Advisors who create their own postcard mailers know they shouldn’t include misleading or false statements. If they do, they will surely find out when they submit their content to their broker-dealers or insurance companies for approval. But what about when third-party lead-generation firms develop the content? Are agents (and companies) off the legal hook when they hire third parties to drum up leads? Definitely not, based on a recent enforcement action from the Kansas Insurance Department.
According to its consumer alert, the department levied a $5,000 fine and a cease-and-desist order against an Ohio insurance marketing firm for its illegal activities in Kansas. The department found that Lead Generating Systems, LLC, solicited consumers using deceptive postcards in violation of the state’s unfair trade practices law. The recent action follows the company’s 2012 fine for a similar violation. The company has done business as Smart Leads; Unlimited Fulfillment Services, LLC; Annuity Leads; and Annuity Leads Today.
Apparently, the postcards misled recipients into believing their financial well-being was in jeopardy because their current annuity was at the end of its surrender period. The department ruled that a small-print disclaimer was not sufficient to outweigh the card’s deceptive intent.
In its 2012 bulletin, the department debunked the belief that using third-party solicitations insulated an advisor from wrongdoing. “The fact that these advertisements originate with third-party…entities does not create a ‘regulatory buffer’ between the department and insurance companies and/or their agents,” the department said. “Insurance companies and/or their agents are responsible for the content of advertisements distributed directly and on their behalf and are subject to potential regulatory action for the failure of any advertisement to comply with Kansas law.”
Although other states may be more lenient than Kansas on this issue, the National Ethics Association suggests advisors carefully review third-party solicitation content to make sure it complies with state laws and regulations. When in doubt, they should have their compliance officers review the material prior to distribution.
Finally, although a $5,000 fine may seem insignificant, some experts argue that using a non-compliant mailing may taint resulting sales, exposing the agents and their insurers to downstream liability. In this light, advisors should do their due diligence on third-party lead-generation content prior to mailing. As always, it’s better to be safe than sorry.