The Approach

"You never get a second chance to make a first impression" the old saying goes.  The initial meeting with a prospective client -- the so-called "approach" -- is a critical one.    Whether the salesperson is an agent, stockbroker or other financial services agent, he or she must be viewed as both competent and credible before the prospective client will trust the salesperson with the client's personal financial information.    

The purpose of the approach step of the sales process is to cause the prospective client to come to the understanding that the agent is someone with whom he or she may want to do business as a result of the rapport that has been created.  The approach may be accomplished in any number of environments -- in person, on the phone, etc. --  but to be ethical, any information imparted to the prospect in the approach step must be balanced and complete.  

This step of the sales process allows the agent to present him- or herself to the prospective client, the most serious ethical issue in the approach step has to do with the agent's stating or implying that he or she has skills, experience or credentials that are not possessed.   Consider, for example, the declaration that the agent is a financial planner or financial adviser when, in fact, the agent is a life insurance agent or registered representative.  Such a statement could suggest to the prospective client that the agent was in the business of providing unbiased analyses of client financial situations while having no inherent conflict of interest.  Of course, the agent's selling of financial products clearly creates such a conflict and makes that kind of statement misleading and a breach of ethics.  

If the agent was a registered investment adviser (RIA), use of those titles would be appropriate since the RIA that sells financial products is required to disclose to the prospective client in a client brochure that a conflict of interest exists in his or her offering financial products for sale.  Without that statement concerning the conflict of interest, however, appropriating these titles is misleading and presents ethical problems; furthermore, their use in that situation would be illegal in certain jurisdictions.  

The manner in which the agent holds him- or herself out to the prospective client could also impact the client's reasonable expectations and the agent's liability.  The reason for that heightened liability may be obvious; if the agent represents or implies that he or she has certain skills, the client may have every right to expect the agent to provide service at a level that one possessing those skills could be expected to provide.  Failure to provide that expected level of service could make the agent liable for damages the client sustains as a result.  Certainly any implication by the agent that he or she is affiliated with the government or any governmental agency in an attempt to suggest governmental approval of the agent or products is unethical.  

Some agents may choose to use a trade name.  While using a trade name is certainly acceptable, its use by the agent as a way of identifying him- or herself without also identifying the company being represented would be misleading.  To the extent that it misleads, it is unethical.  Consider, for example, the life insurance agent who identifies himself as a member of the "First Houston Group" in order to disguise his affiliation with a life insurance company.  There should be no question about the ethical value of that deception.  The agent is clearly attempting to mislead his prospective client, an obviously unethical act.

Discussion in the approach step of the products being offered presents another area that could create ethical concerns.  As in the other areas we've discussed, the ethical requirement is for full and fair disclosure.  Any product discussion should have as its objective a complete understanding by the listener.  Here are some practical examples of the meaning of full and fair disclosure:

If the agent states or implies that the products offered involve tax advantages, it should also be stated that only a thorough review of the client's situation would determine if those advantages apply to him.

The real nature of the product should not be obscured through the use of unfamiliar names.  Any product should be identified by its common name.  As an example, the use of the terms "plan" or "private pension" when referring to a life insurance policy could be unethical since those terms would tend to obscure the true life insurance nature of the product.

Using highly technical information about the products being offered that could be expected to mislead the person(s) receiving the information is unethical even if the information is true in every regard.  If the initial approach is made by telephone, as is normally the case, the agent should usually avoid discussion of specific products since adequate explanation in the relatively short space of time on the telephone is difficult.  An attempt to discuss a complex financial product in this setting often results in misunderstandings.  Unless the prospect is highly knowledgeable with respect to the product, a complete explanation is more likely to cause confusion rather than understanding.

Even providing the prospect with a prospectus -- without a discussion of the various costs of the product with the prospect -- could be unethical if the agent believed the prospectus would not be read.  A failure to discuss costs would be less than full and fair disclosure.