Chapter 5
Common Ethical and Compliance Problems

The important points addressed in this lesson are:

The agency agreement establishes a fiduciary relationship between an insurer and its agent.
An agent has a duty to solicit profitable business and to act with reasonable care in the performance of his or her duties.
An agent must make full disclosure to his or her insurer of all pertinent information in the placement of a policy.
Churning is the unethical excessive trading in a customer's account for the purpose of generating commissions.
Rebating is the illegal giving of a gift as an inducement to an applicant to purchase an insurance policy
Replacement of insurance places a duty on an insurance agent to make a complete comparison of proposed coverage with existing coverage.
A customer's expectations concerning a practitioner's acts, if reasonable, may affect the practitioner's liability for those acts.
Certain terms, because of their propensity to mislead, cannot ethically be used in connection with life insurance products.

The ethical and legal issues that have been examined to this point have principally involved the practitioner's interaction with prospects and clients.  However, as we noted earlier in our discussion of the law of agency, there is another important relationship that may give rise to ethical and compliance issues -- the practitioner's relationship with represented companies.

Earlier, it was noted that the concept of caveat emptor had been replaced by caveat vendor; in other words, "let the buyer beware" was judicially replaced by "let the seller beware."  This change in prevailing attitude may have far more impact on the financial services practitioner than is obvious.  Just as the practitioner is the seller with respect to his or her prospect or client, the practitioner may be seen as the seller with respect to his or her companies.  As a result of this change in perspective, the practitioner may find that he or she bears a significantly enhanced requirement for fair dealing when it comes to represented companies.  This is the case even without the common law concept of agency which places a fiduciary duty on the practitioner.  

Fiduciary Responsibility
illegal Acts
Client Expectations
Misleading Terms
Chapter 5 Review Questions