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The Financial Advisor Guide ToEthics and the Financial Services Professional

Self-Study Course # 15

OVERVIEW

This course was designed to provide guidelines on the understanding and application of

Ethics for the financial services profession in Canada.

There definitely appears to be a growing problem with ethical behavior in the financial

services industry. It seems every day that there is a new article in the financial press

that is about a breakdown in ethics with a company in the financial services industry that

leads to disciplinary action by one government agency or another. In addition, those in

the industry know that we receive notices from our own regulators citing numerous

suspensions, revocations, disciplinary actions against individuals in our industry that

never make the papers. When you read the descriptions of the misdeeds these so-called

professionals did to enrich themselves at the expense of those who trusted them to

manage their money, or to make good life insurance buying recommendations, you

become very concerned with the ethical state of the financial services industry and those

who work in it.

INTRODUCTION

Insurance companies base many of their decisions on financial aspects: What will bring

a profit? How can costs be cut? How can taxation be minimized? Along with a variety

of other financial questions pertaining to the background of ethics or values form the

foundation of the decisions made. Because values become an integrated part of both

personal lives and business conduct, individuals are often unaware that decisions are

made with an ethical view. A person who has formed an ethical core in early life will

continue to make the majority of their decisions based on that early training--even if they

are unaware, they are doing so.

An example of this cannot be overlooked. A salesperson that formed their early sales

presentation based on honesty and ethical conduct will, over the months and years,

make a habit of saying their presentation in a certain manner. Court cases have been

won and lost on this concept of "repeat actions." As time goes by, this sales

presentation becomes a "habit" with little variation.

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Ethics and The Financial Services Professional SSC #15Pro-Seminars Limited © 05/12

Eventually, the salesperson may well forget how the original presentation was formed,

but if ethics played a part in the original presentation, ethics will continue to play a part

as time passes. The same may be said of driving a car, riding a bicycle, and other daily

habits that were initially "learned behaviour" but become "reflex behaviour."

Regardless of our position in the Financial Services industry, each of us faces ethical

issues every day. When any given profession deals with a commission base, this seems

to be especially true. Ethics could be "talked to death." The bottom line, however, is

simple: what is right and what is wrong? The answers are not the same for every

individual.

In Canada, many of the life insurance companies, financial services companies and

industry associations follow the guidelines contained within the Consumer Protection

Principles as mandated by the Canadian Council of Insurance Regulators (CCIR).

Who is the Canadian Council of Insurance Regulators (CCIR)?

The CCIR is an association that was created to advocate for an effective regulatory

system in Canada. They represent regulators from the Federal, Provincial and Territorial

Governments.

Their goal is to enhance consumer protection by having harmonized insurance

regulation and policy that will lead to an efficient and effective regulatory system in

Canada for all financial services regulators.

This is achieved by following the Principles for Consumer Protection as written by

CCIR.

Disclosure

Consumers can expect:

To be fully informed when they are making decisions about purchasing insurance,

including with whom they are entering a contract.

Full, true and plain disclosure about products and services.

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Contracts that are written in clear, direct language.

Educated and Ethical Intermediaries


Information concerning who is accountable for the seller’s actions in a sales

transaction.

Intermediaries who have exceeded a significant minimum standard of proficiency.

Intermediaries who are committed to maintaining their knowledge and skills through

continuing education.

Intermediaries and insurers who demonstrate consistent professional standards of

business practice, integrity and ethical conduct.

3. Consumer Education


To be provided with sufficient information that is clear and easily accessible, which

helps them to become more knowledgeable about their insurance coverage?

4. Consumer Remedies


• Protection from misleading or dishonest sales practices.

• Easily accessible information on how to seek a remedy, including redress, for

problems arising out of interactions with insurers or intermediaries.

• To have problems addressed quickly and inexpensively in a neutral and balanced

manner.

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5. Effective Regulators


• Fair and effective regulators who will investigate complaints and stop unethical or

illegal behaviour and unconscionable practices among insurers and intermediaries.

• Regulators who, when requested, will inform them of options to remedy a wrong or

loss, or to seek redress.

• Privacy of their personal information.

• A regulatory system that fosters a stable and solvent industry.

The above information was found on the CCIR website.

CONSIDER THE DEFINITION OF ETHICS

Ethics (eth'iks) n. pl. (1) the principles of honour and morality. (2) Accepted rules of

conduct. (3) The moral principles of an individual. -Eth’ic, adj. pertinent to morals.

(Webster Dictionary)

What are ethics? Who determines what is or is not ethical behaviour? Is it possible to

make your living in commission sales and still be ethical? Perhaps more to the point, is

it possible to make a GOOD living in commission sales and still be ethical?

While the study of ethics is actually a complex matter with many shades of right and

wrong, basically ethics is about the meaning of life. It is the abstract view of what is right

and what is wrong. There are few absolutes and many varied definitions. Even those

who make their lifework the study of ethical behaviour often do not come up with the

same conclusions.

The purpose of this course is not necessarily to give any answers to the ethical

questions. Rather, it is our intent to promote thinking. A thinking individual is a powerful

person. The point of this course is to promote ethical thinking. It is our desire to provide

a few of the "tools" of logic.

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Ethics do, of course, belong in every aspect of our lives, but we are going to examine the

ethics in the Financial Services industry. Ethics sometimes referred to as values, play

an important role in the decisions that are made every day. Whether these ethics or

values are acknowledged or implicit, they are present. The decisions that are made,

with or without ethical considerations, have a profound effect on our own lives and those

of others.

While the study of ethics is actually a complex matter with many shades of right and

wrong, ethics is about an individual's perception of life. It is the abstract view of what is

right and wrong. There may be few absolutes and many varied definitions.

When it comes to insurance ethics, Federal and Provincial requirements dictate many of

the views of right and wrong. Originally, ethics involved the questioning of why certain

things should be done or thought. Much of the issues that Canada or her citizens

wrestle with daily have to do with one simple question: What is the right thing to do?

That one simple question does not always have one simple answer.

As insurance representatives, we do not have the answers to the big problems in

Canada, but we are often a mirror of what is going on in our neighbourhoods and cities.

If, as individuals, people who are primarily concerned with themselves surround us, then

it is likely that we will have the same attitude in our work and play. Therefore, if the

agency in which we were trained stressed SALES, SALES, and SALES without any

other input, it is likely that we will lose sight of the role that ethics should play. When our

immediate bosses and peers do not deem ethical behaviour important, it is not surprising

that problems eventually materialize.

As insurance Agents and Brokers (and as individuals) we must determine our own goals

in life. We cannot allow others to set them for us, no matter how well intentioned those

"others" may be. Ethics help us to set goals that will bring about pride in ourselves and

in our achievements. Regardless of our personal circumstances, it is always possible to

have a moral code (a code of ethics). Even those in dire circumstances have reported

this.

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Viktor Frankl, author of Man's Search for Meaning, discovered that even in the brutal

confines of Auschwitz, a concentration camp, people could still choose to have a moral

basis to their lives.

It has been said that legal authorities may be able to mandate behaviour, but not ethics.

Technically, this is probably correct. A person who would like to steal may not do so

because of the consequences such behaviour would bring about. Therefore, his

behaviour is controlled, but not his ethics. Although he does not steal, he would still like

to.

WHERE DID “ETHICS” COME FROM?

Ethics began as society's code of unwritten rules. From the time that humans began

living together, such codes of unwritten rules were necessary simply to survive. Survival

could not continue if the strong (typically males) took everything, including food and

shelter, from those who were weaker. The weaker individuals were likely to be women

and children. If women and children did not survive, the species could not have survived

either. These rules established the way in which others were to be treated for the

benefit of all.

For centuries, societies have argued over what is ethical or moral. It was during the fifth

century B.C. in Greece that the philosopher Socrates gave ethics its formal beginning.

The word ethics comes from the Greek word ethos, which means "character."

Each country will have ethics that are unique to the people in it and ethics that tend to be

common with ethics of people in other countries. In Canada, we have many variances in

what is believed to be ethical because we have a varied population with a varied

background. A work ethic was formed early in Canada (although many people have

questioned whether it still remains) because it was through work that these people were

able to obtain possessions.

Clearing land, for example, was backbreaking labor, but it produced rich farmlands that

could be sold or handed down to the children. Therefore, hard work brought rewards.

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Rewards brought a reason to work hard. It is easy to see why the immigrants who came

to early Canada easily accepted this “work ethic”. Many of these immigrants had never

before had the opportunity to obtain possessions through personal work. Even today,

despite our concern that the work ethic is disappearing, new immigrants continue to find

satisfaction and possessions by following a work ethic.

Immigrants, both in the early days and continuing into today, have brought in other

ethical values. One that is commonly thought of (and which many Canadians now take

for granted) is education. We often forget that obtaining education is, in fact, an ethical

standpoint. It is not always easy to become educated. Like so many values or ethics, it

requires concentration and hard work. Immigrants who come from lands where

education is given only to select groups find our open education system a wonderful

opportunity. Often immigrants take greater advantage of education than do established

Canadians. When an opportunity is so widely available, it is easy to forget the

importance of it.

ETHICS, MORALITY AND VALUES

Values that guide how people ought to behave are considered moral values (e.g., values

such as respect, honesty, fairness, responsibility, etc.). Statements around how these

values are applied are sometimes called moral or ethical principles.

Values and ethics are the convictions that shape peoples' attitudes, guide their actions,

and inform the choices they make.

One of the most important characteristics of moral judgements is that they express your

values. Not all expressions of values are also moral judgements, but all moral

judgements do express something about what you value. Thus, understanding morality

requires investigating what people value and why.

There are three principle types of values, which humans can have: preferential values,

instrumental values, and intrinsic values. Each plays an important role in every person's

life, but they do not all play equal roles in the formation of moral standards and moral

norms.

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1. Preferential Values

The expression of preference is an expression of value. When a person says that he

prefers to play sports, he is saying that he values that activity. When another person

says that he prefers relaxing at home to being at work, he is saying that he values

leisure time more highly than work time.

Most ethical theories are not terribly concerned with - nor do they place much emphasis

on - preferential values. The one exception would be hedonistic ethical theories, which

explicitly place such preferences at the centre of moral consideration. Such systems

argue that those situations or activities, which make people happiest, are, in fact, the

ones they should morally choose.

2. Instrumental Values

When something is valued instrumentally, that means that it only has value insofar as it

is a means to achieve some other end that is, in turn, more important. Thus, if your car

is of instrumental value that means that you only value it insofar as it allows you to

accomplish other tasks, such as getting to work or the store.

Instrumental values play an important role in teleological moral systems—theories of

morality that argue that the moral choices are those which lead to the best possible

consequences.

Thus, the choice to feed a homeless person is considered a moral choice and is valued

not simply for its own sake but, rather, because it leads to some other good—the well-

being of another person.

3. Intrinsic Values

Something with intrinsic value is valued purely for itself—it is not used simply as a

means to some other end and it is not simply "preferred" over other possible options.

This sort of value is the source of a great deal of debate in moral philosophy. In fact,

some people even question whether intrinsic values actually exist.

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If intrinsic values do exist, how is it that they occur? Are they like colour or mass, a

characteristic that you can detect so long as you use the right tools? You can explain

what produces the characteristics like mass and colour, but what would produce the

characteristic of value? If people are unable to reach any sort of agreement about the

value of some object or event, does that mean that its value, whatever it is, cannot be

intrinsic?

4. Instrumental versus Intrinsic Values

One problem in ethics is if intrinsic values really do exist, how do you differentiate them

from instrumental values? That may seem simple at first, but it is not. Take, for

example, the question of good health—it is something that just about everyone values.

But, is it an intrinsic value?

Some might be inclined to answer "yes," but in fact, people tend to value good health

because it allows them to engage in activities that they like. From this perspective, good

health is an instrumental value. But this raises the question, are those pleasurable

activities, then, intrinsically valuable? People often perform them for a variety of

reasons—social bonding, learning, to test their abilities, etc.

So, even these activities - it could be argued - are also instrumental rather than intrinsic

values.

It seems that everything you value is something which leads to some other value,

suggesting that all of your values are, at least in part, instrumental values. Perhaps

there is no "final" value or set of values - we're all caught in a constant feedback loop

where things that we value continually lead to other things that we value.

5. Values – Subjective or Objective?

Another debate in the field of ethics is the role human’s play when it comes to creating or

assessing value. Some argue that value is a purely human construction—or at least, the

product of advanced cognitive functions - whether human or not.

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If all cognitively advanced creatures disappeared, things like mass would not change,

but other things - like value - would disappear.

Others argue, however, that at least some forms of value (intrinsic values) exist

objectively and independently of any observer.

You might deny that they have value, but in such a situation, you are either deceiving

yourself or you are simply mistaken. Indeed, some ethical theorists have argued that

many moral problems could be resolved if we could simply learn to better recognize

those things which have true value and dispense with the things that have artificially

created value (things that are merely a "distraction").

WHY ARE ETHICS IMPORTANT?

Before it is possible to say who needs ethics in their lives, we must first define what

ethics are. Defining ethics precisely would depend upon many variables, although some

elements are universal. The fine points of cultural ethics depend upon the society one

lives in, their religious beliefs and their personal long-range goals. However, it is

possible to say that a basic definition of ethics is the study of right and wrong, that part of

science and philosophy dealing with moral conduct, duty and judgment. It might also be

called the professional rules of right and wrong in a particular industry.

In many ways, ethics are a form of excellence. That excellence might be in a variety of

activities, but regardless of the function being performed, it is easily recognizable. Many

people do not realize that when they see excellence, they are often seeing a form of

ethics as well. The athlete who wins an Olympic gold medal is recognized for the

performance that he gave, but his dedication to the sport, the purity he gave the

profession may not be realized. This type of recognizable excellence is not only seen in

athletics, but also in the business world. We tend to forget that the agent who made the

effort to acquire additional educational designations or who built an agency that stays at

the top may also have done so with a strict code of ethics.

Why does a high code of ethics often seem to go unrecognized?

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Many professional people who consistently perform to a high degree often make their

performance look easy. To the outsider, it may appear that the individual is

extraordinarily lucky or gifted. While this may occasionally be true, it is rare. More often,

the individual is dedicated, structured and far-sighted. Excellence simply does not

happen miraculously, but rather it comes from pacesetting levels of personal

effectiveness and effort. Codes of ethics often cannot be judged against a rigid set of

criteria, since different people value different virtues. However, it can be judged by the

effort given to following whatever set of virtues is valued.

Ethics are often labeled under a different name. This is especially true in business

settings. For some reason, groups of people in business prefer labels other than ethics.

Excellence is often the word preferred. Whatever the name, the results are usually the

best measure.

It should be noted that individuals themselves, not the organizations they work under,

create a code of ethics, which produces excellence. The truly gifted individual will

transfer that excellence, which includes his or her code of ethics, on to the next

generation of managers and workers.

Ethics can be referred to as the professional rules of right and wrong in a particular industry.

The definition of what is ethical and excellent changes from culture to culture and even

from generation to generation. In the past, people such as Henry T. Ford embodied the

early American ability to accomplish almost anything.

His extraordinary management skills were probably not called "ethical" although there

was certainly an element of ethics in them. His workers were treated more like friends

and family than workers. They earned more and worked fewer hours than any other

industry at a time when it was not necessary for the company to be structured in such a

way. Ford was called eccentric rather than ethical.

During the 1950s, Canada enjoyed an explosion of growth. In the 1960s and early

1970s, people began to question old age values and traditions.

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During this time, many institutional businesses, such as insurance companies, were

considered distasteful. Universities and Colleges had fewer people interested in

business, but many were interested in the social sciences. In the mid-1970s the "me"

generation emerged. At this time, it was considered socially acceptable to be self-

centered in thought and action. This period of the "me”, generation brought back interest

in business, including business management, law, medicine and institutions such as

insurance.

The Financial Services industry has only recently begun to be considered an ethical

institution rather than a moneymaking institution.

Although there was much good advice in the various techniques, unless the executives and managers who attempted to follow them understood the need for an ethical foundation, their efforts crumbled.

In the 1980s, selling as part of business became socially acceptable. Infomercials on

television became an art form. Some acting professionals, in fact, made their living

doing infomercials. Such things as quality circles, team building, Japanese-style

management and numerous books on self-improvement became popular. In

subsequent years, however, we have found that all these improvement techniques did

very little good (except make the authors rich). Although there was much good advice in

the various techniques, unless the executives and managers who attempted to follow

them understood the need for an ethical foundation, their efforts crumbled. As with all

good structures, there must be a firm foundation. That foundation must always begin

with a code of ethics.

When productivity is down, especially in commissioned sales, there is the tendency to

look for gimmicks. A sales promotion, promises of bonuses for the sales staff, all sorts

of special rewards, are often brought out in an attempt to motivate additional sales.

Confronted with indifference and sometimes even a hostile environment, these gimmicks

are more likely to frustrate than to motivate. When morale sags and excellence

declines, gimmicks will not fill the void. The foundation must be set instead. A strong

foundation builds excellence. That foundation is a code of ethics.

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ETHICS AND THE FINANCIAL SERVICES INDUSTRY

Picture an agency sales staff. Insurance sales have been down. Reasons are being

thrown around like confetti.

"No one was home."

"If I could just find one interested person it would help."

"Everyone is sick and tired of trying to be sold something."

"People just don't seem to trust insurance salespeople anymore."

Should management offer bonuses? Should the management condemn the sales staff

as incompetent? Where does an agency go to find a solution? All too often, the

management turns to gimmicks, whether that happens to be motivational tapes or

books, prizes or harassment.

Perhaps more would be accomplished if management instead returned to the foundation

of their occupation and began to rebuild ethical techniques from the ground up. All too

often, salespeople lose sight of their ethical guidelines; the reason they are selling their

insurance products. Rather than consider the needs of the consumer, they are

considering the needs of their pocketbooks. There is not an easy solution. It is most

difficult, when one has mounting bills, to put those thoughts aside and concentrate on

the needs of the consumer. Despite the difficulty, however, with an ethical foundation,

this is what will be done. Vision and patience are certainly virtues and not easily come

by. However, both vision and patience are part of a code of ethics that will, in the end,

produce results.

In the book called “Creating Excellence”, the authors list what they call New Age skills.

These skills include:

1) Creative insight & Sensitivity

2) Vision & Focus

3) Versatility

4) Patience

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Each of these so-called new age skills is a part of excellence, but they are also a part of

a strong code of ethics. Creative insights, they report, means asking the right questions.

How appropriate this is for insurance agents! The appropriate question would be "How

can I help this consumer?” Not "How can I make a commission?” By asking the right

questions, the insurance agent will make a sufficient, perhaps even excessive, income.

At the same time, he or she will be doing what excellence demands: benefiting the

consumer.

Sensitivity belongs in many situations, certainly in our home with our family members

and friends. Sensitivity also belongs in our work. In the final analysis, only people can

benefit people. The organization for which we work cannot.

What the organization can (and hopefully will) do is provide an environment in which the

people feel motivated due to ongoing training in products and company development,

creative thinking, a friendly atmosphere and job security. Without a feeling of security, it

is unlikely that the agents will be motivated, especially if they are feeling exploited to

some degree.

Without a feeling of security, it is unlikely that the agents will be motivated, especially if they are feeling exploited to some degree.

Vision is truly an asset for any commissioned salesperson. That vision must include not

only their futures as salespeople, but also the futures of the clients they represent.

Those who develop a strong sense of vision are nearly always leaders in some capacity.

Vision of the future is necessary for any agent dealing with financial planning or

retirement planning. However, it is surprising the number of agents in these fields who

have done nothing for their own future.

Surely, if they really had a vision for the future, this is one thing they would have done for

themselves. If an agent cannot create their own financial future, there must be

questions regarding their ability to have vision for their clients. Unfortunately, many

agents merely consider what they have earned today or this week and forget about their

lives in the long term. This is a common problem in a profession where commissions

are the basis of income.

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The insurance industry is a changing marketplace. The changes can be caused by

many factors, including current financial trends, Federal or Provincial mandates and the

security (or lack of it) that people are feeling about their futures. Versatility is the ability

to anticipate the need for change. This is not an easy skill to acquire. Many never do

acquire it despite their efforts. Certainly, versatility means that the individual must be

setting future goals. There is no possibility of being versatile if one lives only for today.

Versatility often means doing without something material today so that another goal can

be reached tomorrow.

Change is difficult for everyone, not only the old. Even a small child wants to know that

he or she is sheltered and secure in a set routine.

When that routine is upset, uncertainty and fear often develop. There are those who

seem to thrive on uncertainly and even seem to perform at their peak during such times.

Focus is probably why they are able to do so. Rather than dwell on what was, they

seem to realize what could be. Change is often for the best, although we may not

always realize that in the beginning. Being able to implement change, when necessary,

is what insurance is all about.

Client needs change regularly and the insurance professional must recognize that

changing products and changing regulations do not always mean difficulty. It often

means improved products and improved opportunities.

Being able to implement change, when necessary, is what insurance is all about.

Patience has been called a virtue for centuries. Despite all that has been said about

having patience in today's world we do not seem to value it. We live in a hurry-up world

where speed seems to be the top priority. Perhaps that is why consumers appreciate a

salesperson that not only gives them time, but also does so enthusiastically. In many

ways, patience means living in the long term.

Business people have always needed to commit to long-term projects and goals.

Individuals need to do the same financially to secure their future. Patience often means

delaying today's enjoyments so that future years will be financially sufficient.

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A code of ethics generally has an element of patience. This includes patience not only

with family and friends, but also with people that we deal with on a day-to-day basis

(clerks, coworkers, etc.). Patience enables one to reduce stress levels and achieve a

greater peace of mind. It is ironic that so many techniques are advertised to reduce

stress, yet few of them mention the need to develop patience.

These six skills are difficult to master and it will not happen overnight. All things

worthwhile take effort. Agents who want to create excellence, which is ethics in action,

cannot rely on quick fixes or magic formulas. As with anything, it takes time, dedication

and certainly hard work. It has been said: "No pain, no gain.” When it comes to

following a code of ethics that could be modified to: "No effort, no results.”

Very few things of lasting value come easily. This is true of good marriages, happy

healthy children and certainly a good ethical work environment.

Attempting to achieve anything means trying; really trying. Most people quit when the

attempt begins to feel strenuous. The level of difficulty, for most people, cannot be too

great. If it is, they discontinue their efforts. That is why only a handful of people reach

their maximum potential. That is why doing what is difficult seems so special to those

who avoid difficulty. It is not easy standing up for our principles. Following an ethical

path means trying; really trying. When we reach our life's goals, however, the rewards

will be great.

THE FINANCIAL SERVICES INDUSTRY AND ETHICS NEED EACH OTHER

The public often perceives business organizations to be unethical or, at the very least,

uncaring. With some of the past practices that have been reported, this is not very

surprising. As any insurance agent knows, commissioned businesses are often counted

among those who are unethical. Again, this is not surprising since there has been a

history of needless replacement and bad publicity (some earned, and some not).

Especially in the senior marketplace, insurance agents have been painted as greedy and

uncaring. Of course, we know that the majority of agents do not deserve this reputation.

What has also become very evident is that we must police our own occupation. If we do

not, the insurance departments and the press will do it for us.

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Unfortunately, when an agent does try to police the industry, he or she is often perceived

as merely trying to cut out the competition. Some agents have reported that when they

alerted officials, it appeared that no action was taken. This is understandable given the

industry. There are measures that can be taken, however. An agency that knows they

have an unethical agent should terminate him. An agent, on the other hand, who knows

the agency at which they work is unethical, should change agencies. If each person

acts in this manner, soon it would be unusual for the unethical agent or agency to

survive financially.

We often think of ethics as something that applies to individuals and this is true. A

business is an entity, not a living being. Therefore, ethics are applied to individuals

rather than to a business. However, a business is made up of individuals and it is those

individuals that give the business an ethical code. What this really means is that the

business itself is neither ethical nor unethical. Those who manage or own the business,

however, represent the business. How they represent it gives or denies ethical conduct.

No institution can survive long-term without some idea or representation of what is right

and what is wrong. Business organizations fold every year because they lost sight of

ethical codes.

If asked, most business owners would agree completely that they wanted ethical

employees. After all, who would want employees that would steal from their employers?

Honesty is considered an ethical trait and a desirable trait.

What many business managers and owners forget is that the public feels as they do.

The public wants to deal with honest people who will not steal from them.

There is no escaping the need and the desire for honesty in business dealings. An

unethical person is not likely to be honest.

Decisions at every level of our insurance institutions are influenced by ethics, even if it

happens to go unrecognized. Ethics play a part in how the public is treated, and in how

the employees themselves are treated. It has not been unusual, for some insurance

companies and agencies to keep agents long enough for a block of business to be built.

Then the company dismisses the agent keeping their blocks of business.

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Even if an agent's contract states that their business belongs to the insurance company,

it is likely that the dismissed agent will attempt to "roll" their business from the existing

company to the agent's current company. In some cases, this can be damaging for the

consumer.

Ethics play a part in how the public is treated, and in how the employees themselves are treated.

For many years, insurance agents have been considered expendable. Since this

industry sees a constant changeover of agents (many leave the profession each year),

the insurance companies have often been unconcerned with treating their field agents in

an ethical manner. Luckily, there are also insurance companies who have been very

ethical with their agents, but often the selling agent does not know in advance which

companies are ethical and which are not. Certainly, the agent wants to read the

contracts they sign very carefully, but even having done so will not always protect them

from having their block of business captured by the insurance company.

While an agent would obviously want to work for a company that was ethical (for his own

protection as well as for his clients), this is not always easy to determine. Perhaps the

best guidelines will not be recognized until after the agent has already signed a contract

with the company and experiences first-hand their agent practices.

Before beginning with the insurance company, the agent can seek out people who

already work for the company.

SOME QUESTIONS FOR THE NEW ADVISOR/AGENT OR BROKER TO ASK

Do they pay their commissions regularly and on time?

When the agent has a question, is the company cooperative and responsive?

Does the company place a value on product training?

Does the company require certain high-profit products be sold even if the agent is

reluctant to do so?

Does the company provide an 800 (toll-free) number for claim questions?

Does the company encourage or discourage agent calls?

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Sometimes a simple "gut feeling" is the best indication. If the agent has doubts about

the company, he or she should probably not sign an agent contract.

The field agent will probably do most of their direct contact with a regional office of the

insurance company. Agents often have to perform very well to obtain Managing General

Agent (MGA) contracts, which can be very lucrative.

An agent who receives an MGA contract (the name attached may vary) signs other

agents up to sell the company's products. The agent receives a cut or commission on

each application sold and kept in force. The insurance company expects the agent who

receives the MGA contract to train the local field force and service the business that is

written. A new development recently is that most insurance companies require that

agents and brokers be signed up under one of their MGA offices (as opposed to signing

up directly with the company). There is good reason for this. By requiring a middle

person (the MGA) is involved with the insurance company in assuming that training and

field assistance will be provided. This should raise the level of competency, which

heightens consumer satisfaction. The trend of downloading responsibility to the MGA is

becoming more prevalent as the insurance companies shift responsibilities.

The MGA who works hard at recruiting agents and brokers to sell the products offered

by the insurance company can, over the years, earn very high renewal commissions.

The aim is usually to receive regular renewals, which eliminates much of the stress of

commissioned sales. The amount of commission that is earned by the regional agent

may be small, perhaps only a couple of percentage points.

However, 20 people or more providing 2% commission on everything they sell is usually

better than one person generating sales. That is why it is so important for the MGA or

Manager to recruit a constant supply of new agents. Some will perform well and some

will not perform at all.

The MGA or Manager often has wide latitude regarding his or her training procedures,

providing they fall within certain guidelines. The wise MGA / Manager will incorporate a

code of ethics. Certainly, he or she would not want a field agent registered under them

that was stealing or using deceptive practices.

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Stealing from the consumer is certainly very bad for any agency. Beyond that, the

MGA / Manager will want to instill a solid work ethic. To do that training must be

performed in a logical professional manner. While short cuts are desired, seldom do

they work. Like all things, training must be done regularly and completely. Who would

want a surgeon who had taken a "quickie" course on surgery? While a surgeon is in a

different category, a consumer's financial future is perhaps no less important in the end.

Ethical conduct can be practiced even if management gives it little importance.

However, it is certainly a better work environment when management recognizes its

importance. There can be no stability without ethical conduct. In fact, ethics lends

stability. It is always wrong to steal from the consumer. It is always wrong to lie about

the products. Such statements lend stability with black-and-white codes of right and

wrong. There are no gray areas.

It is good to know that ethical procedures are gaining recognition in all workplaces.

Perhaps this is happening because we desire it, but it is also happening because it is

simply good business procedures. A business who desires to be around years from now

recognizes that this will only happen when the public, as well as governing agencies,

recognizes that good consumer practices are being followed.

The lines of ethical conduct have been debated and will continue to be. However, there

is certain criterion that seems to be accepted. Even though management has

recognized the importance of ethics in the past, that importance was often not stressed.

Rather management seemed to concentrate on company finances, not realizing that the

two could not be separated.

Ethics was considered personal and private. It seemed hard to distinguish ethics from

taste, bias or particular cultural background. As lawsuits became more common, large

companies began to focus on ethical codes for their management and employees. One

area that was especially hard hit with lawsuits concerned sexual harassment. If an

employee was known to be bothering young women in the organization, few saw that as

a reason for the company management to interfere as long as the man performed his job

satisfactorily. That is no longer true. Companies now realize that the actions of their

employees, and especially their management, affect the company as a whole. 21


The companies can no longer ignore such violations. Unfortunately, it took financial loss

through lawsuits to bring this point into focus.

While actions may be mandated, beliefs seldom can be and certainly not by an employer.

Perhaps the fact that ethics is often labeled by another name has been part of the

problem. As we know, while actions may be mandated, beliefs seldom can be and

certainly not by an employer. Therefore, actions such as sexual harassment were often

labeled as something other than ethical behavior. When a company ignores unethical

behavior believing it to be personal or private the behavior may be allowed to continue.

Difficult ethical dilemmas may be perceived as having no logical solution, so the

company tries to avoid resolving them arbitrarily. This might especially be true if the

person involved is in higher management. Even individuals who are considered experts

in ethics often differ in their opinions, so businesses are reluctant to make judgment

calls. More and more businesses are instead relying on legal professionals. If a lawyer

judges an action to be legally dangerous the company is much more likely to take

corrective steps. Of course, their goal is to avoid legal litigation, not necessarily to

correct an unethical behavior pattern.

While it is universally recognized that managers need some type of ethical criteria,

developing these ethical guidelines is difficult. Some things are obvious (don't steal from

the company), but many are not (when is an action objectionable by another

employee?). Since our country is a melting pot of personal histories and values, what

some consider unethical, others do not. This perhaps best explains why one woman

may be unaffected by a man's off-color joke while another is outraged.

Since most ethical issues cannot be supported by measurable data or facts, it is often a

judgment call on the part of management. More often than not, even the ethical criteria

in company manuals are not clearly stated. Phrases are used that can be interpreted

differently by different people depending on their personal beliefs and backgrounds.

Insurance companies develop their entire business based on sound financial data and

are most comfortable when dealing with facts and figures. Ethical issues have no such

facts and figures. 22


There is no doubt that some sense of right and wrong must be stated in writing along

with some written criteria for making ethical judgments. Interpretations may still be

necessary, but at least there will be some basis on which to make interpretations.

Apparently, businesses agree with this concept. About three-quarters of Canadian firms

have a written code of ethics.

TYPICAL SCENARIO USED BY BUSINESSES

The following illustration shows the typical scenario used by businesses.

Moral Standards Factual Information concerning the policy or behaviour that is the question.

Ethical decision on the rightness orwrongness of the particular behaviorunder question

Such things as embezzlement, fraud and backbiting are usually attributed to greed, a

desire for power or prestige. These are traits carried by individuals, but those people in

power may incorporate them into a business. As we said, the business itself is an entity

and not a human being. As such, it can be neither moral nor immoral. Rather, the

people involved in the business bring these traits. History shows from studies that

unethical behavior is likely to rise in industries that are more competitive and lower in

those that are less so. That equates to stress levels.

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Even in competitive businesses (and insurance sales is certainly one of them),

management can lessen the likelihood of unethical behavior by stressing to their agents

good sales techniques centered on the need of the consumer rather than on the size or

amount of the sales. Of course, every manager wants to be viewed as successful. In

this society and in the insurance profession particularly, successful means the amount of

business written. Because of this, it is not sensible to tell agents "Don't be unethical, but

bring in as many applications as you can.” That can be perceived as a cross-message.

The bottom line is simple: education is the only solution to the ethical side of business. It

must start at the top and reach to the very bottom of the business structure. Education

alone will not necessarily bring about better ethical behavior. There is much technical

education, but not much dealing with ethics. Therefore, the education must be more

than technical in nature. It must include education on consumer need and center on

how the products are best suited to fit individual needs. Many professionals feel that, as

society becomes more technical and complex, social interaction is lessening. We are

more likely to fax or E-Mail communications than we are to verbally express ourselves.

Professionals feel this is contributing to the lack of communication skills and human

interaction. As interaction decreases, the need to stress ethical behavior increases.

As human interaction decreases, the need to stress ethical behavior increases.

For some reason, when a person is not face-to-face with another their toleration level

seems to go down. For an example of this, consider the differences of walking on a

congested sidewalk and driving on a congested freeway. If an elderly woman were

standing on a sidewalk looking in a store window making movement difficult, the person

trying to get by would probably simply say "excuse me" and edge around her.

Place those same two people in cars on the freeway, however, and the one trying to get

by her is likely to become hostile in words and actions. It is the lack of face-to-face

contact that seems to make the difference in this business of life insurance marketing.

In the selling field, agents and brokers are face-to-face so interaction is very important.

It is necessary to have developed communication skills and product knowledge. If one

or both of these are missing, the agent is less likely to be financially successful.

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ETHICAL MARKETING

An insurance agent can only be as successful as his or her marketing strategies. In

many ways, this is probably true. An agent has many responsibilities before he or she

arrives at marketing strategies.

Here are some tips to help the advisor/ agent or broker stay on track:

1) Learn the products completely. This includes reading the policies in their entirety.

We cannot expect consumers to read them if the agent has not bothered to do so.

2) Learn to communicate effectively. This is good advice for any line of work, but it is

especially necessary in sales. People who communicate better than their competitors

have an immediate edge. Successful communication is NOT manipulation, although it is

often associated that way. Communication is the ability to relay information in a concise,

easily understood manner. Few people will buy a product that appears confusing to

them. This is especially true of anything that looks like a contract and insurance policies

are most certainly contracts!

3) Respect the people you are selling to. This may seem like something that would not

be necessary to even say, but we often do not realize what the full extent of respect is.

Respect means dressing professionally; talking appropriately (without slang or profanity);

keeping privileged information private; showing up on time for all appointments or calling

if that is not possible; returning telephone calls in a timely fashion and addressing the

consumer in a proper manner. A very successful agent does nothing to offend the

prospective client. They are aware of what constitutes offensive behavior.

4) Off-color or ethnic jokes are not spoken; the agent's personal likes and dislikes are

not offered; "brag" talk is not a social topic. This is not necessarily a complete list, but it

does provide a basic format.

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5) Plan a marketing strategy that is honest and professional.

Certainly every agent likes to consider him or herself honest and professional, although

anyone who has been in the profession for any length of time has already encountered

those who are not. Honesty is often rationalized to mean multiple things. In simple

terms, however, it means telling the truth; not half-truths or partial truths, but the entire

truth. When it comes to selling insurance policies, this honesty is actually mandated by

the individual provinces. It is illegal to "twist" information. Twisting is an insurance term

meaning "to change the facts in order to make a sale.”

Twisting information with the direct intent of replacing current products or selling

additional products is not legal in most Provinces. Honesty and professionalism are

more than simply following provincial and federal mandates, however. They are the

traits that define us personally. No one wants to be thought of as a liar or a thief, yet

many agents are willing to do both, as long as the title attached to it sounds good. For

example, an agent who is called "the top seller" may not consider themselves liars, even

though they did lie in order to get the sales. Certainly, professionalism dictates better

behavior.

In simple terms, honesty means telling the truth.

All of us have experienced telemarketing calls that seemed abrupt or rude. Since the

telemarketers want to be successful, we can probably assume that they did not intend to

be so. However, due to a lack of planning or training (or both), that is how the call

seemed. Selling anything means understanding the basics of the profession, but it also

means appearing professional.

There is a general misconception that salespeople intend to be forward, pushy and

perhaps intentionally rude. We know this is not true. Unfortunately, so much training

emphasizes the wrong things that these traits may end up developing.

The general consumer has been repeatedly told to resist salespeople. It is ironic that

the same consumer complains because there is no help available in department stores.

Apparently, they do not consider buying a television in the same category as buying

insurance. This is not surprising.

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A person who decides to buy a television usually goes to the store and picks out the item

they want. While some consumers do actively seek out insurance, it is more common

for the salesperson to initiate the sale. An insurance policy is an intangible thing. It

protects us from some future event that may or may not actually happen.

Therefore, consumers are less likely to seek out these purchases. The exception to this

would be any type of insurance that is mandated in some provinces, such as auto

liability.

The first step in marketing is recognition of the value of the item. It is surprising how few

insurance agents actually recognize the value in the product they are selling. They may

recognize the commission they earn, the effectiveness of the brochure and any number

of other things, but then fail to recognize the product's real value to the consumer.

Marketing should always center on the consumer's advantage in purchasing the product.

If the salesperson does not know what that value is then the product should be re-

evaluated. Either the product is not valuable to the consumer (in which case the agent /

broker should abandon it) or the agent / broker has not been properly trained.

It is not sensible to misrepresent a product. There are enough good products available enabling the agent to represent one that works effectively for the consumer.

Most insurance products have real value in some type of situation. Insurance

companies invest vast sums of money in their products and they desire to put out

products that are useful. That does not mean that every policy fits every person or

situation. Each product typically is aimed at a particular situation or person. The agent

must learn where each product fits if they are to effectively market it. We have all heard

of the agent who simply tells the consumer that their product fits whether it actually does

or not.

This is misrepresentation and will be considered unethical and perhaps even illegal.

Misrepresentation also could bring about lawsuits as the consumer discovers the truth.

More than that, it is not sensible to misrepresent a product.

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There are enough good products available enabling the agent to represent one that

works effectively for the consumer. There is no need to sell an inappropriate policy.

The individual provinces have a very difficult job. They must try to mandate ethical

procedures with a relatively small staff. In a perfect world, their job would not be

necessary because the industry itself would police the field staff and provide adequate

training. We know this is not likely to ever happen.

While individual agencies or insurance companies may try very hard to keep the field

staff adequately trained, too many financial opportunities lend themselves to unethical

behavior.

As a result, many Provinces are beginning to mandate continuing education in the

category of ethics. While studying ethics will not change someone's personality, it may

open up some new ideas or give perspective to the new agent. If nothing else, training

in ethics takes away the agent's ability to say, "I didn't know I was behaving unethically."

PLANNING FINANCIAL STRATEGIES

Sometimes marketing strategy can go very wrong. Even after painstaking study and

analysis, U-Haul found they had made a very damaging financial mistake when they

replaced its nationwide dealer network of independent service stations with company-

owned moving centers. After only two years, the company-owned moving centers were

abandoned returning to the original setup. Although U-Haul knew they would have to

build the centers and hire management, they expected lower costs and quicker profits

than actually occurred.

The change back to the original format was not easy either. They had lost half of their

business as former U-Haul dealers had turned to other companies, such as Ryder.

U-Haul is not the only company to have made such a dramatic financial error. In the

early 1970's, Quaker Oats also made such an error. They became tired of dealing day-

in and day-out with oatmeal and pancake mixes. They ventured into trendy toys and

theme-restaurant marketing.

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They found little success and their staple business fell behind as well, once

management concentrated in other areas and ignored the past successes.

This is not to say that businesses or agents and brokers should never make changes.

Change is often needed and often brings about renewed success. However, anytime a

business ignores stable consumer oriented business practices in favor of the possibility

of financial rewards, failures are bound to occur.

There have been times when organizations were successful in treating the public like

money machines, but these successes were usually short-lived. Overall, the public

demands excellence. Marketing strategy alone cannot create excellence. Only by

working for the good of the public will the good of the organization also be realized. This

also applies to the individuals within the companies. Excellence brings forth success.

Agents / brokers often try very hard to do the right thing. They study their products; they

make an effort to explain the products well; they put forth effort every day. Even so, the

sales do not come. What is a trainer to say to someone who seems to make all the right

moves but still cannot seem to sell any policies?

A successful and ethical manager must consider two elements in ethical marketing: the

consumer and the agent. Of course, the products must also be marketable, but for this

point, we are assuming they are. Ethical marketing aims at getting reputable agents in

front of consumers who have an insurance need. That need might be in any category,

depending upon the products being marketed. For this example, let us say that the

product is an annuity yielding a competitive rate. The manager must consider which

consumers are most likely to need or desire such a product. He must also consider

which agents are most knowledgeable about the annuities being offered.

In the past, marketing often meant getting as many people as possible to respond to an

advertisement.

Then agents / brokers were sent out to see the potential clients and sell something,

anything, that the company marketed. Today, the top management is more concerned

with targeting potential buyers rather than simply blanketing an area.

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Costs of printing and mailing are simply too high to waste it on those who have no need

or no potential for buying the product.

A successful and ethical manager must consider two elements in ethical marketing:

The consumer

The agent.

The manager must match up certain aspects:

The agents’ ability based upon past experience and knowledge

The agents’ communicative skills

The agents’ desire to work effectively

The product's competitiveness in the marketplace

Who the product best represents (age bracket, income, etc.)

Ethical marketing and marketing in general should be the same since all marketing

needs to be done in an honest manner. Honest marketing means an advertisement that

clearly states the product (an annuity) or states an honest description of it. Most

Provinces have marketing requirements that must be met. In addition to provincial

requirements, many insurance companies, desiring to keep public perception of them

high, also mandate certain elements in any advertisement bearing their name.

Agents who plan to advertise need to check with both their province and with the

company whose products they plan to sell.

Agents who plan to advertise need to check with both their province and with the company whose products they plan to sell.

It has been said that marketing takes up 90 percent of an agent's time while the actual

selling process take only the remaining 10 percent.

This, of course, is the frustration agent’s so often verbalize. Many insurance brokers or

agencies attract agents by advertising that they have "leads.” A lead is a consumer who

has responded to some type of advertising.

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The fact that the consumer responded is an indication that he or she has an interest in

purchasing a product. In reality, this does not always prove to be true, but it does give

the agent a place to be, a person to present their products to.

When an agent is responding to any type of advertisement from an agency or broker, it

is important for the agent to realize that they themselves are being sold. They are being

sold on a product, a company, or an agency.

Just as the general consumer needs to be aware of selling techniques so that they can

make a logical decision, the agent must also realize that they need to make a logical

decision regarding the products they represent. Some agencies do not have a good

reputation. If the agent does not check out the company or agency before becoming

associated with them, they can regret it later.

DOOR APPROACHES (Still used by some companies)

A seasoned agent usually knows from experience how to communicate at the door of a

consumer. Even though the consumer may have mailed in a card or made some other

indication of interest, they may still be reluctant to actually speak with an insurance

agent. As a result, an agent who is not well trained or who lacks practical experience

may turn to deceptive practices in order to present his or her products to the consumer.

However, once a consumer feels deceived in any way, even if they like the product, they

are unlikely to purchase it.

No one trusts an insurance agent who has been less than honest, even if it was only at

the initial door conversation. Therefore, the successful career agent wants to be

completely honest from the beginning.

For many agents, the door approaches are the most difficult, but it need not be so. A

straightforward conversation is the best course of action.

REFERRAL BUSINESS

As any agent / broker knows, it can be very difficult finding potential clients (despite what

all those recruiting guys tell you).

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Once we have approached everyone we ever knew our entire lives, we are on our own.

There are many ethical ways to scout out potential buyers. The best source of new

business is referrals. When a satisfied customer recommends you to a friend or relative,

this is the best endorsement you will ever receive. You are entering that referral's house

as a friend rather than a stranger. Your established client has already talked about you

in a positive manner. The potential buyer feels they can trust you.

The best source of new business is referrals.

When a consumer feels their agent is trustworthy, many of the frustrations of sales

disappear. The agent is able to talk about the things the consumer needs to know and

understand. Since the agents so often find themselves trying to explain the premium

costs, when he or she can concentrate instead on the points of the insurance coverage

both the agent and the consumer benefits. It has been said that no agent was ever sued

over the cost of the policy; they have been sued over the points of the policy itself.

Usually a lawsuit occurs when a claim is not paid. Even if the agent feels totally

confident that the point was explained, by the time the claim occurs, that conversation is

forgotten by the consumer (policyholder).

Sometimes it is not the policyholder who sues the agent. It is their children. Even

though the children were not present at the time the policy was purchased, they have the

right to file a lawsuit if they feel the policy was misrepresented. Even if the agent wins

the lawsuit the amount of money and time invested will be great.

Some agents use a disclaimer form, which the policyholder signs at the time of the policy

delivery. Although the wording may greatly vary, it covers the points of the policy with

the policyholder either initialing or signing each point. The selling agent then keeps this

signed document in the client's file folder.

In today's lawsuit prone society, the wise insurance agent or brokerage will make a point

of following Provincial regulations, but ethics actually goes beyond what is simply

mandated by Provincial or federal governments. Ethics define WHO we are.

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Others know a man who tells constant lies as a "liar" (although studies show that 90

percent of us lie regularly). A man who steals is known to others as a "thief". An

insurance agent who is unethical will also earn a reputation for such.

COLD CALLING

Some agents and brokers make "cold calls.” This means that the agent or broker simply

walks up to the consumer's door, knocks, and introduces him or herself. There was no

prior telephone call and the consumer had not asked the agent / broker to come.

By most accounts, this is a difficult way to prospect, but it has been highly successful for

many agents and brokers. If they are planning to cold call, he or she needs to be

prepared.

In the early moments of the conversation at the door, they need to fully identify

themselves as insurance agents or brokers. Most agents and brokers would be

surprised to see how many presentations and sales come from cold calling.

We do live in an age where this may not be a good idea in all cities or neighborhoods.

There is danger in approaching strangers. However, if the agent or broker feels that

they know the basic content of the neighborhood in which they are working, it might be

something worth trying.

NEWSPAPER LISTINGS

Many of the successful agents and brokers who have been in the business for many

years started by using their area newspaper as a source for leads, that is not so easy

today, but in the past, there was much information available.

Even today, however, that is possible. For example, the section, which lists the births of

babies, is an excellent place to start if an agent or broker sells life insurance.

New parents often need to increase life insurance amounts. If an agent or broker’s

hometown newspaper lists those who are retiring, this information is also useful.

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Many people who retire are now considering where to place their investments. This may

especially be true if their company gave them a lump sum retirement payoff.

Whatever the source of information, it is very important that the agent clearly identify

themselves and the companies or agencies that they represent. We live in an age

where salesmanship is often undervalued. As a result, it can be easy to assume that no

one wants to see an insurance agent. While this may be true in some households, in the

majority of them, there is a need of some sort. It is the agent's job to discover that need

and fulfill it.

ETHICAL SELLING

Ethics in selling does not mean reduced earnings. It does mean earnings that last

throughout one's career. It does mean having business associates sometimes become

friends. It does mean going the extra mile not because one has to, but because one

wants to. Ethics in selling means success in business, personal affairs and life.

Each of us leaves a legacy. The legacy that is left will directly relate to our personal

code of ethics. Erma Bombeck, noted author and humorist, once quipped, "When I am

dead and gone, no one is going to remember my no-wax buildup.” We must determine

how we wish to be remembered by those we love. Our actions must reflect what we

wish others to remember us by.

The question: “What do I want my legacy to be?” refers to how others will remember

you. Some may not care about this point, but it will be important to those who love you.

Most of us probably do wish to be remembered in a favorable light. Can you imagine

being remembered for the quantity of errors made or for the dishonest and unethical

actions taken?

Insurance agents now battle for their reputation. It is up to all agents to keep the field

force ethical. This means demanding that other agents be ethical and demanding the

same of ourselves. That is actually the easiest part.

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The harder part is determining a code of ethics that can be used uniformly. Ethics

involve perceptions, not necessarily facts. If one is behaving correctly according to their

perceptions, then they are behaving ethically. That is why some businesses and

Provinces print a code of ethics. This gives their workers or licensees a written

explanation of what is expected ethically.

As agents and brokers, we want to achieve several things: a book of stable business,

clients that are loyal to us, a cheerful work environment, and a continual source of

income. On the personal side, we also would probably want to establish a comfortable

home life, happy family members, enjoyable leisure time, plus whatever other personal

goals we have. Whether we realize it or not, these entire goals tie into our ethical

standards and actions.

People become winners in many ways. Most of us would agree that one aspect of

winning means earning enough to live comfortably while also investing for our future. To

do this, we must be able to sell enough insurance policies. Why do some seem to

achieve this with little effort while others toil away and never manage to succeed? While

the total answer is complex, one simple answer is personal awareness. The successful

agent is aware of who he is and who he wants to be. Who he is today is a combination

of his past experiences, education, and dedication to goals. Who he wants to be will be

a combination of those things, plus his willingness to work at change.

Each of us must have a vision of where we want to be personally and then be willing to

work towards that goal. It is not enough to simply say, "I want to sell 12 applications

each week.” That does not map out our success. Just as financial planners map out the

road to financial success, insurance agents must map out the road to personal change

or accomplishment.

When an agent sells an inappropriate policy, there are several possible reasons:

1. The agent simply did not know his or her products well enough.

2. The agent was not licensed to sell an appropriate product and wanted the

commission badly enough to misrepresent the product he had.

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3. The agent did not listen to the consumer. Therefore, he or she did not know which

product was desired and/or appropriate.

4. The agent has been badly trained. He or she believes that everyone should have

the main product sold by his or her company because they have been trained to

believe this. Generally, this involves an agent who was recruited into insurance

sales by the company. Therefore, the agent had no experience and no product

comparison.

People become winners in many ways.

At the beginning of each week an agent needs to:

1) Map out their appointments. If none are made, he needs to write down how he

intends to get appointments. This may include calling potential clients; it may mean

signing up for a mailing. Whatever course of action is taken, the agent must follow

through.

2) If appointments are already set, he needs to pull out a road map and set down his

driving path. Just as a mail carrier has a set route to prevent time waste, so too must

the agent route out his week to prevent wasting time.

3) If the week is only partially filled with appointments, the agent needs to work at filling

in the empty spaces. If no appointments are forth coming, then he should fill in the time

by visiting with past clients. While this may or may not net additional sales, it will build

loyalty that keeps renewal commissions coming in. More importantly, it lets the client

know that his or her agent is still active in the insurance field. The client must have a

feeling of trust towards his or her agent.

4) Set aside time each week for returning telephone calls. Some agents return calls at

a set time each week, such as Monday evening. They advertise this among their clients

so they will know when to expect the return call. The most important thing, though, is to

return the call as soon as possible or as soon as the client expects it. If that is Monday

afternoon, make sure the call is returned on that day.

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If no return call comes, the client will become unhappy and change agents at the first

opportunity.

5) Review the past selling week. Look at both the sales and the no sales. Review the

sales concentrating on the actual presentation. Did you feel it satisfied the client's

concerns? Could there still be unanswered questions? If so, make contact as soon as

possible to answer them. A sale that falls off within the first year does little good for

anyone. Review the presentations that did not result in a sale. Why do you think a sale

was not made?

If the reason is beyond the control of the agent (such as no money), did the agent still

treat the consumer with the same courtesy as would have been given a more affluent

person? The agent should always remember that ethics means treating everyone

equally.

If the need and the finances were present, but no sale occurred he must ask himself

"Why?” Was he courteous? Did he fully explain the product? Did he stick to the basic

presentation?

Sticking to a basic presentation is very important for several reasons. It keeps the

conversation on track. If the conversation veers off in other directions, it is very difficult

to consummate a sale. Beyond that, in the case of a lawsuit for errors or omissions,

following a set sales pattern allows a defense for the agent. If he or she can say, "I

always say this”, and present a written format, it is a form of legal safety.

Every agent will want to review his or her week according to personal desires. However

it is done, the agent must do so regularly. This keeps him on track and prevents a

feeling of helplessness when sales do not occur.

An ethical insurance agent that goes bankrupt because he or she could not bring in the

earnings necessary to pay their bills is not likely to do the consumer much good.

Therefore, for the good of the consumer, it is not enough to merely be ethical. The

agent must be both ethical and skilled in his or her trade.

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In fact, it seems probable that the financially successful agent is more likely to be ethical

since there will be less stress involved, less desperation to make the sale.

EDUCATION

Certainly, education must play a role in ethical selling. Why is education important? It is

common to hear agents and agencies alike complain about the educational

requirements of their Province. The agent may look for the shortest or easiest

educational course to simply get the requirements out of the way.

Consider this:

You are not feeling well so you go see your general practitioner. Your doctor states that

you must go to a specialist because he or she suspects that you have a heart problem.

The specialist that is recommended has a booming practice and obviously does very

well financially. The office is plush and he or she drives into the complex parking lot in a

fancy foreign sports car.

There is lots of office staff and everyone seems intent on pleasing the waiting patients.

Even so, you ask the medical specialist some questions that are important to you about

their schooling.

The specialist replies, "Oh, don't worry yourself about that. I finished school ten years

ago, and I have not had the time to attend any of the seminars or other educational

programs. However, do not let that worry you. I've had lots of practice and I make a

point to read all the brochures sent to me by my suppliers."

Of course, we realize that a heart specialist is not an insurance agent. Even so, the

point is the same. How much confidence would you have in such a doctor? Why should

a consumer have confidence in an agent that does not consider education important?

Although the speaker is responsible for being organized and practical, the agent or broker has the responsibility to attend the seminar in a prepared manner.

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Probably every agent alive has attended a seminar where educational laziness was

obvious. Of course, it is the responsibility of the speaker to be interesting and cover a

topic in an organized and practical fashion. Having stated that, it is also the

responsibility of the agent to attend the seminar in a prepared manner. He or she should

have a notebook, ink pen or pencil or a tape recorder. Notes may be optional, but if the

seminar is truly educational, it does seem that notes would be appropriate.

It is not appropriate for the attending agent to talk to those around him (which is likely to

interfere with the enjoyment and learning of others), read the paper or a magazine, write

personal letters, or work on personal business during the seminar.

It is not unusual to observe an agent or two sleeping through the seminar waking up only

long enough to sign the roster that is passed around for attendance. Certainly, the agent

who signs in and then leaves for an hour or two is not learning anything. Although most

provinces have specific rules about such actions, they still occur. The agent who must

be policed into being responsible about his or her educational actions cannot be

considered ethical or even professional.

As an educational company, we have heard complaints from agents who feel they have

been in the business too long to learn anything new. Again, we refer back to the medical

doctor who feels education is not necessary for their continued medical practice. Just as

you would not feel comfortable with such a doctor, would your clients feel comfortable

with that attitude from you?

GETTING EDUCATION IN A TIMELY MANNER

Most provinces now require that education be obtained. How much education is

required varies from province to province. It is the responsibility of each agent to know

and understand their province’s requirements. Each agency is responsible for promoting

education as an important feature necessary for the welfare of both the agent and the

consumer. An agency should never resent the time an agent takes out of the selling

field to acquire education. In the end, the agency also benefits.

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The words, "in a timely manner," seem to be a key phrase. It is very difficult to get all

that is available out of a course, whether in a live seminar or in a home-study program, if

the agent must rush through it to meet a deadline. Not only does the agent miss a great

deal, but also the true value of the course is also lost. Education is the mark of a lasting

professional.

What about getting education that is not required by the province? Some agents

complete education, which gives them specific designations, such as Chartered Life

Underwriter (CLU), Certified Health Insurance Specialist (CHS) the old Registered

Health Underwriter (RHU) or Certified Financial Planner (CFP).

These designations are the result of additional education specific to certain insurance

lines. While such designations do not necessarily mean the agent is a wiser or a more

skilled salesperson, they do show that the agent is serious about his or her profession.

Regardless of the line of work a person is in, additional education is always a sign of a

true professional. This is true of a teacher, a doctor, a lawyer, and certainly an

insurance agent.

It is true that there are agencies that do not seem to appreciate agents who desire

additional education. In fact, there may be situations where an agent might wish to

consider changing who they work for if education is not only unappreciated, but even

degraded. This is not typically considered a normal situation. It is hoped that most

agencies do promote additional education.

There is another side to education besides formal, credited courses

Mary is a new agent having only been in the sales field for six months. She works for a

large agency with a very large field staff. While the agency does hold product meetings,

it is not unusual for new items to be added before they have been formally introduced in

the product meetings. As a result, Mary is often given brochures and applications for

products that she is not familiar with.

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Mary's field manager, John says, "Mary, here are some brochures for a new critical

illness policy we just got in. It is simple, but if you have any questions give me a call.

Read the brochure. That should do it."

Mary reads the brochure and does understand the basics of what it is selling. What

Mary is not sure about is where such a policy fits in and who might benefit from buying it.

She knows that major medical policies are supposed to cover such things as some

critical illnesses. Since Mary sells mostly life insurance, however, her understanding of

medical policies is not great. Mary makes the determination that many plans must not

cover cancer, otherwise, why would there be such specific policies on the market? Mary

sells two critical illness policies in the first week and is highly praised by John. Being so

new, Mary does not often get praise, so now she begins to make a special point of

suggesting her clients buy the critical illness policy.

We are not trying to suggest that critical illness policies are either good or bad. The

question here does not necessarily concern the value of the policy itself, but rather how

Mary handled a situation concerning education. Since Mary was not sure where this

new product best fit in, what should she have done? It was obvious that John felt the

brochure should answer her questions, although he did offer his assistance if she

wanted it.

What were Mary’s options?

1) She could have called John or cornered him at the office to ask questions.

2) She could have asked other agents more experienced than she.

3) Mary could have waited for the product meeting and asked questions.

4) Mary could have called the insurance company marketing the product. Most

companies do have a product support department.

Did Mary need to do any of these things? Since she was able to sell the product even

though she was not sure where it fit in, did any questions even need to be asked?

Remember that Mary did not have a great understanding of medical policies and made

the assumption that some plans must not cover cancer. Is it possible that she

misrepresented existing medical policies due to her misunderstanding?

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We know that Mary would not have purposely misrepresented other policies, but does

this lessen her liability? If Mary did misrepresent other plans, what will this do to her

credibility if her clients discover her error? If Mary did not bother to explore this product

completely, is it possible that this is a work pattern that repeats itself with other products

also? Does the agency bear any responsibility here? Although they do have product

meetings occasionally, is it their responsibility to have such meetings before releasing a

new product to their agents? Since the agents are self-employed, does this mean that

education is solely the agent's responsibility and that anything the agency does is more

of a courtesy than a responsibility?

An agent must be aware of product details even if the employing agency does not offer formal policy evaluations.

We are not attempting to answer these questions. Often the answers vary depending

upon such things as contracts, etc. However, it is certainly true that each agent must

take on a degree of responsibility when it comes to education in general. To rely upon

another person or agency to fulfill educational needs is foolish, both personally and

financially.

Today, perhaps more than ever before, agents are seeking quality education in their

chosen selling line. Career agents have realized that advanced education also means

the ability to earn higher incomes.

Financial and legal firms are seeking out qualified and experienced insurance agents to

promote aspects of their firms

LAYING OUT POLICY BENEFITS AND LIMITATIONS

Once the consumer has agreed to hear the agent's presentation (we dislike the word

"pitch" since it suggests trickery) the agent enters into many possible pitfalls. Policies

can be very difficult to understand. Most presentations involve a few set items, which

include premium rates, benefits, agent services and company stability. Of these, the

premium amount should be the least important, although our clients do not always allow

this to be so.

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As a result, rates often take up the majority of the presentation, yet an Errors and

Omissions claim has never occurred due to the premium quoted. Probably 98 percent of

the E&O claims filed relate to the benefits of the program and how those benefits were

discussed (or not discussed, as the case may be). Obviously, more time needs to be

devoted to that aspect. Then, as an agent, you must hope that the client remembers

what was said and understands the concepts discussed.

Insurance contracts are technical in nature and complex in subject matter and, therefore, intimidating to the consumer.

The insurance contract can be very intimidating. Technical in nature, complex in its

subject matter and seldom read in full by either the insurance agent or the policy owner,

it is bound to be misunderstood at some point by somebody. It has been said that

insurance contracts are the number one unread best seller.

More insurance contracts are probably sold than nearly any other type of contract, yet

the consumer seldom reads them. Unfortunately, the selling agent seldom reads them

in their entirety either.

To our clients, the most important part of the policy is the part that begins, "We promise

to pay. “In reality, all other parts are, of course, limitations or conditions on the policy.

In some ways, life insurance policies are more easily understood than other types. After

all, a person is either dead or alive. If the insured dies while the policy is in force, the

promise of a payment is kept. In a medical policy, there may be numerous limitations or

conditions of payment that the consumer (policyholder) has difficulty understanding.

Medical policies contain such things as co-payments, stop-loss provisions, elimination

periods, plus a variety of other confusing and easily misunderstood clauses.

All of the provisions can create dissatisfaction, which can cause questions regarding an

agent's diligence in presenting the policy and providing services. This is not to say that a

life policy should not also be clearly explained to a client. Any contract can confuse the

consumer. Any contract can cause a misunderstanding.

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An agent / broker should always be cautious in replacing an existing insurance contract of any type.

There are steps that an agent can follow to minimize possible misunderstandings:

1. Full disclosure is always necessary in any type of policy being suggested to a client.

Where different interpretations are possible between a brochure and the actual

policy, the policy is always the final authority. A brochure is simply a selling tool,

never the final answer. The statement the agent receives over the telephone from

the agency or home office also takes second place to the actual contract. The policy

is the final word every time. An agent who has not read the contracts he or she is

selling, is an agent waiting for a lawsuit to happen. An agent should always be slow

to replace an existing contract of any type.

2. This is not to say that an existing contract should never be replaced. However, to do

so without fully examining what is currently in place would be foolish. The agent

should first be fully informed of any new or pre-existing health conditions, take-over

provisions and limitations that may exist in the new plan. Health problems of any

dependents that may apply should also be reviewed.

3. Pay attention, to marketing group medical plans, and to worker's compensation

coverage. Sometimes owners/employers may not be enrolled in and paying

premiums for worker's compensation coverage. If this is the case, the medical plan

being promoted should fill this void or, at the very least, the employer should be

made aware on non-coverage. While this does not typically apply to the senior

clients, increasingly older age people are still working and might need this

consideration as well as younger consumers.

4. Whether you are dealing with a health program, a disability program, or a life

insurance program, you need to be sure that health questions are clearly understood

and correctly answered. A term that has come into wide usage lately is clean

sheeting. It means that an agent knowingly fails to correctly list existing or past

health conditions of the applicant.

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The agent is presenting a "clean" application so that the company will accept the

applicant and issue a policy. This is obviously illegal and will not be tolerated by any

insurance company! Sometimes an agent simply is not aware of existing health

conditions. If the applicant does not fully understand a health question, it may be

incorrectly answered through no direct fault of the agent. We say direct fault

because it is ultimately the responsibility of the agent to present the questionnaire in

a way that is understandable. Even if the agent thought the health portion of the

application was correctly completed, it will not alter the insurance company's view of

it. A policy may be rescinded (taken back) by the insurance company for incorrect or

undisclosed information. This may occur, for example, on a question that asks if the

applicant has high blood pressure. Since the person is taking a medication that

keeps his or her blood pressure under control, they may answer the question "no"

when, in fact, it should have been answered "yes.” Since these types of

misunderstandings can easily happen, an alert agent will want to closely monitor the

questions and answers on applications.

5. Eligibility of applicants is always a concern when replacing an existing coverage. Do

not overlook the eligibility of dependents also. An employee's spouse or disabled

child may be especially vulnerable.

6. Any time one insurance policy is being replaced with continuity must be considered.

The old plan should never be dropped until the new plan is firmly in place. The

policy should actually be in hand and reviewed for accuracy before the old policy is

dropped.

A new policy should be reviewed for accuracy before the consumer accepts it.

The actual way in which a plan is presented can be very important since so many of the

consumers will not understand industry terminology. The weight falls on the agent to

present the policy in such a way that understanding is possible. Again, this often comes

down to good communication skills. We also suggest that you pay close attention to the

"body language" of your clients. It is often possible to tell that your client is lost merely

by the expression on their face. Many people feel awkward saying that they are lost.

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This might especially be true if they feel their agent is in a hurry to get on to another

appointment.

There are also those agents who cannot seem to resist being overly technical. The

agent may feel that such technical explanations are necessary or he or she may simply

be trying to impress the client. These agents may be extremely knowledgeable, but they

are unable to present their knowledge in a way that is understandable to the layperson.

While this relates more to skills than it does to ethics, an ethical person will put a priority

on client understanding. If the agent, indeed, wants to impress the client, then we must

ask the question, does ethical conduct allow for such self-serving purposes?

POLICY REPLACEMENT

Most agents are geared to replace other policies, if necessary, to bring in business.

Even the most ethical of agents realize that this will often be part of their sales day. In

some areas of insurance, replacement became such a problem that provincial and

federal legislation was enacted to protect the consumer.

Provincial regulation requires that comparisons (disclosures for the purpose of

replacement) be precise and done in a manner that fairly compares the two policies.

Often there are specific forms that must be utilized if replacement of an existing policy

takes place.

Agents often complain that it is very difficult to compare policies if the types do not have

much in common. It ends up comparing apples to oranges rather than apples to apples.

Whatever the situation, an ethical agent / broker WILL fairly compare the two products,

not only because he or she is ethical, but also because it is simply smart to do so.

We live in a lawsuit prone society and it is not surprising that many consumers are all too

willing to sue a foolish agent.

Most consumers are aware that competing agents will be attempting to replace each

other's business. Realizing this, consumers do tend to use judgment before replacing

their policies.

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Replacement practices may not be as obvious to the consumer when it involves an

agent replacing their own policy. Consumers seldom question a replacement when it is

the same agent (versus a competitor) doing the replacement.

Why would an agent replace his or her own business? There are several reasons, some

of which may not be sound or ethical.

One of the major reasons that the writing agent replaces some types of policies is to

gain another commission or a higher commission, depending upon the type of product.

When agents change agencies, they often replace their own business, although many agency contracts forbid it.

Another reason, and a common one, that agents might replace their own business have

to do with the mobility of the industry. It is not unusual for agents to work for a period for

one agency and then, for one reason or another, move on to a different agency. If an

agent is not meeting production standards, the first agency might terminate the agent or

terminate benefits, such as providing leads. When the agent moves on to another

agency, he or she often feels that his or her clients belong to them.

Legally, this may not be true, depending upon the agent's contract provisions with the

agency. Whether or not it is proper legally, the agent often tends to attempt to bring his

clients with him to the new agency. Since the agency is benefiting from the additional

business, few agencies worry about the ethics of such replacement business. In fact, it

is not unusual for agencies to actually encourage the practice.

Another reason for policy replacement deals with company stability. The industry has

seen some difficulties in the financial stability of some insurance companies.

If an agent feels that he has clients in a company that may be suffering some financial

problems, the agent may change their client's policy in an effort to protect the consumer.

Certainly, it is best to try to use strong companies so that this will not be necessary, but

even the most careful agents may, at some point, find their clients with an unsound

company.

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Replacement of business is sometimes proposed by the agencies that have legal rights

to the business but due to contracts with vested agents, they are still paying part of the

commissionable earnings to those terminated agents or brokers. The agencies may be

able to move the business within their agencies and, therefore, discontinue the

commissions paid to those agents who have been terminated. As we have stated, not

only individual agents, but agencies as well have a duty to behave in an ethical manner.

That does not necessarily mean that they do. Most insurance laws protect the

consumers, not the agents.

WHEN AGENTS ALLOW MISCONCEPTIONS

It would probably be surprising how many policies are sold based on assumed facts or

misconceptions. We are not saying that the agent outwardly misled consumers, but

rather, they allowed the consumer to make assumptions that were incorrect.

An agent relayed this story:

I was sitting in the home of an older client who was interested in investing in an annuity

product. I was showing him several plans available. One was paying a higher interest

rate than the other two, and the consumer liked the higher rate. I made a point of telling

him the ratings of the companies carefully pointing out that the higher paying company

only had a "B" rating.

After a moment's pause, he replied: "Heck, I would have been happy with B's when I

was in school."

It is obvious that the consumer did not understand the importance of financial ratings. It

would have been easy to simply fill out the application and never address the obvious

misconception on the part of the client.

Any agent who has spent time in the field can probably tell their own stories of people

who made incorrect assumptions placing a sale directly into the lap of the agent. Some

misconceptions may simply be amusing, while others may cause serious legal problems.

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Sometimes it can be so difficult to clear up a false assumption that the agent simply lets

it slide by. This is seldom wise. It is always better for the client to correctly understand

what they are buying. The next agent in their home may clear up the matter, making the

first agent appear either inept or unethical. As one agent relayed, he hates coming into

a home where he must spend most of his time correcting the false information left by the

agent before him. While this does tend to cement the sale, it is also a waste of time and

energy for the second agent on the scene.

Agents complain that they spend too much of their time clearing up wrong information left by the previous agent.

This sometimes will leave a bad impression with the consumer. One other point should

be made at this time. Insurance agents tend to have a reputation only slightly higher

than that of a car salesperson. Why does this happen? It is probably safe to say that

the majority of this reputation comes from consumers who feel that they were "taken" by

an insurance sales representative.

Either the consumer did not get what they thought they were buying or they felt

pressured into buying something they did not really want or intend to buy. We often hear

people say that the "big print giveth and the small print taketh away.” In reality, each

province generally mandates the fine print size (what has to be included in a policy and

what does not). There is no "big" or "small" print. What the consumer really means is

that claims were not paid due to policy limitations or gatekeepers. A policyholder that

knows a specific claim will not be paid is not likely to be upset, but a policyholder that

thought a specific claim would be paid will be most upset when he or she is turned down

for the claim. That policyholder will probably feel the salesperson misled them or, at the

very least, failed to fully disclose the conditions and limitations present in the policy.

WHEN THE PREMIUM SEEMS TOO HIGH

Another area of ethical behavior that should never happen still needs to be addressed.

It needs to be addressed because it does happen. When an agent feels premiums are

too high, he or she may mislead consumers regarding the actual costs of products being

sold.

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There was the client who thought he was paying the premium for a full year only to

discover that it was a 6-month premium. There was the woman who was told her bank

would be drafted one amount only to learn that the draft was for a much higher figure.

Such actions are not only unethical, but also foolish. The truth will always come forward.

Sometimes when an agent fears he or she is losing a sale due to the amount of the

premium, figures may be incorrectly stated for the benefit of the sale. We would like to

think that such situations are merely misunderstandings, and certainly,

misunderstandings may happen. There is never any excuse for purposely misstating

premium amounts.

Premium amounts may be misstated simply because the agent is inexperienced in using

premium tables. So many types of policies have formulas for figuring rates. For

example, many long-term nursing home policies have premium rates that vary according

to multiple factors, each of which must be considered. Major medical plans are based

upon ages, the plan selected, and sometimes health conditions.

OBTAINING PROPER SIGNATURES FROM THE CLIENT

The practice of forging client signatures is not only unethical, but illegal as well. Despite

this fact, it is much more common than many people might realize.

There are many reasons why signatures may not be obtained from the client. Often, it is

merely an oversight by the agent. Such oversights clearly state disorganization on the

part of the agent. New agents might benefit from highlighting signature lines on all their

forms before entering the field. Doing so could prevent the omission of needed

signatures.

In some cases, signatures might be purposely overlooked as a way of avoiding the

explanation of certain forms. This commonly occurs when replacement forms are

required and the agent feels inadequate explaining the information contained in them.

Again, this is not only unethical, but generally illegal as well since all forms need to be

disclosed to the client.

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In addition, the well-trained, well-organized agent simply does not need to omit

signatures, whether by oversight or by intention. Anytime an agent feels uncomfortable

about a particular form, he or she should seek council from an experienced ethical

agent.

An example of what not to do

Betty, an insurance agent, is sitting in the agent's room of the agency where she works.

As she is completing her paperwork on the business, she has written that week, she

notices that she forgot to have one form signed. Another agent in the room, Don,

suggests: "Don't worry about it. Just put one of his signatures against the window pane

and copy over it onto the one you need."

Betty: "Isn't that illegal?"

Don: "Maybe, but everyone does it. If you're not, then you're the only one who isn't."

As Betty asks around, she discovers that Don was correct. Virtually everyone she spoke

to about it confirmed that they too copied signatures where one was forgotten. Betty

found that nearly every agent intended to get all required signatures, so it was not a

matter of purposely omitting them. Rather, it was an easy way to perform below

necessary levels of competence. Several agents even mentioned that the management

had sometimes been present when signatures were copied. They simply left the room

and acted as though they had not seen it.

While we know Betty was unethical in copying the signature, there are additional ethical

questions involved. Is Don unethical for advocating that another person forge a

signature? Is the agency unethical by ignoring the behavior going on? By ignoring the

behavior, is the agency condoning it? If Betty had decided against forging the signature,

would she then be free of any other agent's ethical behavior? Alternatively, having the

knowledge of what was going on, would she be unethical to remain at the workplace?

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Should she go elsewhere to work and leave it at that or, in the interest of ethical

behavior and responsibility, should she report the behavior to the Provincial Insurance

Department and perhaps to the insurance companies as well? Since Betty had

developed several good friendships among the agents, how does loyalty to those friends

and her responsibility to ethical conduct correspond?

As you can see, ethical behavior is not a simple matter. Do your standards of what is

ethical apply only to yourself or to others as well? When your views do not correspond

to the views of others, who’s view is right?

KEEPING IN TOUCH AFTER THE SALE

The hardest policies to replace are those belonging to the agent that keeps in touch with

his or her clients. Aside from the business retention standpoint, what is an agent's

ethical duties regarding service after the sale?

This often depends partly upon the arrangements made between the agent and his or

her agency or insurance company. Some companies have a separate servicing staff so

that the selling agent is not expected to do any further service work. Most agents,

however, are probably expected to do any necessary service work personally. Even if

the selling agent is not expected to do so, most professionals do feel that referrals and

additional sales result from close client contact. In addition to that aspect, everyone

likes to feel that they were more than a commission to a salesperson. The consumer

appreciates even a simple birthday card at the appropriate time.

Many agents want to provide service to their clients. Not all agents or agencies feel this

desire. Many simply do not wish to take on the burden of service after the sale.

Certainly, servicing one's clients is prudent, but is it required from an ethical standpoint?

This means that the insurance company must assign an agent to every account if the

writing agent is no longer with them. Many of the provinces report that the lack of claim

service is the number one complaint from consumers.

Is it possible to force an agent to properly service their clients? Probably not.

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If the agent is not smart enough to understand that service promotes sales and helps

business retention, it is unlikely that he or she will be smart enough to understand

service requirements imposed by his or her province.

In fact, an agent who is unwilling to service his or her accounts, probably will not even be

educated enough to know how to service the accounts.

When this happens, one can only hope that the insurance company or agency will step

in and handle the matter. If no one handles it, eventually the client will simply change

agents and insurance companies.

DUE DILIGENCE

So many areas of ethical behavior are overlooked, one area that should not be

overlooked deals with due diligence. We feel that the professional agent prefers to deal

only with financially sound companies, but many agents may not know how to locate

these companies.

There is both a technical way of locating sound financial companies and a

commonsense approach to it. Understandably, it is difficult for an agent to research

each individual company, although that must be done to a certain degree. Sometimes, a

commonsense approach actually works better because much of the information that an

agent may find on any given company will be outdated.

Financial due diligence could also be called solvency appraisal.

A certain amount of technical analysis of historical data is important, especially as a

point of reference to start with. To spot a potential problem before it happens, however,

a commonsense approach is often more effective. Once a potential problem is

identified, technical analysis is then appropriate again. The technical analysis will either

confirm or deny the suspicion of a financial problem within the company.

Financial due diligence could also be called solvency appraisal. Traditionally, such an

appraisal is done from a technical standpoint.

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It is true that if you told another agent that you simply had a "gut feeling" that a company

is having financial trouble; you are not likely to be taken seriously.

As a result, even if it is simply a gut feeling, you must be prepared to then proceed to the

technical detective work that is necessary to validate your feelings.

Many "gut feelings" originate from sensing that something has changed or is amiss.

This might be something as simple as delayed claim payments.

There are some problems or limitations to the technical approach:

1) First, agents rarely conduct their own technical analysis. Instead, we look at what

others have compiled. It would simply be too time consuming to personally research

each company we deal with and most agents are not willing to spend the amount of time

it would require. In addition, few agents would even know where to begin such an

analysis.

2) Most professionals feel that a true technical analysis requires historical data on the

company in question. In the past, such data was considered important, but with so

many rapid changes occurring, the validity of such data may now be questioned.

3) Even though we do recommend that agents stay with "A" rated companies, there is

evidence that the rating services are generally unreliable when it comes to predicting

insolvencies. This appears to be true of both corporate bond rating services and

insurance rating services. One problem with technical analysis lies in the

oversimplification of only a few indicators. Agents and consumers alike tend to lock in

on only one element in the analysis. The public, for example, knows only about the

rating systems and seldom understands precisely what those ratings really indicate.

4) The management of a company determines its business practices. If the company is

not a mutual company, who owns it becomes an important indicator. If the owners of the

company are not the managers, then who is managing the company is also very

important.

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A single powerful person can often shape corporate values and culture. Along this line,

if the management of a company changes, the strength and weaknesses of that

company can also change.

5) Product design is something that agents often do spot immediately, especially if the

agent is experienced. Product design tends to be a mirror of those who are running the

company. It is a fundamental extension of the leader's vision, desires, and values.

Are there gimmicks or sound benefits within the product? Some products seem to utilize

a "bait and switch" sort of theory. Common sense should also tell us that a product that

puts out more than it takes in would not benefit the companies or its policy owners.

6) As we have discussed, replacement selling is more common than ever before. As a

result, the risk of adverse news or competitive interest rates can cause disloyal

policyholders. This makes distribution a point of common sense. A debt loaded volatile

national and world economy does nothing to reduce the risk that could pull a company

into insolvency. Distribution of products must, therefore, be considered. Stockbrokers

are notorious for rolling their money quickly. If a company does a lot of single premium

or asset intense products (such as annuities) distribution can become critical.

Insolvency risk is much higher when insurance products are distributed through a limited

number of non-insurance distributors.

To recap , the technical approach has some limitations :

Technical analysis is difficult and few agents know how to do it.

Historical data is not always reliable.

Rating services are useful, but not necessarily an indicator of insolvencies.

Technical data is often oversimplified or simply misunderstood by both the agent and

the consumer.

The ownership and management of companies that are not mutual companies is an

indicator of company practices. Few agents or consumers personally know who is in

charge of the companies they deal with.

Product design is a fundamental extension of the company's management, but

technical analysis seldom considers this.

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Distribution is critical for the solvency of a company, but it is very difficult to know

how products are distributed in many technical analyses.

Despite these limitations, technical analysis is still useful as long as it is combined with

the agent's common sense. There are many ways that an insurance company can get

into trouble. Usually it is a combination of problems, seldom one problem alone.

Instead of making little mistakes, the company might make one or more large mistakes

that, of course, can have severe consequences. Perhaps losses greatly exceed gains

and capital and surplus is consumed. When money goes out faster than it comes in, no

business or individual can run efficiently. This is called a negative cash flow. A positive

cash flow means more money is coming in than is going out.

In addition, if one or more of these problems are made public, policyholders may begin

to withdraw their money, which only intensifies the existing problems.

The old saying, if something looks too good to be true, it probably is, is a good

commonsense approach to insurance, as with so many things. The easiest product to

sell may well be the very product you should avoid. It will save you future

embarrassment and liability to avoid some products.

A commonsense approach to due diligence is a practical way for many agents to spot

potential trouble for themselves and their policyholders. The object is not necessarily to

find those companies that are sound, but rather to avoid those companies that are not.

Such things as ratings and historical data certainly do have their value, but they should

not be the only indicators used.

An agent or broker’s liability in today's world is growing with every new product. In fact,

any agent who does not have Errors and Omissions insurance is very foolish. Even the

most careful agents can find themselves in the middle of a lawsuit. It may not even be

initiated by the insured, but rather by their family after the insured has died.

Many people consider the phrase business ethics to be an oxymoron.

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Ethical insurance agents may never be able to convince some people that the words

business and ethics can go together. It is true that there have been multiple debates as

to whether it is ethical for businesses to have any priority other than profits, as long as

those profits are made legally. Are ethics and the pursuit of profits at cross-purposes?

Ethical insurance agents may never be able to convince some people that the words business and ethics can go together.

The insurance industry has suffered many image problems, some of them deserved and

some of them not deserved. In public opinion polls, insurance agents routinely end up at

the bottom of the list between attorneys and politicians. Consumers simply do not feel

that insurance companies and their representatives consider ethics to be a high priority.

In fact, many consumers feel that ethical behavior of any kind in the insurance industry

exists only because the states mandate it.

The insurance professional must deal with questions of ethics every day, many of which

have no specific answer. For example, to whom does an agent owe his or her

allegiance: the insurance company or the policyholder? It must be remembered that an

agent represents both parties. Many agents have found that the insurance companies

themselves do not seem to reward ethical behavior, but are more likely to reward the

"high producer" instead.

For many questions of ethical behavior, there must be consideration of all facts involved

since the deciding factor can vary from situation to situation. An agent must ethically

give the insurance company all facts considering the insured that are pertinent to the

issuance of the policy, but on the other hand, the agent also owes it to his or her client to

give them all the pertinent facts regarding the insurance company. In other words, the

agent has an ethical duty to both the insurance company and the policyholder. An

insurance agent can find data to back up nearly any position that he or she wishes to

take.

In the past, most agents felt that giving the financial rating assigned to a company by the

A.M. Best Company was sufficient, but in recent years that has not proven effective. In

one case, it may be sufficient, but in another, it may not be enough.

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How is an agent to know when he has given enough information or too little? Must the

consumer take more responsibility for looking up facts on a specific company or is that

the role of the insurance agent and his or her agency?

It is often said that the commission structures that have been set up by the insurance

companies have been a primary cause for ethical problems within the industry.

There are those that say a commissioned basis in and of itself foster an "anything goes"

attitude. That does not completely explain the problem, however, since many other

industries also function on a commission basis without the negative image that has

plagued the insurance industry. Most experts feel that commissioned sales, of any type,

is ethically neutral although it is possible to have unintended results if it is not structured

properly. It is not the commission pay system itself that causes problems. Rather, it is

how people prioritize their work and their lives that bring out negative results. When

making sales becomes the priority, without any other aspects considered, integrity can

certainly suffer.

Any business, including ethical businesses, has profits as a goal. In fact, being

successful is not unethical, but rather an ethical aim of a business. It would be unethical

to the owners or stockholders of a business to avoid profits. Being profitable, however,

should not alter other ethical concepts within the business.

Just as profits and ethics can work together, so can ethics and commissions when other

ethical concerns are also considered.

It has been noted that property and casualty lines have little incentive to use one

company or another based on commissions, since they all tend to pay about the same.

It is more likely to be an issue in the life and health field. Some advocacy groups are

calling for the discontinuance of all commissioned sales people. Interestingly, few of the

consumers themselves seem to view commissions as the root of the problem.

Consumers are more likely to target the insurance company itself as the major source of

dissatisfaction. Groups that are calling for the discontinuance of the commissioned

agent force may not be taking into consideration the matter of customer service.

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While there are certainly a measure of agents and agencies that do not provide service,

many do. Without commissions, it is unlikely that service will get better. We have seen

many industries that do not utilize commissions that have very poor customer service

practices.

A basic question asked not only by the consumer, but also by the agents themselves, is

whether the insurance companies and management staffs actually value ethical

behavior in their field force.

While most people do feel that practicing good ethics is also practicing good business,

many agents feel that there is little, if any, recognition for ethical behavior or practices.

Insurance agencies seem uncertain how to reward, or even recognize, ethical sales

practices in their field agents. Certainly, underwrites value ethical behavior because it is

necessary in order for them to underwrite the policies effectively. When an agent has a

reputation for giving solid information, the underwriters are likely to do a better job for

that agent in terms of time and judgments. On the other hand, when underwriters know

an agent consistently omits needed information or is vague in the routine information

given, then underwriters are much more likely to question every aspect of that agent's

submitted applications. Certainly, in this area, ethical behavior is rewarded.

Clearly, the issuance of insurance policies is based upon ethical behavior. There is the

general agreement that the insurance industry is founded on ethics. It would be

impossible for the industry to operate without it. The risk-sharing mechanism is closely

dependent upon the ethics of trust. The insurance industry depends upon the consumer

to act ethically when disclosing personal information, it depends upon the agent to relay

that information correctly to the underwriters and it depends upon the insurer to keep

their promises that appear in the contracts. Even the claims that are submitted to the

insurance companies depend to a certain degree on ethical behavior. Of course, we all

know that many fraudulent claims are submitted each year, which drives up our costs for

insurance protection. Such fraudulent claims are certainly unethical. Ironically, many

consumers feel insurance companies have lots of money, which makes filing false

claims, in their minds, acceptable.

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There is agreement from those participating in any ethical reviews, that encouraging

ethical behavior, within any company, must begin with top management. A strong,

understandable code of ethics must not only be a written doctrine, but also practiced by

those at the top. The more massive a company is, the more a written code of ethics is

needed since many of the employees may never have access to top management.

When ethical codes are clearly stated and demonstrated by a company, the lower

management and staff are more likely to behave ethically themselves because they

know it is expected.

Of course, a written code of ethics that is buried in a company manual, but seldom

discussed, is not likely to be taken seriously by the employees of the company. This is

especially true when management does not appear ethical themselves. Employees

certainly want to be recognized, so it simply makes sense for management to recognize

ethical behavior. Such recognition will promote ethical behavior among the employees

that will benefit the company itself. On the other hand, if top management seems only to

recognize sales without any concern as to how they are achieved, the message will be

clear to the sales staff.

Some companies conduct ethic-training sessions. Questions that arise in the sales field

every day are looked at for possible solutions that are both ethical and sensible. Ethical

competency often is simply a matter of education.

It is also a matter of peer pressure. When co-workers expect ethical competency,

others are more likely to act ethically competent. Ethics must be made a part of the

decision making both by the company management and individually by the personnel. If

employees are to act ethically, however, they must feel confident that their superiors will

stand behind them.

In business, many ethical qualities cannot be put in economic terms. When Johnson &

Johnson pulled Tylenol off the shelf several years ago during the poison scare, their first

concern had to be for the citizens of our country; economic concerns had to be second.

Because Johnson & Johnson had a strong code of ethics, their lower management was

able to act immediately, confident that upper management would stand behind their

decision to pull the product from store shelves. 60


When conduct that is right is recognized and rewarded, employees begin to place a

value on ethical behavior. This also tends to promote pride in their organization and

ethical traditions.

We live in a society where rules and regulations seem to grow daily. With the

abundance of rules and regulations, some people feel simply asking "Is it legal?" is

enough. Many salespeople do not realize that simply following the laws is the minimum

acceptable level of ethical conduct. It is up to the business organization to set the actual

ethical code of conduct that they require. Ideally, that will be higher than is actually

mandated by law. Of course, each individual must also set his or her own personal

standards of conduct.

We all know of individuals who do simply use what is legal as their standard of ethical

behavior.

For these individuals, as long as they are not breaking the law, any behavior is deemed

acceptable, regardless of how many other people are taken advantage of.

Doing the proper thing ethically is simple when the choices are clearly between an action

that is right or wrong. Stealing or not stealing is a clear-cut choice, for example. Making

ethical choices is not so easy when the decision is between two sets of action that may

both be right or may both be wrong. This generally has to do with two "sets" of ethics,

either one of which may be valid. For example, we have all probably lied to someone in

order to spare his or her feelings. This may not necessarily make the action right, but

the choice was made between truthfulness and another person's feelings. Both of those

choices may be ethical (it is not right to lie nor is it right to hurt another person).

Ethical behavior tends to have long-range (versus short-range) benefits. In the short

term, it is often advantageous financially to make the sale no matter what tactics are

used. In the long term, it is more advantageous to behave ethically even if that means

forgoing the sale. When an individual is financially stressed, it is more likely that he or

she will ignore the ethical requirements making the financial gain the top priority. This

applies to both individuals and businesses.

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When an agency or other type of business is struggling, their first concern may be profits

rather than ethics. That is why salespeople must use some thought regarding whom

they choose to work for.

When those above us are ethical, we also tend to become ethical.

When those above us stress financial goals, rather than ethics, we are likely to value

financial goals above all else, too. Ethical rewards also follow the trickle-down rule. Our

rewards for ethical behavior are often not realized at the moment of the action. Rewards

may come years later. Religious persons base many of their actions on the rewards

they feel will be theirs after death.

Society as a whole has become much more demanding when it comes to ethical

behavior. At the same time, we are living in an age when financial success is more likely

to be admired. Often, we feel that others wish to be treated ethically, but others are not

necessarily willing to do the same for you.

Nearly everyone has, at one time or another, gone out of their way to do something for

another only to be treated badly in return. Such a situation does not change what is

ethical.

Sometimes ethical behavior is aided by our advancing technology. People may act

more ethically simply because they realize that their chances of being caught in

unethical actions are greater today than in the past. In the past, our technology often did

not allow vital information to be brought out quickly. Today, with the aid of computers,

information is much more available to a greater number of people. This brings up

another question: when an individual acts ethically, not out of desire, but because they

know they must, is that person actually ethical? As we previously pointed out,

sometimes we are only able to dictate a person's behavior, not their ethical standards.

Each of us has a public image, which is either good or bad. We sometimes make the

mistake of believing only large companies must be concerned with public relations. It is

doubtful that any other area is more important than how the public (the consumer) sees

us.

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Having a good public image means that more referrals will be generated, more business

will stay on the books and people will be more trusting of our advice. In fact, when

businesses sell, it is often the public image of the company's name that raises the price.

When a business has a reputation for excellent service or products, the business is

simply worth more money.

We sometimes think of public images as having to do with advertising budgets, getting

out in the "right" circle of people and so forth. Actually, our public image is simply how

others perceive us. The definitions of ourselves are seldom set down by us, but rather

by others who we meet. What we personally establish are the traits others will judge us

by. This is true of both individuals and businesses.

Individual ethics and business ethics are sometimes thought to be different things, but that is not necessarily true.

Individual ethics and business ethics are sometimes thought to be different things, but

that is not necessarily true. Every business has a responsibility to develop a business

ethic.

Certainly, an insurance entity must worry about becoming the concern of a government

regulator if legal ethics are not followed, but it really goes beyond that.

Without clear principles within the business outlining what is acceptable and what is not,

problems may easily develop, with both the public image and the legal continuance.

Experts note that a significant percentage of employee-based lawsuits would never have

stood up in court if the situation had been properly addressed in the manual and then

emphasized at company meetings. Businesses that have not put together such a

manual are definitely at legal risk. Besides lessening the likelihood of being sued, a well

written (and followed) company manual can also improve employee morale as well as

establishing what the employer expects of the employees.

Such things as churning policies, misrepresentations of products or services, and

outright fraud reduce the public's image of our industry.

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Of course, that ends up hurting every person within that industry. All of these issues

need to be addressed in the company manual. Often, salespeople are hired as

independent contractors. In other words, each salesperson is self-employed. An

agency may do this for a number of reasons, but even if this were the situation, the

agency would still be wise to formalize a manual on ethics in selling. It is simply prudent

to do so.

BECOMING A FINANCIAL ADVISOR

There are many people willing to be thought of as a professional investor or advisor.

Simply desiring the title does not make one a professional. The title may have nothing at

all to do with either experience or training. From a business standpoint, it means

selecting insurance companies and other support systems that are both professional and

knowledgeable.

The first step for any ethical investor or advisor is to be sure that the insurance

companies and professionals giving advice are themselves ethical. That does not

necessarily mean that they must share the same views on the environment, government

or community. It does mean that they must be honest in every capacity. Certainly, this

means following all laws, but also honest in how they deal with the consumers, agents

and brokerages.

Consumers often ask others for recommendations. Professionals in other fields that are

themselves ethical often make referrals as well. These professionals would include

accountants, bankers, or attorneys. It may even include fellow insurance agents that do

not themselves handle particular types of investments. If you belong to a specific type of

organization and you are investing, goals are in line with that organization's views or

activities, other members might also be an excellent referral source. For example, if you

were part of a group that worked with homeless people, fellow volunteers are likely to

have your same goals. As a result, they might be able to steer friends to you for

professional investment advice. Ethical investors do generally feel more comfortable

when their investment advisor is like-minded.

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Consumers do not always feel comfortable working with someone they feel TOO close

to, but they may still consider you for their ethical investments in some areas. In

addition, it may not be wise to take on clients that are close friends or relatives. There

can be many pitfalls when clients are more than business associates.

Steps that an agent / broker can follow to minimize possible misunderstandings:

1) Full disclosure is always necessary in any type of policy being suggested to a

client. Where different interpretations are possible between a brochure and the actual

policy, the policy is always the final authority. A brochure is simply a selling tool, never

the final answer. The statement the agent receives over the telephone from the agency

or home office also takes second place to the actual contract. The policy is the final

word every time. An agent who has not read the contracts he or she is selling, is an

agent waiting for a lawsuit to happen.

2) An agent should always be slow to replace an existing contract of any type. This is

not to say that an existing contract should never be replaced. However, to do so without

fully examining what is currently in place would be foolish. The agent should first be fully

informed of any new or preexisting health conditions, take-over provisions and limitations

that may exist in the new plan. Health problems of any dependents that may apply

should also be reviewed.

Whether you are dealing with a health program, a disability program, or a life insurance

program, make sure that health questions are clearly understood and correctly

answered. A term that has come into wide usage lately is clean sheeting. It means that

an agent knowingly fails to correctly list existing or past health conditions of the

applicant. The agent is presenting a "clean" application so that the company will accept

it and issue a policy. This is obviously illegal and will not be tolerated by any insurance

company!

3) Sometimes an agent simply is not aware of existing health conditions. If the

applicant does not fully understand a health question, it may be incorrectly answered

through no direct fault of the agent.

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We say direct fault because it is ultimately the responsibility of the agent to present the

questionnaire in a way that is understandable.

4) Even if the agent thought the health portion of the application was correctly

completed, it will not alter the insurance company's view of it. A policy may be rescinded

(taken back) by the insurance company for incorrect or undisclosed information.

This may occur, for example, on a question, which asks if the applicant has high blood

pressure. Since the person is taking a medication that keeps his or her blood pressure

under control, they may answer the question "no" when, in fact, it should have been

answered “yes.” Since these types of misunderstandings can easily happen, an alert

agent will want to closely monitor the questions and answers on applications.

5) Eligibility of applicants is always a concern when replacing an existing coverage. Do

not overlook the eligibility of dependents also. An employee's spouse or disabled

child may be especially vulnerable.

6) Any time an existing coverage is being replaced with a new policy, continuity must

be considered. The old plan should never be dropped until the new plan is firmly in

place. The policy should actually be in hand and reviewed for accuracy before the old

policy is dropped.

THE SECTIONS OF A CODE OF ETHICS THAT ARE VIOLATED MOST OFTEN

Priority of Policyholders Interests

An Agent / Broker must always place the client’s needs before their own in any dealings

with them. This one is self-explanatory. Just remember the “Do unto others” rule. If you

would not buy the plan from yourself, then ask yourself why. Look after your clients and

prospects, and they will look after you.

Misrepresentation

The Agent or Broker should not create a false impression, or deliberately mislead a

client.

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Agents and Brokers should be aware that if they mislead their clients, they could be

responsible for any loss suffered by their clients because of the information

misrepresented.

As a rule of thumb:

Do not give any advice that you are not qualified to provide.

Make sure that any advice you do give is correct, and write it do not say it.

Make sure any math calculations are correct. Do not exaggerate the figures. Tell it

like it is.

Use the resources of your fellow Agents and home office if the situation you are

working on is complex. Make sure that you have any answers.

Make sure that you are entitled to use any designations that you may have on your

business cards.

Defamation.

An Agent / Broker must not slander (defame) the Institution or Life Insurance, another

Agent or a Company. Do not go to an Association meeting, have lunch with a fellow

underwriter, then stab them in the back just to get a sale.

Replacement of Policies (also known as Twisting)

The provision for replacement contains the following definition:

“Engaging in the indiscriminate replacement of life insurance contracts, or adopting as a

sales strategy, any plan involving the indiscriminate replacement of life insurance

contracts.”

An Agent / Broker must not recommend the replacement of a policy. However, if the

client, after having been provided with full disclosure and comparison of policies, can

then make the decision to replace any existing insurance policy. The Agent / Broker is

then required to complete the required disclosure form.

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Agents must take caution when replacing a policy that any replacement is in the best

interests of the client. Agents and Brokers have to make sure that any written contract

comparison is accurate and precise.

Areas to think about when replacing a contract of life insurance

Since many policies are front-end expense loaded, the new contract will have lower

surrender values for many years to come.

Any suicide and incontestable provisions will start over again.

The prospect’s health may have declined, therefore allowing for a rating on the new

policy.

The client or prospect is older now that when the original policy was issued.

What about the loan guarantees that may not be available on newer policies?

In addition, take a look at any preferential tax treatment of the old policy in relation to

the newer products on the market today.

For Agents and Brokers who are allowed to carry on business in other jurisdictions other

than their own should make sure that they are well aware of the replacement laws of that

province.

Holding out

This term refers as to how an Agent or broker is presented to the public. As a general

guide, Agents and Brokers must carry on business in good faith as a life insurance

Agent who acts in conformity with the provisions of the law of each jurisdiction in which

they are licensed.

For example, Ontario published an advisory committee submission for the Code of

Ethics in 1996 that is part of the Ontario Insurance Act. All Provinces/Regulators have

similar codes.

The proposed Ontario Code would require an Agent to:

Provide to a person before giving specific advice about life insurance, or about life

insurance and other financial products or services, the following information in writing:

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1. The fact that the Agent is a licensed insurance Agent.

2. The names of the life insurers with whom the Agent has authority to act as an

Agent.

3. Any other financial services licenses that the Agent holds.

4. Disclosure to a prospective buyer of life insurance any fees, expenses or other

amounts that may be charged by the Agent in addition to the cost of the insurance

policy.

5. Present accurately, honestly, completely and in plain language, facts reasonably

available to the Agent that are necessary to enable a client to make an informed

decision about his/her insurance needs.

6. Advise a client that all information provided to the insurer must be accurate and

complete and that failure to provide accurate and complete information could

invalidate a policy.

7. Provide disclosure to the client in the form of a brief written statement in plain

language, signed by the Agent, setting out the major features, benefits and

investment risks, if any, of an insurance policy being considered and obtain the

client’s signature on the written statement when he/she signs an application for

insurance.

8. Inform an insured, in writing, at the time an insurance contract is delivered, of any

significant differences between the policy applied for and the one issued by the

insurer.

Note: The above information was taken from the Advisory committee document provided

from 1996.

Cost Illustrations / Ledgers

There has been much controversy in this important area. Many legal battles have been

documented concerning “vanishing premiums” as well as “premium offset”.

Many insurance companies have had to pay out millions of dollars because of

illustrations being erroneously represented by their Agents and Brokers.

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This all began in the early 80”s when interest rates and dividends were at their peak.

The world was experiencing record highs and many Agents and Brokers were taking

advantage of it. In the early 1990’s, many life insurance companies decreased their

dividend scales dramatically, which in turn meant that policyholders expectations that the

premiums would “vanish” could not happen. More premiums would have to be put into

the plans before this would happen.

It is important that Agents and Brokers understand all aspects of the sales illustrations

and ledgers. It is imperative that clients and prospects fully understand that some

benefits that are addressed in the sales interview can and will change due to many

fluctuations in the market place. Only speak about the guarantees, the rest is bonus if it

materializes.

Commission splitting / Rebating

It is an offence for any licensed life insurance Agent or Broker to share commissions with

anyone other than another licensed Agent or Broker. It is permissible however, to

provide a finder’s fee to another person for supplying qualified prospects or referred

leads.

It has to be a set fee, and cannot fluctuate with the amount of commissions earned

because of any sales generated from any leads. An Agent / Broker can pay a consultant

a fee for services rendered.

Confidential Information

This is a very sensitive area, as it pertains to financial and health information from the

many prospects and clients that you deal with in the course of building your clientele.

The Provincial Code of Ethics for Agents and Brokers requires that using the necessary

measures protect personal information.

Any personal information gathered during the transaction can only be disclosed to the

Insurance Company, unless authorized by the person to whom the information applies.

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Conflicts of Interest

There has to be a full disclose to the prospective buyer of life insurance of any actual or

potential conflicts of interest that may accompany the Agents or Brokers

recommendation. Again, any information gathered cannot be used by the Agents for

their own benefit, or for the benefit of another person.

Unfair Trade Practices

This area can be widely misunderstood. This part of the act not only contains tied selling

and misrepresentation, but also includes coercion, gifts and rebating of premiums to the

client or prospect. An Agent cannot use coercion for getting the client or prospect to not

proceed with any legal action that they have a legal right to do. Agents and Brokers

cannot pay any premiums to get the client or prospect to proceed with the sale of

insurance or any other product. Free giveaways are allowed such as: calendars, pens

etc., if a prospective purchaser does not have to proceed with the purchase of a product.

Following, you will find a chart with the most important sections on the Code of Ethics.

Remember that consumers want to deal with professionals, being a true professional

means following a strict code of ethics. When it is all said and done, the “Do unto other

rule”, plays a big part in the sale of insurance.

The Code of Ethics and How to Abide By Them

Priority of policyowners Interest The policyowners always comes first

MisrepresentationNo false or misleading information.Always make a full disclosure

DefamationWatch what you say about Insurers, Agents and the current coverage that is in place.

ReplacementAlways have the client’s interest first. If you have to replace a contract of insurance, follow the proper procedures.

Holding out to the publicFollow the guidelines, and only use the designations that you are entitled to use.

Explain fully and tell it like it is. Make sure

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Sales illustrations and ledgers that the client / prospect understand.

Rebating / Sharing of commissions Do not provide any cash or gifts to clients/prospects as inducements to buy a policy. Do not split commission with an unlicensed individual.

Confidential informationDo not discuss the clients/prospects personal business unless directed by them.

Rated policiesTry to eliminate current rating with existing insurer, and then approach a new insurer.

Transfer of Group Benefits and Group Pension Business

Go to the original carrier to try to conserve business first.

Know your clientKeep records, registers etc.

Intimidation / Conflicts of interestFull disclose to the client / prospect of any personal gain to you. Do not bully the client or prospect.

VARIOUS TYPES OF FINANCIAL PROFESSIONALS

In Canada, there are many "financial people", each with a role in the world of finance.

Since the financial industry is supervised or "regulated" by governments, their role

reflects what they are legally licensed to do.

Stock Brokers

Most people know a "stock broker". A stock broker is someone who is licensed to buy or

sell financial securities.

This includes stocks, bonds and mutual funds.

A stockbroker must pass the Canadian Securities Course (CSC) and the Conduct and

Practices Exam, both administered by the Canadian Securities Institute, to be allowed to

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buy and sell securities. Stock brokers only "provide advice" and make recommendations

to their clients. They must have a client instruction to act upon.

A broker is usually a person who buys and sells on behalf of other people.

Most stock brokers are "registered representatives" who actually work for an "investment

dealer" a company that "takes positions" or buys and sells securities for itself, or "for its

own account". This is an important distinction, because this means that your

stockbroker's company could be selling the stock you are buying or buying the stock you

are selling for its own profit. Stock brokers earn their income from commissions on the

securities that they buy and sell. Investment dealers also "underwrite" or assist

companies in issuing securities for a fee. They "distribute" these securities through their

sales force. The stock brokers receive a commission on the "new issue" securities that

they sell to their clients.

Mutual Fund Salesperson

A "mutual fund salesperson" is someone who is licensed to sell mutual funds only. They

cannot sell stocks or bonds.

They work for a mutual fund company or a mutual fund dealer. Mutual fund sales people

receive a salary or a fee for selling funds from mutual fund companies. They can also

receive a "trailer" or a percent fee for servicing clients from mutual fund companies.

Financial Planner

A "financial planner" is a less clear role. Most people understand that the role of a

financial planner is to develop financial plans for their clients.

This would include examining the client's financial situation, goals and time horizon. The

financial planner would then recommend a financial plan, including suggested

investment alternatives.

Governments do not regulate financial planners unless they work for a regulated

financial services company. There is no requirement that "financial planners"; "financial

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consultants" or "financial advisors" complete any particular training program. Anyone

can adopt this type of title on their business card.

There is a recognized designation "Chartered Financial Planner" (CFP) which involves

completion of a lengthy program and adherence to a "Code of Ethics". Anyone who

uses this designation has completed this course and abides by the Institute's Code of

Ethics.

The real distinction in this area is the compensation of the financial planner. Some

financial planners work only on an hourly fee basis, providing their advice independently

for direct compensation from their clients. Other financial planners receive most of their

income from commissions for selling financial products to their clients. The real way to

differentiate between financial planners is to ask them about their compensation. There

is nothing wrong with a financial planner receiving commissions, as long as it is

disclosed, but it does make the advice provided less independent.

Investment Analyst

An "investment analyst" is someone who analyzes financial data and makes investment

recommendations. An equity analyst analyzes stocks and stock issuers. A credit

analyst analyzes bonds and bond issuers.

An investment analyst usually works for an investment dealer or a financial institution

involved in investment management. An investment analyst who works for an

investment dealer writes investment reports for clients of that firm. An investment

analyst who works for an investment management firm makes recommendations to the

firm's investment managers who actually select the securities for the portfolios. Some

investment analysts work for independent investment research firms or bond rating

agencies, where clients pay a fee for the analysts' research.

There is no mandated training program for financial analysts, although the industry

standard is the "Chartered Financial Analyst" (CFA) designation. Anyone using the CFA

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designation has completed a three-year course and adheres to the Standards of

Conduct and Code of Ethics of the Institute of Chartered Financial Analysts, which is

based in the United States.

Investment Manager

An "investment manager", "money manager" or "portfolio manager" is someone who

manages investment portfolios. Governments under Securities Legislation regulate this

activity.

An investment manager may work for a large financial institution, such as a bank, life

insurance or trust company, managing its portfolio or providing management directly to

third party clients. Managing money for other people is called "investment counselling".

Firms providing this service must have an "investment counsel" registration and must

license their portfolio managers as investment counsel. There is an educational

requirement, completion of the first year of the CFA program, and an experience

requirement.

Managing portfolios without requiring client approval for actions is called "discretionary"

money management, which means that the investment manager will manage the

portfolio independently, according to an established investment policy. The investment

managers that most people are familiar with are mutual fund managers. These are

investment managers who manage a pool of money called a "mutual fund".

The mutual fund company who sponsors the fund either employs the manager or

appoints an external investment manager.

Life Insurance Advisor/Agent or Broker

An insurance Advisor/Agent or Broker sells, solicits, or negotiates insurance for

compensation. Their client may be an individual, corporation or organization.

Brokers and agents are the retail side of insurance. Some insurers underwrite insurance

only through Advisor/Agent or Brokers who obtain data from their customers and fill in

the complex forms which insurers need in order to thoroughly assess the risk they are

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being asked to underwrite. Some jurisdictions have special rules about how policies

must be printed, assembled, and delivered to the insured. Brokers are responsible for

such compliance issues.

Most importantly, insurance brokers assist prospective insured’s with developing risk

management strategies appropriate to their risk profiles. They work with insured’s to find

out what kinds of risks they regularly encounter, and educate insured’s about what

policies are available for each type of risk. Often, an insured may buy a regular policy

plus endorsements or additional policies to fill in exclusions in the regular policy.

Insurance brokers may also help insured’s obtain multiple layers of excess and surplus

lines policies from different insurers. The excess and surplus lines policies provide

coverage over a primary policy, and can work through scenarios for reducing premiums

with deductibles or self-insured retentions.

CONCLUSIONS

The basic insurance product is an uncertain promise that the insurer may never be

called upon to fulfill. The value of the promise is based on the trust of the policyholder in

the insurer. However, Gallop polls since 1977 have consistently ranked insurance sales

persons among the lowest in terms of perceived honesty and ethical standards. In the

November 1999 poll, insurance sales persons ranked third from last, just above

telemarketers and car salespeople (Galop, 2000).

Researchers suggest that ethical sales behavior can lead to more client trust and that

insurance agents who engage in customer-oriented behavior are more likely to have

long-term, satisfied customers and are less likely to engage in unethical activity.

Depending on circumstances, insurance professionals look to different resources for

guidance when faced with an ethical decision. When faced with a highly competitive

situation they consider the behavior of other agents in their agency.

Knowing that agents look to each other for guidance in these situations, it would be wise

to develop methods of modifying the behavior of agency work groups so the agents will

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serve as good role models for each other. On the other hand, dealing with mistakes in

an honest manner appears to be more related to personal values, which could be

assessed by insurers during the selection and hiring process.

The recommendations in the previous paragraph should be revisited on an ongoing

basis to determine:

1. What role the above recommendations play in the complex and dynamic process of

improving the ethical standards of the insurance industry for agents and companies?

2. How can these recommendations be changed to better fulfill that role?

One of the most common prescriptions to the above questions is ethics training.

Research indicates that far fewer hours are spent in ethics training than in sales training.

In addition, there is no significant relationship between ethical intent/behavior and having

received training or the number of hours spent in training. Elevating ethics training to

equal footing with sales training would send a very different message. In addition, it is

important to note that larger doses of ineffective training cannot be expected to improve

ethical conduct. Not only should ethics training be afforded the same status as sales

training, it should be afforded the same level of investment to insure it is effective.

There is no question that insurance companies have invested heavily to develop

effective sales training to motivate and educate agents. If insurers are serious about

ethics, they need to similarly invest in the development of effective ethics training.

Another common prescription is an organizational code of conduct (many Associations

currently have their own Code of Ethics). Ethical codes, even if they are perceived to be

enforced, are not significantly correlated to ethical behavior. Based on the mixed results

of prior research, the effectiveness of ethics codes is indeed questionable. In order for

ethics codes to be effective, they should be part of a toolkit used to shape and create a

strong ethical corporate culture.

The ethics code should become a living part of everyday work life, a compass that

guides workers as they wrestle with large and small ethical dilemmas. It needs to be

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relevant to the situations agents face each day, practical, supported at all levels of the

organization, part of the expectations for performance, and a basis for rewards. An

effective ethics code will be the centerpiece of strategic operations. However, ethics

codes cannot alter behavior if they are relegated to dusty three-ring binders or sterile

web sites.

Professionalism is generally associated with ethical behavior, but no significant

relationship can be found between holding various financial designations, or any other

professional insurance designation, and ethical intent or behavior.

In addition, knowledge of, or reliance on, the various financial Codes of Ethics is not

significantly correlated to either ethical intent or behavior. This presents a large window

of opportunity for the professional organizations to increase their influence on ethical

behavior. This task requires taking clear and unequivocal positions on ethical issues,

imposing severe and public sanctions on members who engage in ethical misconduct,

celebrating and promoting ethical heroes and heroines on a grand scale, creating highly

valued special designations and certifications related to ethics, presenting major

prestigious awards to celebrate ethical industry leaders (creating a “Nobel prize” for

ethics in the insurance industry), and more.

There is a need for our professional organizations such as CFP, CLU, and ChFC etc., to

continuously develop and promote clear standards of ethical conduct on everyday

issues.

Successful agents are influential in the ethical market conduct of other agents. The

industry could use this information to influence behavior by creating a new paradigm of

success. The celebration of the ethical behavior of high producers should be at least as

elaborate as the celebration of their sales production. Just as important as celebrating

ethical standards is the perception of highly unpleasant consequences for ethical

misbehavior through severe public consequences for ethical breaches. Ethical

misconduct should be punished consistently and harshly, regardless of the production

performance of the offender.

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Given the complex and dynamic nature of ethical conduct, there are always

opportunities to continuously be promoting ethics. The behavior of the agency force is

critical to the industry’s health because agents and brokers are the ones who touch the

customers.

A couple of examples of how the financial services industry can improve and promote

ethics on an ongoing basis are:

1. A clear understanding about how to influence the ethical behavior of agents and

brokers could come from more knowledge about what resources they turn to for

guidance in different situations. For example, the three most common resources appear

to be personal values, other agents in the agency, and successful agents and brokers.

Which of those is an agent most likely to look to when deciding whether to engage in

down selling, rebating, or full disclosure of relevant facts to customers? Ongoing

information would help in the design of effective techniques to modify behavior in these

areas and others.

2. A better understanding of insurance customer attitudes, expectations, satisfaction

factors, and purchase patterns could help determine the importance and ramifications of

certain agent behaviors.

WHEN IT IS ALL SAID AND DONE…WHAT HAVE WE BEEN TALKING ABOUT?

Corporate Guidelines for Business Conduct

Corporate leaders shape the ethical practices of their organizations by establishing the

pervasive governing attitude of their firms which is the corporate culture that promotes

and rewards certain ways of thinking and acting and punished others, according to the

values of the leadership. This governing attitude or corporate culture must be in all

respects consistent with the firm's stated principles of ethical conduct.

The integrity of a corporation is dependent upon the consistency of its stated ethical

principles with the behaviour it promotes in practice.

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In some organizations, the governing attitude changes dramatically depending upon the

financial health of the organization, the firm's competitiveness in the marketplace, and

the duties and status of different segments of the corporation.

When the current governing attitude contradicts a firm's long-standing ethical standards

and traditions, professional conduct becomes erratic and divisive and can pose

unpredictable risks to employees, customers and the corporation as a whole; and in

many cases can lead to unforeseen and unintended consequences.

Characteristics of a Profession

Every profession, whether traditional (e.g., medicine, law, education or the ministry) or

evolving (e.g., engineering or financial services) is marked by certain inherent

characteristics;

A. The profession provides a vital service to society.

B. Professional practitioners must master and competently use specialized knowledge

and complex skills.

C. Members of a profession must accept the standards of practice and purposes for

which the profession is recognized by society.

D. Professional practitioners serve in a fiduciary capacity with their customers, which

involve an added degree of ethical responsibility.

E. A profession exercises substantial autonomy and self-regulation, as evidenced by

programs such as professional associate membership and competency testing of its

members.

The financial services industry fits this profile since:

A. The activities of this industry's practitioners affect the economic well-being of a large

number of people.

B. Customers depend upon the competency and integrity of industry practitioners to

provide informed counsel and skilled service.

C. The conduct of industry participants is defined and monitored by industry self-

regulation and compliance standards.

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When it comes to Professional Ethics…

The law and regulations applicable to the options markets necessarily do not always

provide clear-cut guidelines for professional conduct. Legal requirements in this industry

are subject to interpretation by administrative and federal courts, and new legislation and

government regulations further assure that law and regulation are constantly evolving,

interpretational and sometimes ambiguous. In addition, the law can never replace an

individual's responsibility for personal ethical choices and industry-best professional

conduct. As a result, it is important that each industry professional evaluate his or her

conduct from an ethical as well as legal prospective.

Professional ethics is a way of thinking about and judging certain specific types of

choices and behaviour. Every day we make choices, and many of them have nothing to

do with ethics, e.g., "soup or salad?" Alternatively, some actions are so clearly good or

bad that we intuitively sense right from wrong, e.g., responsible good citizenship versus

armed robbery.

If someone were to ask us directly, most of us could give a reasoned explanation for our

ethical intuition beyond a simple "It is right" or "It is wrong." But rarely does someone

ask.

Occasionally, however, we face tougher choices. Good and bad, right and wrong refuse

to stand out because the situation is unclear and a set of trade-offs. We see the issues

as murky; our ethical intuition cannot spontaneously guide our conduct. Legitimate and

important values compete with each other for priority. In such cases, we must examine

the details of the situation, evaluate the conflict of values, and make a sound and

reasoned ethical choice.

In childhood, most of us learned appropriate moral values and codes of conduct from a

number of sources -- parents, teachers, service agencies, religious organizations, etc.

Just as each of us learned to speak our native language correctly, we acquired our

standards of personal morality and value system by trial and error and at times with

difficulty. But once learned, a moral code becomes second nature: intuitive, dependable

and spontaneous.

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Practical ethics, of which professional ethics is a part, seeks solutions to specific ethical

problems presented in particular contexts, in contrast to abstract theoretical ethics that

searches for irrefutable answers to timeless questions. Professional ethics also is a

"living" tradition. It introduces new industry participants to principles and equitable

standards of conduct, and it adapts those standards in response to new issues and

circumstances as they arise. Informed, rational conversation drives the evolution of

professional ethics and fosters self-government and self-regulation.

Five qualities help form the foundation for professional ethics in the financial services

industry. These "virtues" go well beyond the financial industry's contemporary legal and

regulatory framework as well as its codified ethical requirements and standards.

1. Practical judgment grasps complexity and is alert to those elements that make

every situation new. Practical judgment is the ability to exercise sound professional

judgment based, ordinarily, on established principles and authority, while always

appreciating the uniqueness of a particular context.

2. Ethical imagination is the ability to see and appreciate a number of perspectives

and layers of meaning stemming from one's actions. It takes into account the

concerns of customers, colleagues, the firm and the industry, as well as society in

general.

3. Sense of Justice is the capacity to discern critically and to give everyone affected

by one's professional actions due consideration. Justice addresses the rights and

duties of industry professionals, customers, colleagues, firms and society at large.

Within this context, justice seeks to preserve the integrity of the market itself.

4. Professional Courage is the strength to remain faithful to the trust and standards of

conduct intrinsic to one's profession when pressured or intimidated by the risk of

alienation, embarrassment or the loss of income or position.

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5. Professional Temperance is the commitment to pursue the best interests of

customers and then community, and the integrity of the profession, not distracted by

potential gains. Temperance seeks what is owed in justice and requires nothing

more.

A major reason these professional virtues have endured is that respected organizations,

including many within the financial services industry, have incorporated them in their

corporate policies and practices. As previously discussed, every individual is influenced

by the corporate culture and ethical environment in which he or she works, and that

relationship inevitably is reciprocal, since each employee also contributes to the

organization's evolving culture by his or her professional conduct.

MAKING THE ETHICAL DECISION

While it is not possible to detail the complex and highly individualized process of ethical

decision making, it useful to mention briefly four steps implicit in most reasoned ethical

courses of action.

1. Explore Fully

A moral decision begins when an individual is confronted with a choice of possible

actions that raises one or more questions involving issues such as justice, integrity or

duty. In such cases, an ethical decision requires a thoughtful examination and response

to questions such as:

• Who might be unfairly harmed or benefited - directly or indirectly - by each possible

choice?

• What ought to be my primary motivation and goal given current circumstances?

• What appears to be the best action among the practical alternatives that could be

selected? What makes that choice best?

These basic questions are inescapable for members of the financial industry since the

role of the financial professional demands decision and action.

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Similarly, a professional cannot be oblivious to those aspects of the situation that are

difficult or inconvenient to consider; rather, the professional must explore the situation

completely to discover his or her full responsibility. For instance, to notice only the

benefit accruing to the customer who receives a favourable trade allocation, without

imagining the harmful consequences to other customers and, potentially, the firm,

precludes a professional from making a rationally or ethically informed choice.

2. Understand Intelligently

In an ethical dilemma, various legitimate but competing interests may suggest different

courses of action. Objective, competent analysis is necessary before a reasoned choice

is possible. As in all commercial organizations there are there general groups for

management to consider: shareholders, employees and customers. Since all of these

considerations are legitimate, the professional must acknowledge and "disarm" personal

motives that might distort professional judgment and then establish priorities among the

competing interests and values that remain.

Industry tradition, the spirit and letter of related laws and regulations, corporate codes of

conduct, and analogous examples from other professions can offer insight and promote

intelligent understanding of a conflicted situation.

3. Decide Deliberately

Once the extent of the dilemma is appreciated and its alternatives understood, a

professional makes a choice based on a reasoned analysis of what ought to be done in

a particular situation. Ordinarily, despite one's best efforts, a complex dilemma will not

resolve into a simple question, with a clear-cut correct choice standing-out from

obviously wrong ones. Rather, a preferable direction will begin to emerge.

4. Act Reflectively

Finally and most importantly, the financial services professional must act in accord with

his or her informed decision.

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Such actions should reflect accurately and consistently the professional's best efforts to

recognize understand and select the preferable alternative. It is only through

constructing a dependable pattern of deliberate ethical actions that practical judgment,

ethical imagination, justice, temperance and courage are realized as professional

virtues.

Once taken, the professional's action remains open to examination and reconsideration

as new information becomes available or circumstances change. In this manner, the

professional renews and invigorates his or her commitment to ethical conduct.

This summary of a four-stage model of ethical decision-making indicates a process by

which financial services professionals can practice the professional virtues of practical

judgment, ethical imagination, justice, temperance and courage in their day-to-day

business. While the intelligent practice of the professional virtues employs law,

regulation, industry tradition and best practices and corporate policy as resources in

recognizing ethical issues and guiding decision-making, often such external guidelines

are either narrowly constructed or too abstract to address every issue and circumstance

adequately. In addition, rules can be ambiguous and open to multiple interpretations.

The professional virtues focus on the character and integrity of the individual who

practices his or her profession in a complex and changing environment.

The professional practitioner is trusted to act intelligently and creatively when challenged

by the conflicts and difficulty of "real world" issues.

Individuals are not the only active participants in the financial services industry who have

professional ethical responsibilities; equally accountable for their integrity and conduct

are the financial service firms and the financial services industry as a whole.

Since the firms' and industry's spheres of influence and action are more far reaching

than those of any individual, their fiduciary responsibilities and ethical obligations,

likewise, are more extensive. The same virtues, character and deliberative decision-

making process expected of the individual also are required of professional

management, firms and the industry as a whole.

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ETHICS AND THE FINANCIAL SERVICES INDUSTRY

Perhaps more than any other industry, the financial services industry has a public

responsibility. A financial product that is sold incorrectly or for the wrong reasons can be

devastating to the consumer - and sometimes that devastation is not realized until

twenty or thirty years later.

All too often, salespeople lose sight of ethics. Rather than consider the needs of the

consumer, they are considering the needs of their pocketbooks. This is a common

problem in any profession where commissions are the basis of income. This is quite

unfortunate, because selling ethically does not have to result in reduced earnings. In

fact, it might actually increase earnings.

Ethics in selling is all about doing the right thing and going the extra mile not because

one has to, but because one wants to.

Some tips that financial service professionals can employ to ensure that they are

conducting business in an ethical manner:

1. Learn the products completely

Any sales person who wants to hold himself out as a professional - and an "expert" -

needs to know his stuff inside out. This includes reading and understanding every

policy contract in its entirety.

2. Learn to communicate effectively

This is good advice for any line of work, but it is especially necessary in sales.

People who communicate better than their competitors have an immediate edge.

Successful communication is not manipulation. Communication is the ability to relay

information in a concise, easily understood manner. Few people will buy a product

that appears confusing to them.

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3. Respect the people you are selling to

Respect means dressing professionally; talking appropriately (without slang or

profanity); keeping privileged information private; showing up on time for all

appointments, or calling if that is not possible; returning telephone calls in a timely

fashion, and addressing the consumer in an appropriate manner. An ethical agent

does nothing to offend his client base.

4. Plan a marketing strategy that is honest and professional

Certainly every agent likes to consider him or herself honest and professional.

Honesty is all about telling the truth, not half-truths or partial truths, but the entire

truth.

5. When it comes to selling financial products, this honesty is actually mandated by the

individual provinces. But honesty and professionalism are more than simply

following provincial and federal mandates. Both should be intrinsic. In developing a

marketing strategy, the first step should be recognition of the value of the item that is

being promoted. Marketing should always centre on the consumer's advantage in

purchasing the product. If the sales person does not know what that value is, then

the product should be re-evaluated. Either the product is not valuable to the

consumer (in which case the agent / broker should abandon it) or the agent / broker

has not been properly trained.

6. Avoid product misrepresentation

Every salesperson has a responsibility - not just to know the product - but to know

where it fits ... to understand the market a given product was designed for.

Historically many financial service organizations have been distribution, rather than

market driven. It was assumed that every product was suitable for every market. Not

only did this lead too many inappropriate sales, but it also led to a high degree of product

misrepresentation.

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Everyone has heard of sales representatives who tell consumers that a product fits,

where it clearly doesn't - or that the product has a feature or features that it does not

possess. Misrepresentations of this nature are both unethical and illegal.

THE TEN PRINCIPLES OF BUSINESS & FINANCIAL ETHICS

The ten principles of business & financial ethics are as follows:

1. Business Ethics are based on Personal Ethics - There is no real separation

between doing what is right in business and playing fair, telling the truth, and being

ethical in your personal life.

2. Business Ethics are based on Fairness - Would a disinterested observer agree

that both sides are being treated fairly? Are both sides negotiating in good faith?

Does each transaction take place on a level playing field ... and if so, are the basic

principles of ethics being met?

3. Business Ethics require Integrity - Integrity refers to wholeness, reliability and

consistency. Ethical businesses treat people with respect, honesty, and integrity.

They back up their promises, and they keep their commitments.

4. Business Ethics require Truth-telling - The days when a business could sell a

defective product and hide behind the "buyer-beware" defence are long gone. You

can sell products or services that have limitations, defects, or are out-dated, but not

as first-class, new merchandise. Truth in advertising is not only the law, business

ethics require it.

5. Business Ethics require Dependability - If your company is new, unstable, about

to be sold, or going out of business, ethics requires that you let clients and

customers know this. Ethical businesses can be relied upon to be available to solve

problems, answer questions and provide support.

6. Business Ethics require a Business Plan - A company’s ethics are built on its

image of itself and its vision of the future, as well as its role in the community.

Business ethics do not happen in a vacuum. The clearer the company’s plan for

growth, stability, profits, and service, the stronger its commitment to ethical business

practices.

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7. Business Ethics apply Internally and Externally - Ethical businesses treat both

customers and employees with respect and fairness. Ethics is about respect in the

conference room, negotiating in good faith, keeping promises and meeting

obligations to staff, employers, vendors and customers. The scope is universal.

8. Business Ethics require a Profit - Ethical businesses are well-run, well-managed,

have effective internal controls, and clear expectations of growth. Ethics is about

how people live in the present to prepare for the future, and a business without

profits (or a plan to create them) is not meeting its ethical obligations to prepare for

the future well-being of the company, its employees, and customers.

9. Business Ethics are Value-based - The law, and professional organizations, must

produce written standards that are inflexible and universal - while they may talk

about "ethics," these documents are usually prescriptive and refer to minimal

standards. Ethics are about values, ideals, and aspirations. Ethical businesses may

not always live up to their ideals, but they are clear about their intent.

10. Business Ethics come from the Boss - Leadership sets the tone, in every area of

a business. Ethics are either central to the way a company functions, or they are

not. The executives and managers either lead the way, or they communicate that

cutting corners, deception and disrespect are acceptable. Line staff will always rise,

or sink, to the level of performance they see modelled above them. Business ethics

starts at the top.

ETHICS IN LEADERSHIP

"Ethics comes from the top" is a motto of each professional ethics-oriented manager.

One should also realize that managers’ ethical behaviour forces their employees to

perform in the same ethical way.

Three questions should be asked when leadership is faced with an ethical dilemma:

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1. Is it legal? - In other words, will you be violating any criminal laws, civil laws or

company policies by engaging in a particular activity?

2. Is it balanced? - Is it fair to all parties concerned both in the short-term as well as the

long term? Is this a win-win situation for those directly - and indirectly - involved?

3. Is it right? - Most of us know the difference between right and wrong, but when push

comes to shove, how does this decision make you feel about yourself? Are you

proud of yourself for making this decision? Would you like others to know you made

the decision you did?

TEN MYTHS OF BUSINESS ETHICS

Business ethics in the work environment is all about prioritizing moral values and

ensuring behaviours are aligned with those values. Yet, myths abound about business

ethics. Some of these myths arise from general confusion about the notion of ethics.

Other myths arise from narrow or simplistic views of ethical dilemmas.

1. Business ethics is more a matter of religion than management

2. Our employees are ethical so we do not need to give attention to business ethics

3. Business ethics is a discipline best led by philosophers, academics and theologians

4. Business ethics is superfluous—it only asserts the obvious: "do good!"

5. Business ethics is a matter of the good people preaching to the bad people

6. Business ethics is the new police person on the block

7. Ethics cannot be managed

8. Business ethics and social responsibility are the same thing

9. Our organization is not in trouble with the law, so we are ethical

10. Managing ethics in the workplace has little practical relevance

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FURTHER CANADIAN LIFE AND HEALTH INSURANCE ASSOCIATION INFORMATION

CLHIA Consumer Code of Ethics

As a condition of membership, all Canadian Life and Health Insurance Association

(CLHIA) members are committed to conducting their business in accordance with the

following principles:

• To engage in keen fair competition so that the public can obtain the products and

services it needs at reasonable prices

• To advertise products and services clearly and straightforwardly, and to avoid

practices that might mislead or deceive

• To ensure that illustrations of prices, values and benefits are clear and fair, and

contain appropriate disclosure of amounts that are not guaranteed

• To write all contracts in clear, direct language without unreasonable restrictions

• To use underwriting techniques that are sound and fair

• To pay all valid claims fairly and promptly and without unreasonable requirements

• To ensure competent and courteous sales and service

• To respect the privacy of individuals by using personal information only for the

purposes authorized and not revealing it to any unauthorized person

The CLHIA Guidelines for Sales Illustrations

Illustrations should use a consistent and realistic interest factor, premiums and non-

guaranteed benefits should use an interest rate of six per cent.

Sales forces should have adequate training to ensure that Agents can explain the

interest factor in a sales illustration.

Illustrations should contain appropriate disclaimers and warnings to clearly indicate

which benefits are not guaranteed.

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Terminology must be clear and consumer friendly and any terminology that could be

misinterpreted by a reasonable consumer should not be used.

Guaranteed values or features must be clearly indicated (“guaranteed” relates to

values that cannot be changed by the action of an insurer alone and which are not

dependent on future experience).

For non-guaranteed amounts, an illustration must clearly indicate that the figures are

provided for illustration purposes only, are not an estimate of future experience and

specify prominently that actual results may vary.

Where adverse experience can affect a particular feature of a policy, that feature

should be indicated.

Where an illustration contains amounts that are not guaranteed it should contain at

least two scenarios of illustrated results. The first or “primary” scenario should be

indicated as well as one that is less favorable that the primary scenario.

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