“Discretion is the better part of valor.” And in today’s marketplace, discretion is all about protecting yourself. That’s why advisors buy E&O insurance. But even more important than buying E&O is preventing the need to use it in the first place. To that end, here are 10 strategies for keeping you — and your business — safe in a litigious marketplace:
1. Be a consummate professional.
There is no short cut to professionalism. Do your homework and know what you’re recommending. Keep investing in your knowledge base by earning appropriate designations and attending professional development courses. Stay current on regulatory requirements.
2. Do your research.
Make sure all products and investment programs you offer are registered with the appropriate regulatory authority and approved by your broker-dealer, registered-investment advisor and insurance FMO.
3. Stay in your expertise area.
Only recommend products you fully understand and are licensed to sell. If you refer clients to other providers, make sure you can vouch for their competence and integrity.
4. Solicit business properly.
Make sure your solicitation materials are above board. You never want to misrepresent who you are, what you do, or what you sell. If required, have your insurance company and/or broker-dealer approve your solicitation materials.
5. Practice full disclosure.
Make sure to disclose all required information and be totally up front about your track record, business practices, and affiliated advisors and companies.
6. Do thorough fact-finding.
When you first meet the client, take time to fully understand the person’s situation. Uncover and document all relevant facts. Do a careful job of assessing risk tolerance. Then set appropriate expectations for future results.
7. Link your recommendations to documented needs.
Make sure to present only suitable recommendations (preferably more than one). After the prospect agrees to buy, review the reasons for buying the product and get the prospect to agree in writing.
8. Educate clients about what they bought.
Make sure clients understand what their product covers and doesn’t cover, as well as all moving parts, fees and expenses, and any underlying risks and guarantees.
9. Leave a paper trail.
Always document the outcomes of key client conversations, decisions made and coverages declined. No client interaction is irrelevant. Document every call or conversation no matter how trivial the subject matter.
10. Promptly resolve client complaints.
If a client is unhappy with you, find out why. Then do your best to resolve the person’s complaint before it turns into a regulator sanction or lawsuit. Also, if you sense the client will file a formal complaint, let your compliance department know as soon as possible.