“If a regulator comes along later and wants to see all your recommendations to see if they’re suitable, they will look at trends. Did every client you met with get sold the same annuity at bottom of market? Regulators look for trends, not just individual transactions,” she warned.
It will be important that documentation can support an advisor's recommendations, showingg it was well thought out and based on long-term planning horizons.
Brokers and insurance agents are not allowed by law to provide rollover and investment advice unless they’re registered as investment advisors or reps, noted James.
She also warned advisors about using tactics that may be construed as fear-based selling. “There is a fine line between motivating someone to act and creating fear, and we need to respect that more than ever. Statements like 'the markets are going to make you destitute’ or ‘you’re going to end up on Medicaid after this’ are the types of things that will be heavily scrutinized later. We want to avoid scare tactics and exaggerated claims,” James said.
Words that will catch the attention of regulators and plaintiff attorney’ attention include "devastate," "decimate," "destroy" and "destitute," she said. Even the word “crisis” should be used in context of the virus only to avoid it being viewed as a scare tactic, she warned.
“We want to be really careful that people not being able to point back later to the fact that you used terminology to play on people’s fears so that they would buy something from you,” James said.
One-size-fits-all approaches can also catch up to advisors, especially if clients pay the highest commissions or fees. If regulators or attorneys see you’ve made the say same pitch again and again “you’ve really just helped them win their case against you,” James said.
“These risks are magnified right now,” added James, who also encouraged advisors to take a hard look at all of their advertising to ensure nothing rings false or incomplete in the new, virtual environment required by the pandemic. Even webinars can get risky if you’re used to providing them in person and aren’t using your typical handouts and white board, she said.
“Regulators will look at your advertising as advice and written documentation. It’s either going to help you or hurt you in most cases. We want to look at exactly what you’re are putting in writing and how you’re representing products to investors. .... If you’re pushing the envelope, even a little bit, it is time to pull back,” she added.
The consultant also warned advisors about disparaging other financial professionals. “Now is not the time to say, ‘The financial advisor who sold you that mutual fund had no idea what he was doing. That was not right for you.’ Not only is it not good business, it’s not legal to disparage other financial professionals and or products,” said James, who cited the potential for libel and slander charges.