Ethics and Professional Practice
Core concepts
Ethical practice rests on integrity, competence, confidentiality, fairness, and suitability. Know your client: gather financial situation, needs, objectives, risk tolerance, and time horizon before recommending a product. Suitability must be documented. Disclose conflicts of interest, compensation, and product limitations. Replacement of existing coverage requires comparison and disclosure; churning and twisting are prohibited. Respect privacy laws and obtain consent before sharing information. Capacity issues, powers of attorney, and elder financial abuse require careful verification. Agents distribute insurance for an insurer but must give advice that puts the client's interests first. Maintain records, complete continuing education, service clients promptly, and handle complaints fairly.
Traps
Confidentiality generally survives death; a beneficiary cannot demand the file. Never sign blank forms, backdate applications, or falsify KYC information. Avoid misleading words such as guaranteed when a guarantee is conditional. Selling a replacement product without disclosure is a common exam trap. Conflicts include referral fees and sales contests. A power of attorney may not have authority to change beneficiaries unless the document grants it. Recommending illiquid or leveraged products without suitability analysis is unethical.
Worked example
A 75-year-old client wants to replace a segregated fund with a new contract that has higher fees and a new maturity date. Steps: update KYC, compare guarantees, fees, and surrender charges, disclose compensation and conflicts, document the rationale, and obtain signed replacement disclosure. If the replacement is unsuitable, decline to recommend it. Rule of thumb: if you cannot write the suitability rationale clearly in the file, do not make the recommendation.