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Regulation and Compliance > State Regulation

Overlooking minor violations can open the door to bigger problems

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A person is either ethical or they’re not. There are no degrees of integrity. You either have it or you don’t.

So says William K. “Bud” Bridgers, FLMI, CLTC, a financial services professional in Pleasant Grove, Utah, who has made ethics and compliance a priority throughout his career spanning four decades.

That’s not to say people don’t make mistakes, Bridgers adds, but mistakes that involve ignorance of the laws or negligence and sloppy business practices are avoidable and should not be brushed off as “human error” with a slap on the wrist.

Financial and insurance professionals should never place themselves in a position to get caught in a ring of unethical conduct in the first place, he said. But that doesn’t stop opportunities to stray from the ethical high road from continually presenting themselves, even from colleagues who ought to know better.

Such was the case in this real-world example culled from his own past experience:

How the situation arose: I was asked in an administrative capacity to send an authorization and a few other insurance-related signature pages to a client of a financial advisor to a state in which the advisor was neither insurance licensed nor carrier appointed. He was licensed and appointed to the resident state of the client, but the client was physically out of state at the time on vacation, and, therefore, the paperwork would have shown that the signature and date were affixed in a state outside of the advisor’s jurisdiction.

How he reacted: I knew it was no big deal, but, if the case manager caught the problem of domicile and signature/date location, it probably wouldn’t fly. I called the insurance departments of the two states involved (Virginia and North Carolina) and they both agreed with me that having the paperwork signed in the state in which the proposed insured did not live and the agent was not insurance licensed nor carrier appointed would technically be in violation of interstate insurance business practices.

I pointed out this possible violation to the advisor and he said, “Just put a note on the forms telling the proposed owner/insured to write his resident city and state next to the signature and date. These papers have to be processed as soon as possible.” (The advisor had not sent a complete application to the proposed insured in the first place, so these were missing and important papers that were holding up underwriting). I indicated that since we were sending the paperwork via FedEx, we were creating a paper trail that would show we deliberately sent the papers to a state in which he, the advisor, was not insurance-licensed nor carrier-appointed. He became very angry and reported me to the national sales manager for the firm who also gave me a lecture on getting things done, but didn’t address the problem.

I immediately called Legal and they confirmed that I had done the right thing and to not follow the agent’s direction nor pay any attention to the national sales manager’s comments. So, I sent the paperwork to the proposed insured’s home address along with a return overnight envelope. When he returned home from vacation, he filled out the forms and signed/dated the forms in the state in which the agent was licensed and company appointed – so indicating on the forms in the proper place – and returned them to us in the envelope provided.

The outcome: The consequences of my actions quickly caused a rift between the administrative staff (all of whom supported me) and the producers. I was also chastised and lectured by my immediate supervisor for “sweating the small stuff,” including this direct quote: “Rules like this are made to be broken.” Given all the grief I got locally, I would still do the same thing, but my relationship with certain advisors in the office changed from that point forward.

Bridgers said he believes the core of so many financial industry problems is that too few people in positions of authority are willing to say, “No, we’re not going to do that because it isn’t right.”

That didn’t sit well with him back when the aforementioned scenario occurred, and still doesn’t today. “Rules should always be followed. Compliance must be foremost in the professional’s treatment, handling, and trust of other people’s money,” Bridgers said. “Yes, this takes time. And, time that takes a person away from selling is a constant irritant. But, when it comes to making sure all the rules are followed and full compliance applied, there is no short cut.”