Ethics and market conduct
Domain 6 tests ethical selling and market conduct rules. The exam uses scenarios to distinguish honest disclosure from prohibited inducements.
Core rules
- Agents owe utmost good faith and fiduciary care for premiums and client information. Confidentiality and privacy rules apply to nonpublic personal information.
- Misrepresentation is a false or misleading statement about policy terms; twisting uses misrepresentation to induce lapse or replacement; churning is replacement for commission, not client benefit.
- Rebating offers part of commission or valuable consideration not in the policy; it is illegal in most states. Coercion and unfair discrimination are also prohibited.
- Suitability requires a reasonable basis for the recommendation. Replacement requires disclosure, comparison, and documentation.
- Anti-money-laundering programs require identity verification, suspicious-activity reporting, and recordkeeping. Do not accept cash beyond allowed limits or structure transactions.
- Complaints and errors-and-omissions issues should be documented and escalated.
Worked example
An agent urges a client to surrender a 12-year-old whole life policy and buy a new one, saying the old policy is "worthless." The new policy has a new contestability period and higher costs. If the agent misstates the old policy to earn a new commission, the conduct is twisting and churning, and likely a replacement violation. The ethical path is to compare benefits, costs, and surrender charges in writing and recommend only if suitable.
Traps
A "discount" from commission can be illegal rebating. Replacement is not automatically wrong, but concealment is. Confidentiality does not end when the client dies. AML is not only a bank issue.