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Category: Compliance · 4 min read

Disparaging as a Sales Practice

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on July 23, 2019

author profile photo

on July 23, 2019

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Transforming leads into clients is a time-consuming and personal process. It requires getting to know them and discussing what they want their future to look like. You talk through their financial goals and what their needs might be at different stages in their life. These discussions are crucial for you to make recommendations that are best suited for their individual situation and they allow you to start to build a relationship.  

This investment of time makes it difficult not to be frustrated when a client tells you they’re considering working with another financial professional.  

How you handle that frustration is crucial. It might be tempting to try and sway their opinion of another financial professional by making unfavorable comments about them, the work they do, or the carriers they work with. Taking this approach can put you on the regulators’ radar. Whether direct or indirect, disparaging a competitor is becoming more prevalent in the insurance industry.  


It’s Unethical 

Many state insurance departments consider this type of sales behavior unethical and are responding to it with regulatory action. Using this type of sales practice, even if it’s not intentional, could result in serious regulatory and legal issues including lawsuits, fines, and license suspension and/or revocation. In addition, it’s possible that your reputation will be damaged if an enforcement action or lawsuit is filed against you.  

The state of Virginia specifically calls out this type of unethical sales activity in Section 38.2-504 of the Virginia Bureau of Insurance: “No person shall make, publish, disseminate, or circulate before the public any written or oral statement that is false and maliciously critical of, or derogatory to any person with respect to the business of insurance or with respect to any person in the conduct of their insurance business and that is calculated to injure that person.”  


Complaints Can be Made 

Complaints regarding disparagement are often made during the replacement process. A financial professional that feels they were slandered by another to encourage a client to agree to a replacement can file a complaint with the state insurance department if they feel the comments were made maliciously in order to get a sale.  


That Goes for Carriers, Too 

These types of regulations aren’t specific to just financial professionals, either. Making accusations about a carrier that aren’t true is considered unethical. If these accusations are proven to be untrue, they may be classified as defamatory to the carrier, which may result in a lawsuit against the financial professional that made the statements.  


So, What Should You Do? 

Our advice? Take the high road. The client needs to work with a financial professional they’re comfortable with and they believe will make recommendations that are best suited for them. Only they can make the determination of who that is. You might even suggest that they do research on each financial professional they’re talking to. Provide them with links to sites that are good resources to review to determine if a financial professional is in good standing (like your state insurance department). By providing these resources, your client can make their own informed decision and you won’t need to voice your opinion.  

Taking this approach will show your clients that you’re committed to ethical sales practices. Most of the time, clients will be more inclined to work with the financial professional they feel has their moral compass set in the right direction.  


For financial professional use only, not for use with the general public.   

This information is intended for Financial Professionals who are insurance licensed only. If you are securities licensed, please contact your Broker Dealer for their requirements. #19-0364-071620 

These educational pieces are intended to be informative and provide generalized guidance. They should not be construed as legal advice or provide protection against compliance violations brought on by a consumer or state insurance commission. It is the sole responsibility of the financial professional to seek compliance or legal direction specific to their individual situation. These pieces should be used to raise awareness and evaluate business practices.  

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Written By

Rocky Robbins

Vice President, Compliance

Rocky Robbins is the Vice President of Compliance at Brokers International. Over his more than 15 years of experience in the financial services industry, Rocky served in a variety of corporate legal and compliance positions. Rocky understands the complex regulatory environment that financial professionals must navigate, and strives to provide real-world solutions to help financial professionals reduce their risks.

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