While there’s likely no way to ultimately ensure your clients won’t be victims of fraud, there are a few things to be done that may help prevent it, as well as to assist in recovery efforts if they’re victims.
Recently, an advisor brought me a case in which a woman in her mid-70s fell victim to fraud by an insurance agent. I won’t dive into the details; while on the surface it may appear to be a he said/she said situation, the facts of the case led me to clearly understand otherwise.
Without even hearing the other side of the story, I was reasonably assured that the woman was stating the truth based on the recounting of her goals, what she purportedly told the agent, what the agent said he would do, evidence of what he really did and my observation of behavior in the market for 25 years. Lie was stacked upon lie until the entire thing collapsed.
Of course, by then the agent was long gone. Knowing that there will always be some bad apples among insurance agents, here are my rules for layering in a basic level of protections for your clients.
No. 1: When in doubt, write it out. Always put everything writing. I don’t care how innocuous the question might be, especially if it has to do with how the product or transaction at hand works or it’s risk parameters. Ask it through an email. My easiest wins are due to documentation.
I hear people say things all the time they would never put in writing. We’re probably all doing this ourselves at times, though we don’t have nefarious tendencies. Just the act of forcing things to be written out will often cause someone tempted to take a short cut or to outright bamboozle a client to think twice. Any bad guy is looking for an easy mark, and even those without criminal intent sometimes need to have their feet held to the fire. The most righteous of us behave differently when we know we’re being watched.
No. 2: What the heck, try Broker Check. Many, if not most, insurance agents nowadays are securities-licensed, so go to www.finra.org to do a Broker Check. FINRA is a national organization and will cover your rep wherever he’s operating in the United States. If the agent isn’t securities-licensed, most states should have a way to check through the insurance commissioner for any complaints on file.
In this situation, I quickly got on the FINRA website while on the phone with the advisor. Voilà! Multiple disclosures. Starting with misconduct in public office and a felony conviction with jail time back in the 1980s; we then moved to more than one state with insurance actions against him in the 1990s to securities violations in the 2000s — multiple letters of complaint, unsuitable transactions, inappropriate replacements, forging client signatures, allowed to resign by one firm and then after moving to another suspended from the industry — settlements, fines, disgorgement.
Of course, I knew where to go and how to do it, but I timed how long it took me to sit down at my computer, enter the website, enter his name and see the results. Twenty seconds flat! Let’s say it takes you or your client even five minutes to figure it out, that’s not much effort to potentially be saved from a world of hurt.
In the biggest fraud case that I’ve been involved in, where I got my client a seven-figure settlement, the rep’s Broker Check to this day is as clean as a whistle. On the other hand, I refer business to someone who has two actions against him. But I know his history in detail and thoroughly understand the nature of the complaints. The point here is that Broker Check can’t be categorically relied upon one way or another, but it’s one tool to consider.
No. 3: You’re no minion, get a second opinion. Fee-based or otherwise, an arm’s-length, objective review can be invaluable. Depending on only the person who monetarily benefits from a transaction will pan out okay many times, but it won’t every time.
It’s not just about avoiding fraud. Many transactions range from okay to great, and an objective consultant who’s not in the business to simply kill commission deals, like some unfortunately are, can be invaluable. Your babysitter or nanny isn’t likely to abuse your children and most people you employ won’t steal your jewelry or embezzle, nor are they drug addicts or sexual predators. Even if you never do a background check, you’ll get away without problems most of the time.
For this particular case, any one of the three rules above would’ve likely been effective, and all three together would’ve certainly quashed the deal in its tracks.