Regulatory problems often result from sloppiness or lack of focus rather than from malicious intent. To that end, considering making 2014 the year you recommit to compliance basics in order to avoid preventable mistakes. Here are 15 best practices we recommend you follow in 2014.

  1. Be transparent about you are and the nature of your business. If you are an insurance agent, don’t mask that role with terms such as “financial planner” or “estate planner.”
  2. Make certain the prospect knows what you’re selling. If it’s insurance, say so.
  3. Do a complete fact finder early in the sales process. Make sure you understand the prospect’s risk tolerance and disclose your product’s risk level to prevent client dissatisfaction later.
  4. Explain all relevant coverage limitations, exclusions or reductions. Again, make sure nothing surprises a prospect later.
  5. When illustrating policy values, be sure to explain which values are guaranteed and which are not.
  6. Carefully explain all applicable surrender penalties and withdrawals charges.
  7. Use accurate words to describe the products you’re selling. Don’t call a life insurance policy an “investment” or an annuity a “savings plan” or “retirement plan.”
  8. Avoid using terms like “deposits,” “savings” or “investments” when discussing life insurance or annuities.
  9. Never disparage or make misleading statements about competing products, companies or advisors.
  10. Fill out insurance applications with great care, making sure to correctly document prospect answers, and never sign forms for prospects.
  11. Only use professional designations approved by your carrier or broker-dealer.
  12. Make sure to comply with your company’s suitability guidelines, filling out all required suitability forms.
  13. Document all client interactions, no matter how inconsequential they might seem to be.
  14. Review your company and association codes of ethics. Adhere to their principles.
  15. Adopt a fiduciary standard of care if required by your license. If not required, adopt a fiduciary mindset, within the framework of your suitability standard of care.

Although these best practices may sound elementary, they trip up a surprising number of advisors every year. So avoid carrier and regulatory scrutiny in 2014. Assuring compliant sales practices will not only minimize your practice’s regulatory and E&O risks, it will produce more informed and satisfied clients over the long term. Good luck!

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