Ethical Use of Sales Tools
The term "sales tools" includes almost everything that an agent uses to create interest in purchasing or keeping the products marketed by the agent. This includes everything from the stationery and business cards the agent uses, to advertisements he or she places, direct mail sent, personal brochures distributed, magazine and newsletter articles written, to the seminar scripts and product illustrations used in the sales presentation.
Various regulatory bodies may assign these sales tools different names -- advertisements, educational materials, invitations to inquire, invitations to purchase -- this course will refer these collectively as "sales tools". Every communication designed to influence a decision to purchase or retain a product that is seen or heard by the client or prospective client should be considered a sales tool. Although this is a broad interpretation of what a sales tools is, it may be no broader than the courts would interpret the term. The overriding sales tools ethical issue is that they convey information fairly and honestly without misleading the client.
The important points addressed in this lesson are:
The term "sales tools" includes almost everything used by the financial services agent to create interest in purchasing or keeping financial products.
Information contained on the agent's letterhead and business cards must be sufficient to identify the agent and his or her company without misleading the prospect.
Advertising and direct mail present special ethics challenges because their necessary brevity makes it impossible for them to provide full disclosure.
Personal brochures give the agent an opportunity to showcase his or her experience, education, skills and credentials but must not mislead the prospect.
Magazine articles published under the agent's name are generally designed to position him or her as an expert in the subject of the article; an ethical problem may arise if that implication is incorrect.
Letterhead and Business Cards
How agents identify themselves on a business card or letterhead is important since these are, typically, the client's first introduction to the agent.The key ethical consideration when an agent designs his or her letterhead and business cards is to include sufficient information to adequately identify him or her and the company being represented without being misleading. Agents generally have fairly wide latitude in designing stationery and business cards with respect to both the design and language that is used, although some companies may have more stringent requirements than others.
Consider, for example, the letterhead for a certified financial planner (CFP®) designee. While the principal of the agency may be a certified financial planner, perhaps not all employees/associates of the firm hold that designation. So while "Jared Jones, CFP® and Associates" would be accurate, "Jared Jones and Associates CFP®" could be misleading as it gives the impression that Jared and all of the associates hold a CFP designation. Similar problems can arise with other titles and professional designations. In addition, each professional organization will have its own rules for proper usage of its designation. It is important that the agent comply with those rules and well as making sure that the designation's use is not misleading. And obviously, the use of the designations CPCU, CLU, CFP, ChFC or CPA would be improper and deceptive unless the agent had earned them.
Widely recognized professional designations can add credibility to an agent's business card or letterhead. But what of most general terms and titles, such as "financial planner" or "investment advisor". Some jurisdictions have guidelines on what terminology can be used, and under what circumstances those terms can be used. ( For example, "registered investment adviser" is reserved for those who have passed a licensing examination and are registered with the SEC.) Other times the agent is left to his or her own good judgment. The key question an agent should ask in these situations is: "Does the title mislead?". Generally speaking it is best to stick with traditional titles such as insurance agent or stockbroker to describe oneself.
When an agent holds a title from a firm, such as registered representative, the agent should include the name and address of the broker/dealer whom the agent represents. To omit the company affiliation would be to mislead prospective clients as to the nature of the title. For those agents who use the products of multiple companies, it is important that if products are listed the company with whom each product is placed and its principal home office address should also be supplied.
It is important that a agent's business card and letterhead permit the client or prospect to properly identify him or her as a property and casualty agent, a life insurance agent, a stockbroker, a registered representative, a registered investment adviser, etc. In addition, when a client receives the piece he or she should be able to determine what the agent sells.
Advertising and Direct Mail
As with all customer communications, the primary ethical consideration for advertising and direct mail is that it not be misleading to the reader or viewer. This requires the agent to present the material in a way that is not only honest, but also understandable. To that end, the agent should consider the level of understanding of the target audience. Different media reach different audiences. The mass media -- general newspapers, radio, television -- reach a general audience. Subscribers of trade publications typically have a deeper grasp of relevant subject matter. An agent's deliberate use of complex, albeit truthful, information in the mass media could be considered deceptive because of the target audience's lack of sophistication -- and therefore, unethical.
Direct mail is normally used to generate interest in the recipient in order to schedule a sales appointment. Obviously, it is important to generate the maximum interest possible in the financial products and services highlighted in the direct mail being used. The principal ethical difficulty with respect to direct mail and advertising is its relative brevity. It is often impossible to make a full disclosure in a piece of direct mail or in an advertisement. There just isn't sufficient time or space. Since the advertising or direct mail used must be brief as well as capable of generating prospective client interest it is particularly important that care be taken to ensure that the agent not misrepresent either the product or himself.
Since reader interest must be caught quickly, there may be a tendency to puffery -- to present the product in an exaggerated manner by ascribing to it qualities it does not have. For example, the writer may describe the product as new and unique or revolutionary. In many cases involving products other than insurance or investment products, these words are just puffery. In the insurance and investment business, however, the use of language that describes the offering as "new" or "best" -- unless it clearly is and can be verified -- or any other exaggeration must be scrupulously avoided. Both legally and ethically, it must not be done.
The limited space normally available in direct mail letters makes including qualifying information that might be necessary to a complete understanding of the offering difficult. As a result, information concerning exclusions, conditions, and other limitations is not included.
One of the important advantages enjoyed by life insurance products is its favorable tax treatment. An agent may want to emphasize that benefit in direct mail letters. Language such as "tax-free," "tax-favored," "tax-advantaged," or other words that point to the tax benefits of life insurance should not be used without additional qualifying language that invites the reader to check with his tax adviser for applicability in his specific situation.
Because of the inability to provide complete disclosure, it is a good idea to avoid discussing specific products or product features in advertising or direct mail. Unless the product or feature can be explained completely, the direct mail or advertising that discusses them runs a good chance of misleading the reader. Because full disclosure is generally impractical in these communications, specific product discussion should usually be avoided. Furthermore, the use of superlatives-words like best, lowest cost, lowest risk, safest, and other similar words-unless they are true and can be verified could mislead the reader and should be avoided.
How does an insurance agent "stand out from the crowd"? In a perfectly competitive market -- that is, one with many buyers and sellers competing over interchangeable products -- one wouldn't have to ask that question. Price alone would determine success. But we do ask that question, because insurance agents, like many other providers of services, operate in a marketplace that can be characterized as "monopolistically competitive". It is competitive because there are many sellers in the market. It is monopolistic in that each seller is unique -- offering clients their individual talents and skills and a slightly different set of products than any other agent. Agents and others in the financial services industry are often interested in differentiating their practice from that of other agents or agents. A personal brochure can be used to highlight their differences.
The guiding ethical principle when developing a personal brochure is that -- at the very least -- the brochure must provide information sufficient to allow the reader to understand the:
identity of the agent
business or businesses the agent engages in
products sold to accomplish the objectives stated in the brochure
companies represented, their addresses and telephone numbers, and
agent's address and telephone number.
The typical brochure highlights personal achievements, education, professional designations, membership in civic and professional associations as well as the products and services being offered. As in so many other communications, the ethical requirement is to avoid anything that would mislead the brochure's reader. Areas in a personal brochure that may be abused include:
claiming to have a professional designation, expertise or education not really possessed
misstating personal or professional accomplishments
failure to include important information, such as that the services offered or results claimed are provided through the use of stocks, bonds, life insurance, mutual funds, annuities, etc.
Personal brochures can provide a big lift to an agent's marketing efforts. It is important for ethical and legal reasons, however, to follow these guidelines when creating a personal brochure.
One common method agents may use to position themselves in a particular market is by writing articles for magazines or newsletter that serve those markets. Besides the exposure such articles bring, they also provide the agent with an aura of authority. As a result, agents sometimes publish articles in order to develop a reputation as an authority in a particular field or as a specialist in the needs of a specific target market. Of course, the ultimate purpose behind such an article is to generate business. In light of that intent, the article should be considered an advertisement and judged ethically by the criteria that apply to advertising. As with all other forms of advertising in the insurance and investment business, the information provided must be factually correct, understandable to the expected audience and not misleading.
As insurers and broker-dealers have begun to appreciate the desirability of target marketing and the importance of positioning agents within markets, they have come to realize the importance of providing articles for publication in magazines serving those markets. Many companies maintain a large number of such articles on various financial and insurance subjects that are suitable for many markets. Often, the agent needs only to add his or her name to the article and send it to the publisher. Since these articles are usually written by home office specialists and reviewed by compliance attorneys, they can be expected to be factually correct and not misleading.
The ethical issue for the agent in appending his or her name to an article written by a specialist is twofold: the purported author did not write the piece, and the agent may not possess the expertise and specialized knowledge implied by the published article. The first ethical concern may be resolved through the use of language clearly stating the article is made available by the agent rather than having been written by him or her. The second ethical concern-that the implied expertise may not be possessed-can be overcome by ensuring that the agent not have articles published unless he or she actually possesses the expertise implied.
SPECIFIC FLORIDA LAWS AND RULES
Florida law specifically outlaws misleading or false advertising under Section 626.9541(a) and (b):
(a) Misrepresentations and false advertising of insurance policies.--Knowingly making, issuing, circulating, or causing to be made, issued, or circulated, any estimate, illustration, circular, statement, sales presentation, omission, or comparison which:
1. Misrepresents the benefits, advantages, conditions, or terms of any insurance policy.
2. Misrepresents the dividends or share of the surplus to be received on any insurance policy.
3. Makes any false or misleading statements as to the dividends or share of surplus previously paid on any insurance policy.
4. Is misleading, or is a misrepresentation, as to the financial condition of any person or as to the legal reserve system upon which any life insurer operates.
5. Uses any name or title of any insurance policy or class of insurance policies misrepresenting the true nature thereof.
6. Is a misrepresentation for the purpose of inducing, or tending to induce, the lapse, forfeiture, exchange, conversion, or surrender of any insurance policy.
7. Is a misrepresentation for the purpose of effecting a pledge or assignment of, or effecting a loan against, any insurance policy.
8. Misrepresents any insurance policy as being shares of stock or misrepresents ownership interest in the company.
9. Uses any advertisement that would mislead or otherwise cause a reasonable person to believe mistakenly that the state or the Federal Government is responsible for the insurance sales activities of any person or stands behind any person's credit or that any person, the state, or the Federal Government guarantees any returns on insurance products or is a source of payment of any insurance obligation of or sold by any person.
(b) False information and advertising generally.--Knowingly making, publishing, disseminating, circulating, or placing before the public, or causing, directly or indirectly, to be made, published, disseminated, circulated, or placed before the public:
1. In a newspaper, magazine, or other publication,
2. In the form of a notice, circular, pamphlet, letter, or poster,
3. Over any radio or television station, or
4. In any other way,
an advertisement, announcement, or statement containing any assertion, representation, or statement with respect to the business of insurance, which is untrue, deceptive, or misleading.
The Department of Financial Services has issued lengthy regulations governing advertising of insurance products. These rules are designed to provide clear, unambiguous and truthful advertisements. Its aim is to provide the insuring public with accurate information to make informed decisions. For regulations on life insurance advertisements refer to Rule 69B-150.
The definition of advertisement covers a broad range of marketing media designed to solicit insurance business including:
printed or published literature used by or on behalf of an insurer,
audio-visual presentations, including radio and television broadcasts,
direct mail pieces, brochures, pamphlets, circulars,
billboards and other displays, and
prepared sales talks, presentations, and announcements.
Items not considered advertisements are:
materials used for employee/agent training purposes,
materials and communications designed for exclusive internal use,
individual communication with existing policyholders concerning existing coverage (communications with existing clients for renewal or expansion of coverage are considered advertising),
announcements by group policyholders to eligible participants,
correspondence with a group policy holder as part of a negotiation of a group contract, and
court approved materials sent under a court order.
An insurance company is responsible for any advertisement that directly or indirectly benefits the company. This applies to ads placed directly by the company, or advertisements placed by agents, brokers or others (who have the actual or apparent authority to do so) on behalf of the company. Department rules require agents and agencies to obtain insurance company approval before placing an advertisement that benefits the company (and was not furnished by the company).* Agents may either receive written permission before placing the ad, or obtain prior verbal approval with subsequent written approval from the insurer. Insurers must remind their agents, at least once each year, that prior approval by the insurer is required when placing ads that were not provided by the insurer. Please note: even minor changes to the wording of an advertisement may change the meaning so that it no longer complies with the Department's rules. Agents should either use company-provided advertisements exactly as written, or obtain company approval before making any changes. If an agent places an advertisement that may benefit more than one company, the agent should obtain approval from at least one of the companies. *Most agent contracts contain a prior approval provision for any agent-placed advertising.
Department regulations require insurers to print an identifying form number on each individual marketing piece. Insurers must keep a file, for four years, of all printed advertisements of its individual policies and samples of group insurance advertisements - including advertisements submitted to the insurer by agents or others. The company must note the manner and extent of its distribution in Florida. Insurers must, as part of their annual reporting to the Department, file a Certificate of Compliance stating that the firm's advertising complies with Department rules.
The Department may also require insurers to file advertisements 30 days before first use. The Department currently requires 30-day prior approval of any advertisement by radio, television and cable broadcasts that will be distributed to more than 25% of Florida's population.
Types of advertisements
Department regulations classify advertisements in several ways: "institutional", "invitation to inquire", "invitation to contract". Institutional advertisement is promotion of insurance or annuity products as a concept, or general promotion of the company. This is advertising of the most general type - details of specific policies are not discussed. Invitations to inquire aim to create a desire for more information concerning an insurance product. This type of advertisement contains a brief description of the policy, but does not mention costs or rates. That information is provided by contacting the agent or company. Invitations to inquire must contain a statement (if applicable) that the policy may be subject to exclusions, limitations or reductions in benefits. Any advertisement that is not institutional or an invitation to inquire is an invitation to contract. Invitations to contract are the most specific type of advertising and may contain rate information and other detailed policy provisions.
Each "invitation for contract" must contain the name of a Florida agent licensed to handle that kind of insurance. In addition, this type of advertisement must clearly describe the type of plan offered, the identifying form number, the premium amount and payment period, and any changes to the contract's face value. The advertisement also must mention any limitations or exclusions affecting the basic provisions of the policy. Actual insurance coverage cannot begin until the policy has been explained to the client and an application is completed. All advertisements containing an application must contain the name of a resident Florida agent and a space for the agent's signature. These applications must be returned to a Florida resident agent.
Disclosures required by law or Department rule must be in the same size type as the body of information - and the disclosure must be presented near the information it discusses. Any attempt to minimize or obscure these disclosures is deemed deceptive and illegal. "Invitations to contract" also must reveal any policy limitations, exclusions or reductions in benefits. If the ad displays an interest rate or rates of return, it also must mention any limitations or conditions that affect ultimate return such as administrative charges, surrender charges, etc.
Advertisements must clearly identify the product advertised as either an "insurance policy" or "annuity contract". In addition, the advertisement must refer to the product's "generic name", such as "whole life insurance", "group term life", or "deferred, variable annuity contract". To avoid deception, advertising materials must be truthful, unambiguous and not misleading. Insurance jargon is not permitted; nor are deceptive names and titles. For example, an advertisement may not refer to a fixed annuity as a "CD annuity" or any other phrase implying a negotiable instrument, deposit insurance, or anything other than an annuity contract. Similarly, premium payments may not be called "deposits". Advertisements may not imply government approval or use names or logos deceptively similar to the name or logo of any government agency. The rules also prohibit advertisements designed to create undue anxiety. Direct mail or direct response materials may not use phrases such as "no salesperson will call" or "by eliminating the agent we can offer at a lower cost".
Other Advertising Rules
All statements regarding policy dividends must clearly say that dividends are not guaranteed. Nor may the statement create the impression that the policyholder will benefit from the growth of the company. Any comparisons between participating (par) policies that may pay dividends, and non-participating (non-par) policies that do not pay dividends must be fair and accurate. Department rules require agents to compare par and non-par policies using net premiums.
Agents and companies may, for advertising purposes, provide applicants with gifts valued up to $25. Department rules define gifts as "articles of merchandise". The Department does not recognize gift certificates, memberships or other services as "merchandise". Consequently, agents who give away auto club memberships, gift certificates or cash violate the Insurance Code.
Advertisements may not contain disparaging comments when comparing competing policies or competitors. Comparisons must be between policies of equal terms and conditions. Incomplete comparisons are deceptive and prohibited.
Endorsements and testimonials must be genuine and represent the current opinion of the author. If a company spokesperson has a financial interest in the insurance company (subsidiary or parent company), exercises control over the insurer, or is compensated for the testimonial the endorsement must be labeled as a "paid endorsement".
When using statistics in an advertisement, the ad must reveal the source of the statistics, and the policy to which the statistics apply. If an advertisement refers to a rating system, the ad must explain the purpose and limitations of the rating.
Department rules allow the use of such terms as "introductory", "initial", "special" only if the policy's rates, provisions or benefits will change substantially in the future, or the coverage is available to certain persons only.