Ethics Center: Sales & Marketing

When Fines Aren’t Fine, It’s Time for Compliance

You know the feeling. You’re driving down the road, albeit a little too fast, when the police pull you over. Because of your inattention, you receive a speeding ticket, and now must pay a fine of $250. Ouch! Although you know you messed up, you’re still not fine with writing such a large check.

Many in the financial services world often feel much the same way. According to FINRA’s latest financial report, the securities regulator levied 624 monetary sanctions in 2016. This was 10 percent fewer than the 691 it imposed in 2015. But fine revenue more than doubled over the prior year—to $173.8 million in 2016 vs. $80 million in 2015. The average penalty also doubled to $278,526 in 2016, up from $115,774 in 2015. Granted, many of the firms receiving these penalties were likely broker-dealers, not individual registered representatives. But still, a more than $250,000 fine is not a random market walk for most securities firms.

A similar picture emerges from the National Association of Insurance Commissioners. In California, where the state insurance commissioner oversees 396,891 licensed producers, the department issued 158 fines in 2016 worth $1,176.666, with an average fine amount of $7,447. Since most of these presumably were on agents, one can only imagine the upset they felt as they wrote their checks to the state of California.

Other states had much lower total fines and a much smaller burden on individual agents (in the several hundred dollar range). But even paying a $250 fine to one’s state regulator can be annoying, especially if it soils your prior clean record.

The point of our little discourse on fines? That agents, brokers, and advisors hate paying fines because it’s money that’s unavailable for other purposes. If that’s the case, then you should take steps to protect yourself against regulatory actions by assuring your business practices are compliant in every aspect. Here’s a quick review of the major compliance items to focus on. For more specific guidance, be sure to consult with the compliance team at your insurance FMO, securities broker-dealer, or registered investment advisor.


  1. Know the product training, carrier appointment, and continuing-education requirements in your state.


  1. Familiarize yourself with NAIC and FINRA (if appropriate) advertising standards.
  2. When promoting yourself, do it in a way that’s fair, accurate, and truthful. To save time, use company-approved materials. If you create your own, be sure to run them by your insurance FMO, securities broker-dealer, RIA, or financial product manufacturer.
  3. In writing or conversation, avoid prohibited terms like “account” and “deposits” when referring to life insurance or annuities.
  4. In the rare times you do cold calling, be sure to search the national Do Not Call Registry and any relevant state registry.
  5. When you buy leads from a marketing company, ask about the practices that generated the leads. Don’t buy from a company that uses deceitful or non-compliant practices.
  6. When you create you own lead generation materials, make sure to disclose that you will be contacting the respondent.
  7. At your seminars, always clearly identify the product to be sold and identify yourself as an insurance agent.
  8. Avoid all professional designations that lack substantial educational content and that appear to be just marketing gimmicks


  1.  When you meet with a prospect, always present complete and accurate information about the product or products you’re selling.
  2. Strive to recommend only suitable products after evaluating all of the client’s needs, financial resources, goals, risk tolerance, tax status, and life stage.
  3. If you’re recommending a replacement, make sure it is justified and that you complete all state-required paperwork.

Fair Competition/Disclosure

  1. Do not give prospects false or misleading information about a competing agent or company.
  2. Do not hold yourself out as a financial planner or investment specialist unless you are legally registered as an investment advisor with either the SEC or a state securities department[i].
  3. Since you’re an investment advisor, make all required disclosures about how and what you charge for investment advice.

Sales Practices

  1. Obey all rules regarding the use of illustrations.
  2. Never sign a life insurance or annuity application on behalf of another person or ask a client to sign a blank application form. Also, never omit dates at the time of signing, then pre- or post-date the form.


  1. Do your best to assure client privacy by following the letter of the Gramm-Leach-Bliley and Health Care Portability and Accountability acts.


  1. Avoid getting involved in regulatory “hot buttons” such as living trust mills, reverse mortgage-funded sales, and stranger-originated life insurance.
  2. Never give a prospect anything of value in order to get the person to buy.

Although there are many other compliance guidelines to be aware of, adhering to these will be a great first step. Remember, if you’re not fine with fines, then get serious about compliance. You’ll not only save money, you’ll keep your name off online regulatory databases—AKA the fine that hurts your reputation forever!

For information on affordable E&O insurance for low-risk insurance agents, investment advisors, and real estate broker/owners, please visit For information on ethical sales practices, please visit the National Ethics Association’s Ethics Center.