How can a financial advisor keep from being the object of legal actions? The short answer is, of course,”Don’t cause injury.” Do no harm. But how do we avoid doing harm unintentionally?
I do expert witness testimony. Sometimes, I work on behalf of consumers who have been given bad advice and/or sold inappropriate products
. At other times, I work for agents who did their jobs properly but were nonetheless sued by people looking for a quick buck. It's always gratifying to help the injured obtain satisfaction and the innocent protect their reputations, but sometimes the result is just plain sad.
Not all advisors found to have injured their clients are bad guys. Sometimes, they just didn't know any better. They said things they should not have said, made promises they ought not to have made — not out of malice or avarice, but out of simple ignorance.
Of course, injury wrought by ignorance is still injury and, under our system of laws, is still entitled to remedy by suing (or bringing arbitration proceedings against) those who caused that injury.
So, how can a financial advisor
keep from being the object of these actions? The short answer is, of course,”Don’t cause injury.” Do no harm. But how do we avoid doing harm unintentionally?
The short answer here is, “Know what you’re doing!” Understand how the products you sell actually work. That's easier said than done. Many of our products are complex and some are incredibly complicated. It’s very easy to misrepresent how excess withdrawals under a guaranteed lifetime withdrawal benefit affect the benefit base (and the amount of subsequent guaranteed withdrawals) if you’re not very familiar with that contract provision.
So, how do you get “very familiar” with that, and other, contract benefits, features, and costs? I can tell you one way not to do it, and that’s read the sales brochure, listen to the wholesaler’s explanation and stop there. There's a name for people who do that — they're called defendants.
If you haven't gotten a specimen contract and read it, you’re not done. You have an obligation to have read the details of the product you're recommending, and FINRA arbitrators and juries know (or will know) that you do. And, legal obligation aside, how can you expect to explain something you haven’t bothered to learn about?
Now, let’s suppose that you have read the specimen contract. Did you understand it? Probably not — not because you’re dumb, but because insurance and annuity contracts are usually written in language that is unclear to anyone but a Philadelphia lawyer. Some are downright opaque. So, what do you do if reading the thing didn’t help?
How about calling the home office
? (Why do I think you’re giggling at this point?) If that won’t help, try starting a study group at your office and get several heads together, identify the points you still don’t understand and then call the home office. Don’t stop until you get an explanation that you do understand.
You owe it to your clients. And your career.