Are Advisors At Risk For Not Offering Various Life Products?

While no one can prevent the filing of lawsuits, whether valid or frivolous, the advisor can take common sense steps to lessen the chance of being held liable.

One good business practice that we routinely recommend is for the advisor to put recommendations in writing, especially recommendations that were not accepted.

If possible, have the customer sign off on this written statement when the policy is delivered. One way to do this is to develop a checklist type of form that recites the coverages requested by the client, as well as the ones recommended by the advisor. The form should indicate the amounts of coverage too. When the policy is delivered, the advisor reviews the checklist indicating what was recommended, and what was purchased.

A similar result may be reached by providing an engagement letter to the customer. This is something that lawyers routinely do. The engagement letter sets forth what the advisor is going to do for the customer. It also includes what the advisor is not going to do, so there is no mistake about it, especially if the advisor has already recommended that the customer explore a possible course of action. This letter is usually written after the advisor has met with the prospect.

General counsels tell me that these kinds of steps may lead a plaintiff’s lawyer to drop a claim, or a judge to dismiss one.

A well documented file is usually another method of protecting the advisor–as long as the advisor regularly and routinely maintains the file. Otherwise, the file can help a plaintiff establish as negligence case. In this regard, the advisor and the advisor’s staff should be trained on how to document a file, and what information and decisions are important to include in that documentation.

Keep in mind that there is no silver bullet here. To document a file correctly may require different steps depending on the situation. But the steps described above are a good starting point.

Nor is there one size that fits all. The laws regarding advisor liability vary from state to state. An understanding of those laws would definitely be helpful in mapping a course of action inside an agency to protect against liability. Often your errors and omissions insurer can provide guidance in this area. Sometimes continuing education classes may be helpful.

The bottom line is that the advisor must be aware that possible liability revolves around what the customer requests, what the advisor offers to do, and what the law provides. Taking common sense steps can help shield the advisor from liability, if not from the filing of the lawsuit itself.