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The Approach

“You never get a second chance to make a first impression.” The initial meeting with a prospective client — the so-called “approach” — is a critical one. Whether the salesperson is an agent, stockbroker, or other financial services agent, he or she must be viewed as both competent and credible before the prospective client will trust the salesperson with personal financial information.

The purpose of the approach step is to cause the prospective client to understand that the agent is someone with whom he or she may want to do business as a result of the rapport that has been created. The approach may be accomplished in any number of environments — in person, on the phone, etc. — but to be ethical, any information imparted to the prospect must be balanced and complete.

Credentials, Titles & Ethical Identity

The most serious ethical issue in the approach step has to do with the agent stating or implying skills, experience, or credentials not actually possessed. Consider, for example, declaring to be a “financial planner” or “financial adviser” when, in fact, the agent is a life insurance agent or registered representative. Such a statement could suggest to the prospective client that the agent was providing unbiased analyses with no inherent conflict of interest — when in fact the agent’s selling of financial products clearly creates such a conflict.

If the agent is a Registered Investment Adviser (RIA), use of those titles is appropriate — but the RIA is required to disclose in a client brochure that a conflict of interest exists in offering financial products for sale. Without that disclosure, using such titles is misleading and may be illegal in certain jurisdictions.
Liability from Implied Expertise

The manner in which the agent holds him- or herself out to the prospective client can directly impact the client’s reasonable expectations and the agent’s liability. If the agent represents or implies certain skills, the client may have every right to expect service at a level that one possessing those skills could provide. Failure to deliver that expected level of service could make the agent liable for damages.

Any implication by the agent that he or she is affiliated with the government or any governmental agency in an attempt to suggest governmental approval of the agent or products is unethical.
Trade Names

While using a trade name is acceptable, using it to identify oneself without also identifying the company being represented would be misleading. Consider the life insurance agent who identifies himself as a member of the “First Houston Group” in order to disguise his affiliation with a life insurance company — the agent is clearly attempting to mislead his prospective client, an obviously unethical act.

Product Discussion & Full and Fair Disclosure

Discussion of the products being offered in the approach step presents another area of ethical concern. The ethical requirement is for full and fair disclosure. Any product discussion should have as its objective a complete understanding by the listener. Here are practical examples:

1
If the agent states or implies that the products offered involve tax advantages, it should also be stated that only a thorough review of the client’s situation would determine if those advantages apply to him.
2
The real nature of the product should not be obscured through unfamiliar names. Any product should be identified by its common name. For example, using the terms “plan” or “private pension” when referring to a life insurance policy could be unethical since those terms would tend to obscure the true life insurance nature of the product.
3
Using highly technical information that could be expected to mislead the listener is unethical even if the information is true. If the initial approach is made by telephone, the agent should usually avoid discussion of specific products since adequate explanation is difficult. An attempt to discuss a complex financial product in this setting often results in misunderstandings rather than understanding.
4
Even providing the prospect with a prospectus — without discussing the various costs of the product — could be unethical if the agent believed the prospectus would not be read. A failure to discuss costs would be less than full and fair disclosure.
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