Tips for conducting an ethical seminar for senior prospects
In case you haven't heard, the SEC, NASD, and some state insurance departments are after seminar promoters who target seniors. Could your whole marketing approach disappear? Regulators cannot ban freedom of speech, but they can make your disclosures so onerous that you will not be able to attract attendees. For example, California requests that insurance agents must place the following disclosure on their invitations:
"[An] advertisement for an event where insurance products will be offered for sale may use the terms 'seminar,' 'class,' 'informational meeting,' or substantially equivalent terms to characterize the purpose of the public gathering or event AND MUST add the words 'and insurance sales presentation' immediately following those terms..."
Here are some tips on how to give a clean presentation that properly serves your audience while keeping regulators happy:
1. If you are an NASD licensee, realize that the NASD regulates your behavior, not just products. So even if you give a presentation about fixed annuities, your presentation must meet the NASD guidelines by being fair and balanced and providing adequate disclosure. You cannot say, "Fixed annuities are guaranteed." You must add, "by the claims-paying ability of the insurance company." You cannot say, "You cannot lose money," because it is possible to lose money when surrender charges are subtracted. Note that the presentation an insurance company provides you may not necessarily meet NASD guidelines, so don't automatically use slides, presentation materials, or seminar invitations until you have had these reviewed by your broker-dealer, even if securities are not mentioned.
2. If you use visual aids (e.g. PowerPoint), it is not sufficient to provide the necessary disclosure as a handout. The disclosures that the NASD requires must be on the slides: Annuities have surrender charges and fees, they are illiquid (the NASD requires this even though it's not accurate), there is a penalty for withdrawal before age 59 1/2, and annuities are long-term commitments. If you miss any of these disclosures on your visuals, you risk regulatory problems for you and your broker-dealer.
3. Do not mention securities if you are not an NASD licensee or registered investment advisor. What you believe may be a harmless comment such as "Many seniors want to get away from the volatility of mutual funds, and that's why fixed annuities are a good choice" could be construed as the solicitation to transact securities without a license. Therefore, an unregistered person should omit mention of stocks, bonds, mutual funds, variable annuities, or any other security.
4. Don't be one-sided. Always mention the pros and cons of every opportunity (you'll get more appointments that way, also, as the public is not interested in a one-sided salesperson; they want a consultant). For example, if you speak about immediate annuities, explain that this would be a good choice for someone who wants to maximize their income during their lifetime but a bad choice for someone who wants to leave the maximum amount to their heirs. Also make it clear that there is nothing left at the end of the annuity term. If you try to hide what you perceive as a "negative" feature, you could lose your license.
5. Know the definition of a security that includes "investment contracts." An investment contract is defined as a contract, transaction, or scheme whereby a person invests money in a common enterprise and is led to expect profits solely from the efforts of the promoter or a third party. The following items are investment contracts in most states, and if you don't have a securities license you cannot offer them: promissory notes, automatic teller machines, pay phones, and viatical settlements.
6. Regulators look for suitability. Are you making a presentation and using your seminar to make suitable comments and recommendations? For example, Bank of America was forced to refund investments in variable annuities to people age 78 and higher. To my knowledge, no state has a rule about age limits on products, and you might wonder why the regulators don't just make a rule so you don't need to guess what is "suitable." So it's a good idea to make the following comment at the beginning of your presentation and also supply a handout that states the following:
"Nothing in this presentation is designed to be a recommendation. We cannot make recommendations because we don't know your circumstances, and any financial transaction can be recommended only by a knowledgeable professional who knows and understands your financial situation."
Keep in mind, however, that such a disclosure won't get you off the hook if your presentation is still a sales pitch.
7. Don't give a product presentation. The best type of seminar is conceptual, such as presenting ideas for saving taxes or increasing income. It's OK to mention product categories (e.g. fixed annuities), but don't mention product or company names. That crosses the line into a sales pitch for a specific item that may not be suitable for many of your audience members.
8. Don't bait and switch; for example, don't get involved with a living trust seminar that's really designed to get you in the back door to sell an annuity. Professionals use the front door.
Think like a regulator who makes and enforces rules to protect the public and who is under political pressure to do so. Get out of the mindset that you know what's right and what's wrong. Yes, you may think the regulators are sometimes off course, but if you want to keep your license, be compliant above all.
Larry Klein CPA/PFS, CFP(R), Certified Retirement Financial AdvisorTM, is president of NF Communications Inc. Over 20,000 financial advisors use NF Communications' NASD-reviewed and compliant seminar and marketing systems. For more information, visit www.nfcom.com.
