Chapter 6
Chapter Six:  Conducting an Ethical Review of Your Practice

Important Lesson Points

The important points addressed in this lesson are:

An ethics and compliance audit of the practitioner's practice is designed to review sales practices and tools in order to ensure that they meet ethical requirements
The ethical review consists of inventorying and reviewing sales tools and practices, and changing anything that is unethical or non-compliant
The guiding ethical principle in conducting a practice review is that all communication with a customer must be honest, convey information fairly and not mislead
The financial services practitioner that maintains a highly ethical practice may find that it provides a marketing advantage


For many people, the word "audit" conjures up visions of IRS agents reviewing business expenses or corporate auditors evaluating procedures.  In an ethical review, we audit our sales tools and practices as the key step in becoming more ethically centered and ensuring compliance as a professional insurance agent.

The ethical review permits the practitioner to develop a complete picture of the materials that are used in each step of the sales process from the pre-approach to the sending of post-sale correspondence.  More importantly, the ethical audit allows the practitioner to evaluate his or her tools and practices to determine whether or not they promote an ethical practice and are in compliance.  To the extent that they fail to meet these criteria, the practitioner can take any needed steps to bring them into compliance.

The ethical review consists of three steps:

Pulling together the sales tools and practices used by the practitioner
Evaluating those tools and practices in relation to ethical and compliance guidelines, and
Changing any unethical or non-compliant elements

Collecting & Documenting Sales Tools & Practices

The best method of assembling sales tools and practices is to look at how you sell, what you use and the sales interviews you schedule.

The sales cycle, as we know, is a continuous one of obtaining referrals, making appointments, holding sales interviews, making sales and getting more referrals-and the cycle continues.  To do an ethics audit, however, we need to stop the sales cycle and examine it.  

A form is included in the Appendix that you can use to identify and list each of the tools and practices that you use as we proceed.

The sales tools we normally use before calling for sales appointments may include:

Referral letters
Direct mail letters
Advertising, and
Personal brochures

There may be many sales tools we use before calling a prospect to make a sales appointment.  We might send a referral letter saying that a friend or acquaintance had suggested we contact the prospect.  In the letter we may have enclosed a personal brochure outlining our products and services.  If the prospect isn't a referral, we may have used direct mail letters to generate interest.  The tools or practices that we employ may be a little different for each of us.  

Many practitioners also use scripts when making appointments on the telephone.  They might use a telephone "track" or suggested answers to possible objections raised by prospects.  A telephone script can keep them on track while they are making sales appointments.  

After we have secured the initial appointment and are about to meet the prospect, the first thing that we might give him or her is a business card.  Although you may choose to do that either right away or later in the interview, at some point, you will usually give the prospect a business card.  In addition, we might give the prospect a personal brochure.  

We noted earlier that the initial sales interview often has several objectives:  

Develop rapport with the prospect
Gain agreement to proceed with data gathering
Obtain the facts about the prospect and his or her family

Ideally, the initial interview enables us to gain rapport with the prospect and obtain agreement to complete a fact-finding interview.  Sometimes, we will begin to gather the prospect's data in that same interview.  The tools that are often used during that initial interview include:

Testimonial letters
Third-party motivational pieces
A sales track
A data-gathering form

Having developed a certain level of rapport with the prospect and completed a proper data gathering, an agent will normally schedule an appointment to return with a proposal.  Between the data-gathering interview and the next interview, many agents will send:

A thank-you note for the interview, and
A reminder of the next scheduled appointment

Often, in order to ensure that the prospect will be available for the next scheduled meeting and to further strengthen the rapport that has begun to develop, an agent will send a combination "thank you" note and appointment reminder.  During the time between appointments, the agent will usually:

Evaluate the data that have been gathered
Prepare a proposal using the available products to solve the prospect's need, and
Run an illustration of that product to present to the prospect

At this point, the sales process steps up to and including the close have been considered.  If you have made a sale, you will normally have certain post-sale activities involving:

Sending an appreciation letter to the client
Sending letters to referrals
Policy delivery, and
Arranging for delivery of ongoing publications, such as newsletters

Evaluating Sales Tools & Practices

By simply going through our activities as agents, we have managed to identify most, if not all, of the sales tools we use and the prospect interactions in which we use them.  Now that we have identified them, we need to evaluate them.  However, before we can evaluate them, we need reduce the principles we have already discussed up to this point into some usable guidelines.  Those general principles were that all communication must:

Be honest
Convey information fully and fairly, and
Not mislead.

Developing usable guidelines will allow us to compare our tools and practices with those principles.  

There are three areas to which our discussion of ethics and compliance has repeatedly returned.  They are:

The manner in which we identify our products
The way we identify ourselves, and
The way we present our products' features and benefits

These three areas are the ones that have the greatest risks in terms of ethics and compliance.  In light of that, our guidelines should provide a meaningful standard against which we can evaluate our tools and practices in these areas.  

Ethical Guidelines for Product Identification

Guidelines for the proper identification of your products should include the following:

Always refer to the products by their common names in a way that promotes their being understood.  If it is life insurance, call it a policy, not a plan.
Avoid the use of terms not specific or appropriate to the product; for example, refer to a premium as a premium, not a contribution or deposit.
Since premiums don't really vanish unless the policy is paid-up, avoid the use of the term "vanishing premiums."
If and when you identify the results you seek to achieve for the prospect or client, you need to indicate the products through whose use the results are achieved.
Avoid any words that obscure the identity of the product or its functions.

Additionally, we can develop guidelines with respect to how we identify ourselves.

Ethical Guidelines for Self-Identification

Guidelines for how we present and identify ourselves should include the following:

Stationery and business cards must include sufficient information to adequately identify us and our company; they should clearly indicate what we sell.
Our insurance company affiliation should be indicated; if you are a representative for one principal company, your status as a representative of that company should be shown.
If you list particular products, the company through which the products are provided should be identified along with its home office.
The titles we use must not state or imply anything untrue as to our credentials, licensing or special skills; do not identify yourself as a "financial planner" or "financial adviser" unless you are a registered investment adviser.
The testimonials and endorsements we use must be true and represent the endorser's current opinion; any financial interest held by the endorser must be disclosed.
The questions we ask the prospect and the forms we use in the sales interview should not imply that we provide services that we don't provide.

Finally, let's develop those necessary guidelines for how we actually present our products.

Ethical Guidelines for Product Presentation

Effective compliance guidelines for how we present our products would include all of the following:

Our presentation must be factually correct and truthful.
We need to make our presentation understandable in light of the target audience's level of understanding; the use of jargon that could be expected to mislead is unethical, even if it is completely true.
We need to be aware of the misleading nature of many superlatives; we can't describe products as "new," "best," "unique," and so forth unless they really are.
Any language that promises tax advantages should also state that only a careful review of the client's situation would determine if they apply and should suggest that the client check with his or her tax adviser.
We need to avoid any specific product discussions unless the product can be completely explained; this means that product discussion on the telephone, in an advertisement or in direct mail pieces should be avoided.
Sales support material that we use, such as graphs, tables and other pieces need to be true and understandable when standing on their own and taken out of context.
The products we present must be suitable for the prospect in light of his or her situation.
In explaining our financial products, we need to avoid analogies to other financial products.
If we make a comparison of unlike products, we need to fully discuss the differences in risk, guarantees, insurance, tax features and in any other material area.
Any comparison of products or companies that we make must be balanced and complete, including both the pros and cons of each product or company; we shouldn't omit any material fact.
We need to make clear in our product illustrations or presentations that any non-guaranteed element may not prove to be as illustrated.
Any statistics that we use need to be substantiated and referenced.

When each of your sales tools and practices have been evaluated in light of these guidelines, it should be obvious where changes are needed.  You may find, however, that you won't be able to do everything immediately.  

Once you have identified the compliance problems and ethical concerns in your practice is to try to uncover any particular patterns.  Often this will help you to locate the underlying cause of recurrent ethical and compliance problems.  

You should then prioritize the areas in which you are at risk so that you can correct those problems first that represent the greatest risk to you.  Finally, when you have corrected the current ethical and compliance problems, you should begin to develop long-term controls to ensure that your practice continues to be ethical and compliant.   

The Marketing Advantage of the Ethical Practice

Early in this course it was noted that to be unaware of the unethical sales practices that the insurance industry has dealt with, one would need to avoid newspapers, television and the radio.    However, it isn't only members of the industry that are aware of the problems; our prospects are equally aware of them.  We can see this public awareness in the results of an ACLI survey entitled Monitoring Attitudes of the Public.  That survey showed that:

36% of people have negative opinions of the insurance business
fewer than 1/3rd felt the industry was either fair, trustworthy or caring
more than half felt that policies are difficult to understand and that agents try to sell them insurance they don't need, and
45% felt that agents don't tell the whole truth when selling insurance

These are sobering results.  Since the public is aware of the compliance and ethical challenges being faced, however, it makes sense to candidly discuss those challenges with prospects.  In addition, the efforts that we have made to make our own practice compliant and ethical should also be shared.  Our final section examines what we can do to turn our ethical and compliant focus into a marketing advantage.

An important key to turning our ethical and compliance efforts into a marketing advantage lies in differentiating ourselves from the negative stereotype that emerges from the ACLI survey.  How we should accomplish that differentiation is, of course, the issue.  

An important factor in turning your ethical and compliance efforts into a marketing advantage is to be proactive.  Ask your prospect to express his or her feelings about the negative industry publicity.  Don't wait for the prospect to surface the issue.  In the way that you would use open-ended questions to draw out your prospect's needs and wants, use them to draw out your prospect's feelings.  

An open-ended question that would do that is, "What is your opinion of the insurance industry?"  This is the sort of question that is designed to allow our prospect to give vent to any negative feelings and concerns.  Alternatively, you might ask "What is your image of an insurance agent?"  

It is important to remember that your prospect may have those negative feelings.  If you don't expose them and resolve them, they are likely to remain there and impede the sale.  If you openly address them, you have a chance of correcting the record with respect to your financial services practice.

By asking these questions you assist the prospect to:

vent to his or her feelings
develop a clear and accurate picture of the problems the industry is experiencing
become aware that only a relatively small number of companies and agents are responsible for the unethical sales practices that have received publicity, and
understand that you are not among the small number of unethical and non-compliant agents

When the prospect has told you what he or she thinks about the industry or about insurance agents, it is important to summarize what he or she said.  This approach frequently enables the prospect to see that we understand and have a clear picture of his or her concerns.  To effectively summarize you may wish to say:

"If I heard you properly, you said…"

and then continue to summarize the prospect's feelings and concerns.  

Sometimes you will find a prospect that does not have any feelings-positive or negative-about the insurance business.  You may want to tell the prospect about the deceptive sales practices that have been brought to light and about the few failed insurance companies.

You could approach the issue by saying:

"In the last few years, a number of deceptive sales practices have come to light.  Although these things were done by a relatively few agents, it was shown the agents had failed to give their customers all of the information they needed to know to make an informed decision.  In some cases, information was even misrepresented.  The fact is, the customers didn't know what they were buying.

 "We have taken a number of precautions to be sure that these practices don't occur with our clients, because we believe that is both wrong and bad business.

"Furthermore, a handful of insurance companies failed because they forgot that they needed to take a long-term, conservative view.  By concentrating their assets in high risk investments, these companies were unable to meet their commitments when those investments ran into trouble.

"That, too, was wrong and bad business."

This is the point at which you can begin to differentiate your practice in the eyes of the client.  You may want to begin by sharing your own values statement with this prospective client.  If you don't have a printed values statement, you may want to seriously consider developing one.  A good ethical code that you may want to look at before you begin writing your own is shown in the Appendix.

After you have shared your statement of values, you may want to explain your, voluntary ethical and compliance review and its evaluation of your sales tools and practices.  After describing your review, you could say:

"This kind of ethical and compliance review is not required by any regulatory body; it's entirely voluntary.

"We went through the review because we wanted to be sure that we not only complied with the law in what we said to and did for our clients, we wanted also to be sure that it squared with our values system.

"We realize-and you may, too-that only those agents committed to a practice of full disclosure will spend the time and resources on this kind of review.  It is unfortunate, but many agents don't take this approach or hold themselves up to the same high standards.  

"We think that full disclosure is the only way to work with clients, because it means that the client is given all of the information he or she needs to be able to understand what is being purchased and why.  

"What this means to you is that I will provide you with all the details you need to make an informed and educated decision.  

"Does that make sense?

"Do you agree that this is the right way to proceed?"

The compliance and ethical principles upon which your practice needs to be based aren't gimmicks.  They are real and important keys to changing the way financial services professionals are perceived by the public, and are the basis for well-earned trust.