Registered Investment Adviser (RIA)
• Testimonials and endorsements must be genuine, current, and disclose any financial interest of the endorser
• If you are a registered representative, disclose the broker/dealer relationship on all materials

Ethical Guidelines for Product Presentation

• Presentations must be factually correct and understandable to the target audience’s level of sophistication
• Avoid superlatives (“new,” “best,” “unique,” “lowest cost”) unless they are true and verifiable
• Tax-advantage language must state that only a careful review of the client’s specific situation would determine whether those advantages apply
• Avoid specific product discussions in advertising or direct mail unless the product can be completely described
• Products presented must be suitable for the prospect in light of his or her financial situation and needs
• Comparisons must be balanced and complete — including both strengths and limitations; do not omit material facts
• Make clear that any non-guaranteed elements may not perform as illustrated
• Statistics must be substantiated and referenced to a credible source
• Avoid analogies to other financial products when explaining how insurance products work

Once you have identified compliance problems through your audit, try to uncover any patterns. Recurring problems often point to an underlying cause — a particular script, a standard illustration, or a habit developed over time — and correcting the root cause is more effective than addressing individual symptoms.

Prioritize the areas of greatest risk and correct those first. Compliance problems involving misrepresentation or misleading product identification carry the most serious legal and regulatory consequences and should be addressed immediately.

After correcting current problems, develop long-term controls to ensure your practice remains ethical and compliant. These controls might include:

• Annual self-audit using the same collection and evaluation process
• Having all new sales materials reviewed by the company compliance department before use
• Maintaining a written policies and procedures statement for your practice
• Attending ethics CE courses to stay current with evolving standards

An ACLI survey entitled Monitoring Attitudes of the Public found that 36% of people hold negative opinions of the insurance business; fewer than one-third felt the industry was fair, trustworthy, or caring; more than half felt policies are difficult to understand; and 45% felt that agents don’t tell the whole truth when selling insurance.

Since the public is already aware of these challenges, you can candidly discuss them with prospects — and turn your commitment to ethical practice into a genuine competitive differentiator. A practitioner who proactively addresses the industry’s reputation and demonstrates specific compliance efforts builds trust that no advertisement can purchase.

A Proactive Approach

Rather than waiting for a prospect to raise concerns about the industry, raise them yourself. Key strategies:

• Open with a question: “Before we begin, I’d like to ask — what is your opinion of the insurance industry?”
• Listen fully and summarize the prospect’s concerns back to them to demonstrate you understand
• Share the specific steps you have taken to audit and improve your own practice
• Provide a written values statement describing your commitment to ethical standards — and leave it with the prospect
• Invite the prospect to hold you accountable to those standards throughout your relationship

The compliance and ethical principles upon which your practice is based are real and important keys to changing how financial services professionals are perceived by the public. They are not constraints on your business — they are the foundation of a well-earned and lasting reputation.