Damned either way. It’s long been a legitimate complaint from responsible advisors about the confusing nature of the ever-increasing regulatory environment. In criminal proceedings, ignorance of the law is no defense, but ignorance is hardly the case here. Rather, the sheer volume of required policies and procedures makes it tough for even the most ethical of advisors to keep up.

We recently heard of an advisor sanctioned in one state for choosing a particular course of action, while a colleague with the exact same set of circumstances in a neighboring state was sanctioned for not choosing the same course of action. We have a feeling most advisors wouldn’t find it surprising, hence our opening quip. While adherence to new regulations leaves little room for error, the outcome and resulting sanction is too often left to the whims of a particular state, or worse yet, the attitude and experience of a particular investigator.

Our point certainly isn’t to whine, but rather to illustrate the increasingly accepted adage that advisors are responsible not only for the decisions they make, but the decisions they don’t make, and that applies to the products and services offered. Here’s what we mean:

The first thing any new insurance agent learns is that if a risk is not specifically listed in the “exclusions” sections of a policy, it’s covered. It’s therefore the first place they look if a question arises about a claim. It makes for an incredibly high standard, as carriers must consider every risk possible when developing a product. For better or worse, agents and advisors are increasingly held to that seemingly impossible standard.

Long-term care insurance is one example, and a recent spate of high-profile lawsuits involving the products makes it easy to relate. Certain advisors have traditionally shied away from the product due to its perceived high-cost, recommending a self-funding strategy for clients instead. It’s their prerogative to feel that way, whether or not it’s accurate. Yet their bias is no longer allowed to impact the client. Even if they don’t feel the product is right for a given situation, it still must be nonetheless raised for the client to accept or reject. It’s a difficult standard, to say the least, but the lawsuits successfully brought by plaintiffs’ attorneys against advisors after the fact means the precedent is set.

Consider the following passage recently posted to LifeHealthPro.com.

Insurance agents and elder law attorneys are also at great risk for not providing adequate advice (and at a minimum not documenting their recommendations) about long term care planning to clients. “Professional advisors need to realize that the world we are working in has changed and become more dangerous for them,” said Don Quante, President of America’s First Financial Corp. in St. Louis, MO.  “I was in Florida recently where I saw attorney billboards advertising for people with long term care needs to call them. I placed a call only to discover that they were not providing planning services; what they were really doing is recruiting seniors in financial distress to sue their past advisors for insufficiently preparing them to pay for long-term care.”

Who’s to say any number of other products or strategies not offered now give standing to sue? Advisors would therefore have to discuss, and have clients sign off on, each and every one. It would make for an awkward advisor/client relationship, but such is the state of our regulatory environment.

Advisors and agents are therefore forgiven for finding it all a bit overwhelming, as there appears to be little they can do, but the regulatory whims either of the states in which they reside or the investigator’s ire they’ve drawn cut both ways. A culture of compliance certainly goes a long way in mitigating potential sanctions, and if it’s close, could help tips the scales in the advisor’s favor. A thorough documentation of policies and procedures is of course recommended (and in many cases required). Automation of those policies and procedures pays dividends, but there is an upfront cost. The question each advisor must therefore ask is whether or not they’d rather pay now in the form of technology, or later in the form of sanctions. While the former may affect the top line, the latter affects the advisor’s reputation, which is far more expensive in the long-run.