Annuities - An Investment Tool

Chapter 9

Annuity Producer Ethics

eth'ics (eth'iks) n. pl. (1) the principles of honor and morality. (2) accepted rules of conduct. (3) the moral principles of an individual. ---eth'ic, adj. pertinent to morals.

The New American Webster Dictionary

We see the headlines on the internet the above about dishonest producers, dishonest advertising or dishonest insurance companies. Some of the stories are about that and some, let’s be frank, are about people who didn’t listen, didn’t read and need to blame someone for their losses. And that person is the producer or the insurance company. This chapter aims to minimize this by looking at ethics. While the study of ethics is actually a complex matter with many shades of right and wrong, but basically, we could say ethics is about an individual's creed or rule of conduct. It is the abstract view of what is right and wrong. There may be few absolutes and many varied definitions.

When it comes to insurance ethics, many of the views of right and wrong are dictated by law and state requirements. Originally, ethics involved the questioning of why certain things should be done or thought. Much of the issues that America or her citizens wrestle with daily have to do with one simple question: What is the right thing to do? That one simple question does not always have one simple answer.

As insurance representatives, we do not have the answers to the big problems in America, but we are often a mirror of what is going on in our neighborhoods and cities. If, as individuals, we are surrounded by people who are primarily concerned with themselves, then it is likely that we will have the same attitude in our work and play. Therefore, if the agency in which we were trained stressed SALES, SALES, SALES without any other input, it is likely that we will lose sight of the role that ethics should play. When ethical behavior is not deemed important by our immediate bosses and peers, it is not surprising that problems eventually materialize.

As individual insurance producers (and as individuals) we must determine our own goals in life. We cannot allow others to set them for us, no matter how well intentioned those "others" may be. Ethics help us to set goals that will bring about pride in ourselves and in our achievements. Regardless of our personal circumstances, it is always possible to have a moral code (a code of ethics). Even those in dire circumstances have reported this. Viktor Frankl, author of Man's Search For Meaning, discovered that even in the brutal confines of Auschwitz, a concentration camp, people could still choose to have a moral basis to their lives.

It has been said that legal authorities may be able to mandate behavior, but not ethics. Technically, this is probably correct. A person who would like to steal may not do so because of the consequences such behavior would bring about. Therefore, his behavior is controlled, but not his ethics. Although he does not steal, he would still like to.

Controlling a person's behavior may, however, eventually lead them to an understanding of ethical behavior. It is not unusual for an individual to become the person they pretend to be. A person who acts ethically, even if they do not desire to be, may eventually soak in the ethical behavior and adopt some of that potential. In fact, since morality is about the way we live, we do learn it over our entire lifetime. To think that a person who is not ethical today will never be ethical is simply wrong. In fact, it could go the other way as well. The person who is behaving ethically today may not do so tomorrow. Even so, it is true that most of our ethical behavior is learned during childhood and adolescence. Whether we like to believe it or not, we are all born with a conscience; society dictates how this conscience is formed. What we fill our mind with and the environment we exist in defines our conscience.

A wise insurance producer will certainly follow state and federal regulations, but ethics goes beyond what is simply mandated by state or federal authorities. Ethics define who we are. Once a person, in any line of work, realizes that their daily actions (and even lack of actions) pronounces who they are, perhaps ethical behavior will once again be "in style."

Defining Ethics

What are ethics? Who determines what is or is not ethical behavior? Must religious beliefs be a part of ethical behavior? Is it possible to make your living in commission sales and still be ethical? Perhaps more to the point, is it possible to make a GOOD living in commission sales and still be ethical?

While the study of ethics is actually a complex matter with many shades of right and wrong, basically ethics is about the meaning of life. It is the abstract view of what is right and what is wrong. There are few absolutes and many varied definitions.

Ethics began as society's code of unwritten rules. From the time that humans began living together, such codes of unwritten rules were necessary simply to survive. These rules established the way in which others were to be treated.

For centuries, societies have argued over what is ethical or moral. It was during the fifth century BC in Greece that the philosopher Socrates gave ethics it's formal beginning. The word "ethics" comes from the Greek word ethos, which means "character."

Ethics involved the questioning of why certain things were done or thought. Socrates' student, Plato and later Plato's student, Aristotle, further developed Socrates' philosophy of ethics. Some say that their thoughts on ethics was so profound and complete that nothing new has been said since Plato or Aristotle on this subject. We will explore the role ethics plays as it relates to the insurance field and to personal actions in general.

Moral Excellence

It might be said that ethics are a recipe for living. Our code of ethics gives each of us our personal rules and values which determines the choices we make each day of our lives. These choices affect not only ourselves, but everyone around us. Some types of ethics tell us what NOT to do (it is wrong to steal, so we must not do so). Others tell us what we OUGHT to do (be kind to animals). In addition, there are those ethics or morals that actually take us beyond the basics of moral obligations. Mary Mahowald, a medical ethicist at the University of Chicago, calls this added ethical stand virtues. Virtues might be referred to as going beyond the call of duty. It may also be referred to as moral excellence. Such moral excellence would include those who have no legal or moral duty to another but goes to extremes to help them anyway. It refers to the person who gives their life for a stranger or goes to other countries to work for people they do not know, even though there will be no financial rewards at all. Virtue is going beyond what we are obligated to do.

Ethics is never a separate part of our lives. It is part of everything we do and everything we say. Ethics determine how we treat those we know and how we treat strangers. Ethics determine our actions in financial and public matters. Ethics belong in every profession and are especially needed in some. Because ethics, as a subject, is so broad and complex, it may sometimes be divided into sections such as personal ethics, religious ethics, legal ethics, professional ethics, medical ethics and so forth. Ethical neutrality is not possible. Rather, it seems to be a way of avoiding some issues.

In today's lawsuit prone society, the wise insurance producer or brokerage will make a point of following state regulations, but ethics actually goes beyond what is simply mandated by state or federal governments. Ethics define WHO we are. A man who tells constant lies is known to others as a "liar" (although studies show that 90 percent of us lie regularly). A man who steals is known to others as a "thief". An insurance producer who is unethical will also earn a reputation for such.

Children learn from what they see and hear. Children, like animals, tend to be very good at seeing adults as they really are. Children also tend to imitate the behavior they see, especially if it is coming from the adults that are close to them, such as parents. As a result, parents who set good moral or ethical examples are teaching their children to do the same. Unfortunately, the reverse is also true. In homes where prejudice, racism, sexism and other immoral codes are practiced by the parents, children from those homes are very likely to act in the same manner. Children learn from what they see, good or bad. We have all heard adults say "Do as I say, not as I do." The chances are, however, that the children will do as they do.

Many Americans at least partially arrive at their code of ethics through their religion. In fact, the Bible and the Koran sets down many prescriptions for ethical behavior. The Bible is probably the best known source of sound ethical advice. Even so, not all have agreed with the concepts stated there. Karl Marx, the father of communism, called religion the "opiate of the masses." Even Sigmund Freud, the father of modern psychology, regarded organized religion as institutional "wish-fulfillment."

As we stated, moral or ethical conduct is continually learned. Susan Neiburg Terkel reported in her book titled Ethics, when Mahatma Gandhi, India's beloved leader in the struggle for independence from England, was asked why he had changed his views over the course of a week, he explained, "Because I have learned something since last week."

It is doubtful that any person is only good or only bad; each of us has shades of each. We continue to learn as new ideas are presented and new experiences encountered. Unfortunately, if we have been poorly educated on ethical conduct, we might be faced not only with learning the basics of ethical behavior, but unlearning bad conduct as well.

Let us look at some examples of behavior and then examine each situation for what may or may not be perceived as ethical behavior.

EXAMPLE #1

Dan, an insurance producer, was having a hard time selling enough insurance to make ends meet. Having a wife and small children, he sought out a company that might be able to offer him more financially. Eventually, he ended up working for a firm that sold Living Trusts (primarily to retired individuals). Dan knew very little about living trusts, but the firm would pay him $300 to $600 for every trust he brought in. His pay depended upon what he charged his clients.

In his first training session, Dan felt that he would probably learn all that he needed to know to feel right about selling the Living Trusts. What the training session actually did was lay out the techniques to get people to buy. Another insurance producer in the training class seemed to know a great deal about trusts, so after the training class Dan made a point to talk to Joe.

Dan: "Joe, you seem to know a lot about these Trusts."

Joe: "There's not much to them, at least not those that you'll be selling. The people put whatever they have into it and when they die the trust distributes it."

Dan: "I don't mean to sound stupid, but isn't that exactly what a will does? They said in the class that these trusts will protect the people from probate and taxation."

Joe (laughing): "Don't believe everything you hear. Look, I've got to go. Are you biting on their pitch?"

Dan: "Do you mean am I going to sign on?"

Joe: "Yeah, are you going to pitch these Trusts?"

Dan: "I guess so. Aren't you going to?"

Joe: "Maybe. The leads will be good for other things if nothing else."

Dan now realizes that something must have been left out of the training class. The money is needed, however, so he decides to go ahead and market the Living Trusts. The instructor of the class encouraged the insurance producers to also present them to their present insurance clients. Dan has a fair amount of clients and has mentally calculated how much money he could bring in if only a fifth of his clients purchased the trusts. Dan is now visualizing how he will spend the money.

Where does "ethics" fit in here? As long as Dan states the presentation as it was taught to him, is he free from any ethical liability? Is it really Dan's obligation to further investigate the validity of Living Trusts? Is it Dan's responsibility to understand where a trust does or does not fit? Or is it the responsibility of the firm who trained Dan to make that determination?

EXAMPLE #2

Dorothy, an insurance producer, sells long term care policies. She knows that the product is a good one, having investigated the company and its policies completely. Sometimes Dorothy does get frustrated because, so few people seem to understand the need of having such a policy. Since Dorothy's own mother is in a nursing home, she certainly understands very well that such policies are needed. Recently, Dorothy was having a difficult time getting a 76 year old man and his 73 year old wife to realize the need for such a policy.

Dorothy: "Mr. James, even though the cost seems high to you, the cost will be even higher if you or your wife go to a nursing home."

Mr. James: "Look, I know this is probably a good company. You seem honest to me and I'm sure you believe in what you are doing. You just don't know me or my family. My boys have already told us that they will take care of us and I believe they are honest, too. I've already put the place here in the oldest boy's name. Did that several years ago. If I get sick, Addie [his wife] will take care of me and if she gets sick, I will take care of her. If both of us get sick, our boys will step in. The point is, I am not going to go to any nursing home, and neither is my wife."

Dorothy: "I know your boys are honest. You are honest and I'm sure they learned it from you and Mrs. James. The thing is, we are not talking about honesty. We are talking about health issues. You've already told me that neither your boys nor their wives are medically trained. It makes no difference at all that they have told you they would be willing to take care of you. They simply cannot do it. Oh, I'm sure they'll try to at first. Your boys, and perhaps even their wives, will take turns coming by your home to do all the necessary things. Won't it be great having your daughter-in-law give you a bath? How will you feel when you hear your sons arguing in the next room about whose turn it is to stay all night? You've given your home to the oldest son. I guess the other boys will feel it is his responsibility to do the primary care. After all, you have, in effect, already paid him to do so. What if his wife becomes angry about the time he has to spend taking care of you? As your medical condition worsens and he becomes tired of taking care of you, who will pay for the costs? The taxpayers? We already have enough to pay for. Why should we pay for two more when you could have averted the entire situation? Mr. James, this is not about who you are now, but rather who you will be when illness arrives. Nor is it about what your sons have promised you. This is about being a responsible person. This is about taking care of yourself."

Dorothy appears to be very tough. The ethical question here has to do with that toughness. Is Dorothy "browbeating" Mr. and Mrs. James? It is possible that her verbal attack may simply make them angry or it may push them into buying. The point is, is such behavior ethical? Even if Dorothy believes in what she is selling, is it ever ethical to treat others in the manner she treated Mr. and Mrs. James?

EXAMPLE #3

Mike, an insurance producer, sells Medigap policies. A Medigap policy supplements Medicare; it is a health care plan. Federal legislation standardized Medigap policies in 1992. Mike's state also set limits on the commission earned by Medigap salespeople which drastically cut into his yearly income. Since the mandated cut in his commissions, Mike has been fighting to keep the wolves from his door, so to speak. He is behind in many of his financial obligations. On this day, he has an appointment with a woman who is just turning 65 years old next month. She knows she will need to get a Medigap policy (Medicare supplemental plan) before her birthday arrives.

Myrtle Todd: "Thank you for coming by Mike. As you know, I just got your name out of the telephone book because I am shopping around. I noticed that your office is fairly close to me."

Mike: "I appreciate your call. Taking out a Medicare supplemental insurance plan can be a confusing matter, so I know you must have lots of questions. Since I am a specialist in the field, you called the right person."

Myrtle Todd: "Actually, I believe I understand Medicare fairly well. I have been reading the information sent out by our state insurance department. I already know I want Plan F. It would be nice to get one of the plans with prescriptions, of course, but I don't believe I can afford that. My neighbor, Betty, has Plan F with AARP and she seems very happy with it."

Mike: "When did she get her AARP? Was it before 1992?"

Myrtle Todd: "No, she is only a year older than I, so she bought it after they came out with their Plan F."

Mike: "Well, the thing is, Mrs. Todd, AARP is a mail-order plan so they do not have to abide by our state's legislation. If you have any problems, they simply cannot help you. Because there are no representatives here, you are also on your own when it comes to any claim problems. If your neighbor has not had any problems, she is lucky, but it is just a matter of time. Eventually, she will have problems with her claims. Have you ever handled health care claims?"

Myrtle Todd: "No, I haven't. My medical has been through my husband's work and they always handled everything."

Mike: "Well, unless you want to learn how to do claim work, you want an insurance producer in your area. Otherwise, when you have a major illness, you are going to be swamped with paperwork at the worst possible time - when you are sick."

Myrtle Todd: "Perhaps you are right. I never was very good at such things and you are close by. Can I have the payments taken out of my bank like my medical plan is currently done?"

Mike: "Yes, you could but I don't recommend it. It is much better to pay for a year at a time. You'll save money and you won't have to worry about mix-ups."

Myrtle Todd writes out the check for the year and asks: "Who do I make this out to?"

Mike: "Make it out to me so I can make sure this is done right away. Your Medicare starts soon and I don't want your policy delayed."

Because Mike is having financial problems, he deposits the check into his account and sends in a quarterly payment to the company. Mike feels confident that he will be able to make up the balance for Mrs. Todd within the next month when he receives his renewal check. In fact, Mike does send in the balance of the year the next month. Since he was able to do so, neither Mrs. Todd nor the insurance company ever found out what Mike did.

This example has several potential questions on ethical behavior. The main one we are going to focus on is the depositing of the check into Mike's personal account. It is true that Mike did square everything financially, so Mrs. Todd was never actually injured by his actions. However, it is certainly illegal to deposit insurance funds into a personal account. Any insurance producer reading this probably thought of many things that could have gone wrong that would have caused Mike multiple problems (not only with the state regulatory agency, but with the insurance company, as well).

The ethical question is simple: Is it ever OK to deposit funds into a personal account or commingle funds? We know that regulatory agencies say it is illegal to commingle funds, but the question goes deeper than that. Is it ethical to do so even when there are extenuating circumstances?

EXAMPLE #4

Shirley, an insurance producer, has just returned to the agency she works for. She is completing her paperwork for the sales she has made that week. While going through the paperwork, she realizes that she forgot to get a signature on a replacement form. Jerry, a coworker, suggests that she simply forge the signature.

Jerry: "It's easy. Just put it against the windowpane over the top of another signature. Everyone does it. Even this company knows that."

Since Shirley does not wish to drive back to her client's house, she does as Jerry suggests. The ethical question is simple: Is it ever OK to forge another's signature? This would be an ethical question for anyone in any circumstance, not just an insurance industry question. As a parent, would we suggest to our child that he or she forge our own signature or that of a teacher? If the insurance agency truly does know that it's insurance producers are forging signatures on insurance forms, is that agency then acting in an unethical manner? Is the agency setting the scene for other unethical behaviors?

Looking at the conversation between Jerry and Shirley, is Jerry behaving unethically for suggesting that Shirley forge the client's signature, or is Shirley the unethical person for acting upon his suggestion? Or are both guilty of unethical behavior, each for their own part in it?

EXAMPLE #5

Jean and George Wren are insurance producers. They jointly own their own agency and they work out of their home. They use part of their garage that George converted into a room as their office. When they do their year-end taxes, Jean states that they use the entire garage area plus an upstairs bedroom for their office in order to get a larger deduction. In addition, whenever possible, Jean and George "hide" income. They try to show less income than actually exists.

Since so many people try to lessen their payments to the IRS, is this behavior ethical? In the past year, the American people have become painfully aware of the excessive spending habits and abuses of our politicians. We, as tax payers, are of course shouldering the burden for the unethical behavior of our politicians. Knowing that our tax dollars are used in greedy, self-serving political ways; does our responsibility to pay taxes void itself of ethical concepts? In other words, since we are aware that our tax dollars are being wasted, does this free us from our ethical duty of paying taxes?

Ethics are not always merely a matter of how we think and act. Often it is also a matter of character. So many things come together to form our character that all must be taken into consideration. Values, principles, emotions, plus many other factors all contribute.

There is little doubt that each of us are influenced by others. Even so, for each path chosen, we alone must take responsibility. Each of us has the ability to build, change, or destroy our own character. Part of our character is, of course, our ethical guidelines.

It should be noted that no single act defines our personal character. Each of us has likely participated in an act that was wrong. That one action does not define our total character just as one kind act does not build our entire character. Character is more a matter of adding and subtracting our actions and thoughts. A good person can do something unkind, yet still be a good person. A bad person can do something kind for another and yet remain basically a bad person. We refer to these isolated deeds as being "out of character." An action that is not consistent with normal behavior is not likely to form or change the character of a person (although that single action can affect another in either a positive or negative fashion).

Why be Ethical?

Probably every religion stresses our need to give to the poor. While it is certainly true that the poor do need help, the reason we need to do so goes beyond that. When we do something for another, without any self-interest involved, our personal gain is often much higher than any gain realized by others. The true giver helps others quietly. To help others, and loudly proclaim the deed, is likely a selfish act with personal recognition sought, rather than true giving.

What does this have to do with ethical behavior? Ethics is not entirely about yourself; it is also about others. It is not so much what one knows that makes an individual ethical, but rather what he or she understands. A truly ethical person realizes that their behavior is their loudest statement about themselves and those they associate with.

Making ethical decisions addresses four basic issues:

1. Is it possible to teach ethical behavior?
2. What is the scope of ethics?
3. What does it take to be a moral person?
4. What is a person's responsibilities to other moral persons?

There is no doubt that each of us, regardless of our occupation, faces ethical issues on a daily basis. However, anyone in an occupation that has a "public interest" is especially faced with ethical issues. Insurance has a "public interest."

Ethics are standards to which an insurance producer or broker must aspire to; it is feeling a commitment to each client. Every type of profession tends to have an informal code of ethics which may sometimes be more understood than written. Ethics are a means of creating standards within any given profession to upgrade it and give it honor. It is a means of measuring performance and acknowledging outstanding individuals. Ethics are often a means of providing priorities and building traditions based on integrity.

It would be hard to imagine doing business with anyone that we knew to be unethical. Can you imagine turning over the control of your financial affairs to an attorney that had been convicted of stealing from his clients? Would you buy a car from a person who had knowingly lied to others about the cars he represented? Would you deal with an insurance producer who had repeatedly misrepresented the products he or she sold? Ethics are the only element, other than legal mandates, that add an element of trust to many industries. It is very difficult to mandate ethics. Only behavior, as we previously stated, may actually be mandated. If a person is ethical, that is something within themselves that simply adds to their trustworthiness.

No matter what our profession may be, as individuals, each of us faces ethical issues each day. Some are very simplistic in nature while others are complex and may have many sides (and many correct answers) to them. We face issues that are personal, such as How much should I give to the poor? Is it wrong for me to take drugs? Should I report someone who is cheating (whether that happens to be in school or elsewhere)? These types of ethical questions are all around us.

Some types of ethical or moral questions can be directed to our religious institutions for support in determining the right answer. Sometimes the answers can be found in our legal system. If our state or federal government says commingling funds is illegal, for example, then we could also state that it must be unethical as well. Sometimes, determining what is ethical is simply a matter of what feels right emotionally. We have all said or heard someone else say "It just doesn't feel right." That feeling of right and wrong is probably the result of our childhood upbringing. Even if we do not distinctly remember being taught that a particular action is either right or wrong, somewhere in our upbringing or past experiences, we have received such teachings.

While this course cannot instill ethics in anyone who has none, it may provide the tools for determining the more complex issues. By using basic concepts and theories and by having an appreciation of what constitutes an ethical solution, decisions may be made on the basis of reason.

It should be noted that different conclusions may be reached to the same ethical question. It does not mean that one solution is right and the other wrong. Ethical questions often have multiple answers, all of which may be correct. Many ethical questions involve multiple hues; some decisions may be based solely on facts, while others may be based less on facts and more on emotional factors (or what simply feels right).

We asked the question: Is it possible to teach ethical behavior? This, of course, depends upon multiple factors. First of all, does the person desire to be ethical? As with all things, the person must want to achieve the goal at hand. If other goals are more important to the individual, then perhaps it will not be possible to teach ethical behavior. If however, ethical behavior is important to the individual, even if other goals are also sought, ethics may be taught.

One of the first lessons taught to children by their parents is sharing. Probably few parents think of this as "ethics", but it is. Sharing is the opposite of greed. As adults, we learn to share in numerous ways, but sharing begins as children. The shift from securing our own interests to sacrificing on behalf of others is an essential part of what is meant by "ethical decision making." This may especially come into play for insurance producers. The choice to make a sale and earn a commission in any way necessary rather than sacrificing the sale in behalf of honesty is an ethical decision. The selfish person cannot routinely make such moral decisions, or perhaps more correctly will not make such decisions.

It is necessary to understand that one of the general features of taking an ethical point of view is a willingness to take into account the interests, desires and needs of others. A person may argue that it is necessary to look out for one's own interests, desires and needs. While this is certainly true to a point (we must cloth, feed and house ourselves and our families), taking our own interests into account need not mean making unethical or immoral decisions regarding others. Even commission salespeople are able to make a very good living while still maintaining ethical behavior. In fact, the best salespeople do not need to behave unethically because they have mastered their trade through the development of communication skills and professional training.

When a child asks his or her parent "Why do I have to share my toys?" the reply may be "Because if you don't share your toys with your sister, she will not share her toys with you." This simple logical answer teaches the child a valuable lesson. Our interests are tied to the interests of others. Just as the man who is known as a liar or a thief will find others unwilling to trust him, the insurance producer who is not ethical will, at some point, find making a living impossible because no client will wish to deal with him. We are better able to achieve our goals when we recognize the goals and interests of others. Plato argued that immorality (unethical behavior) is ultimately self-defeating. While the con artist may not believe this and some unethical people do seem to prove the point, most people believe that, at some point in time, each person receives what they have given. The Bible says we will reap what we sow. Even if we do not get back what we give others (whether that be good or bad), most people would agree that it is easier to be happy with ourselves when we feel we have done the right thing.

Psychological Egoism

Not everyone believes it is in their own self-interest to be ethical in their behavior. Some who reject the idea of other's interests and desires are egoists. Do not confuse this with egotism. An egotist is a person who is self-absorbed or stuck on themselves. These people make poor egoists. Webster's dictionary defines egoism as the doctrine that self-interest is the basis of all behavior whereas egotism is the habit of being too self-absorbed, talking too much about oneself or conceit.

Psychological egoism maintains that people are always motivated to act in their own perceived best interest. Psychological egoism is not an ethical theory since it does not tell people outright how to behave. Rather it attempts to explain why people behave in certain ways. Ethical theorists consider this theory, however, since it does have a bearing on their theories of ethical behavior.

Another version of egoism is a genuine ethical theory. Traditionally named "ethical egoism," it maintains that people ought to act in their own perceived best interest. An ethical egoist argues that people should act in their best interest at all times because it is good for the general economy (providing industry and jobs, for instance).

Although ethical egoism and psychological egoism are separate and distinct, they are often meshed together by writers and speakers. Psychological egoism is an explanation of behavior, not a theory, whereas ethical egoism is a theory of behavior. In many ways, ethical egoism can be substantiated by those who prescribe to it. The English philosopher, Thomas Hobbes, was a well-known believer in ethical egoism. Of course, the interests of individuals come into conflict with others whose interests are different. This is where the greater interest comes into play. Even while pursuing our own personal interests, it is possible for those interests to be swayed or checked by the interests of others because of possible consequences which one may wish to avoid. That is how laws manage to control behavior even if they are unable to control ethics. Under the theories of ethical egoism, it is in the individual's best interest to follow the established laws because the fines or penalties imposed are not desired.

In the marketplace we all try to buy low and sell high. That is certainly an attempt to pursue our own self-interest. It is unlikely that the buyer worries about the seller when neither buying low, nor does the seller worry about the buyer when selling high. Individual self-interest is at work. Even though this may be an excellent example of ethical egoism, it tends to be both orderly and productive to our society. This points out that this theory has positive dimensions to it despite the selfish basis.

A political economist, Adam Smith, believed in ethical egoism. He felt that people, while being interested in their own needs and desires, created good for society as a whole. Smith felt that economic conditions were created and expanded when people acted in their own behalf. Our American economy is, in many ways, an example of this belief.

If we were to fully believe in psychological egoism, which states that humans automatically act in their own behalf, many of the acts of heroism that we see could not be explained. The passenger who survived the plane crash in the Potomac River only to drown because he repeatedly handed the rescue rope to others could not possibly have been acting in his own behalf. Perhaps it could be said that he was not being heroic so much as he was avoiding guilt which he would have felt had he left the others behind. This is not likely, however, since those he saved were strangers to him.

There is more day-to-day heroism than one might realize. Such simple things as the child who shares his lunch with another student, the woman who gives her last dollars to a homeless person, the man who donates his only day off for a food drive are all acts of kindness that consider the needs and desires of others.

This still brings us back to the basic question: Is it possible to teach ethical behavior to others? There is no clear answer. An insurance producer who has never considered ethical behavior might suddenly begin to do so if the agency where he or she works begins a strong ethics campaign. On the other hand, an insurance producer might continue to act unethically even if threats are made to recall his or her license to sell insurance. One thing is certain: the effort must be made to emphasize ethical behavior because there will always be those insurance producers who will respond favorably to such efforts.

Question number two asked: What is the scope of ethics? This is a massive question that could be carried to great depths if we choose to. In many industries, including the insurance industry, the professionals have knowledge that the general population does not have. As a result, those individuals who seek out the professionals must rely upon their honesty and integrity. Therefore, a feeling of ethical standards must exist. It was the potential for abuse of power that provided a set of rules for what is commonly called "ethical behavior." Sometimes, ethics are written standards which may be mandated by law on either a local or federal level. The premise, upon which practical ethics must be based, according to Stephan R. Leimber of the American College where he is a professor of taxation and estate planning, is that power must be exercised in the interest of the clients who seek the professionals out and may not be exercised solely in the best interest of the professionals themselves.

Parts of the insurance industry have been labeled (often unfairly) as lacking ethical standards. Usually what we find is not an industry as a whole without ethics, but rather some individuals who have received much publicity. The insurance industry which deals with senior products is one section which has received bad publicity fairly often. Part of this has to do with the age of the victims. If a 25 year old is taken advantage of, many would think he was simply stupid or uneducated to have allowed it. If a 75 year old is taken advantage of, however, publicity is sure to follow. This is not surprising since a 25 year old is more likely to have the ability to make sound judgments in comparison to a 75 year old person. Also, our older population controls most of the nation's wealth. If a salesperson (in whatever industry) is greedy and unethical, he or she is most likely to hit those with money. That would typically be older people.

We should also ask ourselves why society seems to consider it less offensive to take advantage of a 25 year old person. If unfair advantage (a con job) exists, why does it matter how old or young the victim is?

When we look at what the scope of ethics is or could be, one might be surprised at the extent to which it could be taken. Amy L. Domini and Peter K. Kinder have jointly written a book called "Ethical Investing" which looks at how our standards may even be brought into the field of investing. For example, if an insurance producer were an animal activist, would it be ethical for them to represent companies that use animals in the laboratory or for testing? If a client is an environmentalist, should he or she invest in any type of investment that is detrimental to the environment?

Sometimes, people or cultures do not agree on what is ethical behavior. What one culture or society may consider ethical another may not. Even within the same culture or society, people may disagree on what is and is not ethical. We often see these differences between religions as well.

Every person probably has some degree of greed or selfishness within them. The ethical person realizes this possibility. Since ethics is a code of values to guide man's choices and actions, the ethical person will bypass their own greed and do what is perceived as best for the majority of people or best for the person they are dealing with. In choosing his or her actions and goals, constant alternatives are faced. It is not always easy to decide which choice is best and ethical. Without a standard of values, ethical choices would be very hard to make. At some level, our religious background may set the standard of values by which we make our choices. However, we arrive at it, at some point, an understanding of how others feel determines many of our ethical decisions.

In a book titled "Everything You've Heard Is Wrong" Tony Campolo recites this experience: "I had spent the afternoon at a sales conference sponsored by a large insurance corporation. The executives of the company had brought in an array of topflight speakers to teach the sales force the most successful techniques for marketing their product. The audience listened with riveted attention as they were instructed how to "set up" clients, push the right emotional buttons, and close the deal. What they heard were the best insights about marketing that the experts in the field of behavioral psychology could provide. Surefire sales pitches were demonstrated that, according to the speakers, were certain to elicit the desired responses from even the most reluctant prospects. The presentations were brilliant! It was my task to end the day with a motivational talk that could "psych up" the sales teams to get the job done. I was supposed to get the audience's juices flowing so that they would be enthused about doing the things they had been taught all day long. You can imagine the surprise, if not the shock, that greeted my opening words: 'Everything you've heard today is wrong.' "

He went on to say that he felt people were not things to be manipulated by techniques and sales pitches. Mr. Campolo feels manipulating people shows a lack of respect for who they are.

Most salespeople would probably prefer to work with Tony Campolo's perspective. It is often stressful to feel that selling is a combative situation. The point is, if you are representing a product that you believe in and the consumer needs, it would seem that good communication skills would be more important than manipulative skills.

Our third question, What does it take to be a moral person?, is probably more simple than any of the other questions asked. Most people do know right from wrong. While what is right may not always be agreed upon, as long as a person acts on what they perceive to be right, then they are acting ethically.

It is unfortunate that so many people in the insurance sales force perceive their industry to be one of disdain. Insurance is something that people really do need for the security of themselves and their families. There is a remarkable story about an insurance salesman named Martin England, who was white and from the South. He learned that Martin Luther King, Jr. was not adequately covered by life insurance. Realizing the dangerous job Mr. King was performing, he was understandably alarmed. In fact, he was so concerned that Mr. England began to try to contact Martin Luther King. As you can imagine, that was not an easy task. Finally, Mr. England did succeed in getting Mr. King to sit down with him and allow him to present the situation as he saw it. Martin Luther King, Jr. did buy life insurance from Mr. England. Only a short time later, Mr. King was killed by an assassin. Of course, his death was difficult on his family, but think how much worse it would have been had they also been left destitute. An ordinary insurance man went to unordinary lengths to help another. In the process, he earned a commission, but what he gave the King family was much more valuable than what he earned.

The "ethical" person simply believes in right and wrong and chooses to do right. The ethical insurance producer does not believe it is necessary to trample their potential clients in order to get the sale; they do not believe it is necessary to tell half-truths or leave out needed information. Of course, it is necessary to be well prepared and to understand good communication techniques, but any job requires certain types of skills.

It is common for ethical people to have some form of religion in their lives. They make no apology for accepting God and religion into their lives and work. Ethical people tend to be warm and caring by nature, it is said. Whether or not this is true, we cannot say, but ethical people do certainly seem to place a value on others. In fact, valuing others is an aspect of ethical behavior. Perhaps you cannot have one without the other.

It is not possible to be one person off work and another person on work. Who we are is defined everywhere we go and in everything we do. Three questions must be addressed:

1. What kind of person am I?
2. What kind of work do I want to do?
3. What do I want my legacy to be?

Just as a man is defined by the lies he tells, and a thief is defined by his actions, even we are defined by our everyday activities. We do not necessarily have to be a liar or a thief to define ourselves as less than honest. Many of our political figures are not actually dishonest and yet they are not perceived to be honest either. How do we want ourselves defined? Answering such questions cannot be avoided. Even when we try to ignore them, we are still answering the questions by our actions. It must be realized that the questions are asked in the minds of every person we come in contact with. They look at us and they form opinions to these questions. Coming to terms with the basic philosophical questions about what we are doing with our lives may be the most practical of all possible ventures.

If we have children, it should also be pointed out that they are very good at defining who we are. Children may not voice the image they see, but little is missed. How do you wish your children to view you? What you do in your everyday lives will form their opinions. It will also demonstrate to your children what path in life they might take.

When we ask What kind of work do you want to do? we are referring to the quality of your work. Forging signatures, misstating health conditions, omitting information for the sake of a sale, and so forth, determines your quality of work. True professionals simply feel their integrity is worth more to them than a quick commission. Certainly, anyone can make an error and that may not be a reflection of their professionalism, as long as the error is corrected. If an error is made (even an honest error), and no effort is made to correct it, then again that reflects on the type of work performed.

The question What do I want my legacy to be? refers to how others will remember you. Some may not care about this point, but it will be important to those who love you. Most of us probably do wish to be remembered in a favorable light. Can you imagine being remembered for the quantity of errors made or for the dishonest and unethical actions taken?

Good business requires that you know what you are doing. Sometimes this involves competency. Of course, most people would not view themselves as incompetent even if they are. Sometimes, the industry itself must remove those within it that are not competent. Sometimes, competency is merely a matter of obtaining required or necessary education within any given industry. It is always interesting to note the amount of sincere education acquired by the leaders in an industry. The leaders are nearly always more concerned with educating themselves to a greater degree than are those at the bottom. Education and ethics do tend to go together. It should be noted that success and education also go hand-in-hand.

How many times have you, as an insurance producer, sat in an educational seminar and observed the quantity of others who are obviously not interested in learning? Of course, it is also the responsibility of the educators to make the seminars interesting. However, there are always those who attend simply because they must. In our business, this constitutes unethical behavior. Constant learning is very important in the insurance industry and those who realize this will be better equipped to do a good job.

It is also important to know why you are doing what you do. For insurance producers, that means it is important to understand why your industry and services are valuable. We have all known an insurance producer who seemed to just be going through the motions of their job (selling insurance) without any pleasure being received from it. Whether a person is an insurance producer, a plumber or a teacher, there must be pleasure derived from what they are doing. Unless there is some pleasure in the job, the job will be done poorly. Few of us could do an outstanding job at something we hated.

Often the reason an insurance producer is not enjoying their job is simply because they do not understand why they are doing it. If their agency has lost sight of ethics chances are their insurance producers will not know why they are doing the job (beyond making money for the agency). In the midst of the Watergate investigation, Jeb Magruder announced that he became involved because he had misplaced his "ethical compass." Newspaper columnists grabbed on to that phrase and many jokes evolved from it. The truth is, however, that it is a very fitting way to describe the situation. The majority of people do know what is right and what is wrong. That is not to say that, if surrounded by only one type of morality, that one's "ethical compass" cannot only be misplaced, but set off its direction as well.

It is unlikely that most insurance producers would consider who they work for to be a matter of ethics. However, it may end up being connected if ethical behavior is not deemed important by the company. When an insurance producer (or anyone, for that matter) feels that their role day-in, day-out is primarily connected to making money without any regard as to how the money is made, ethics may easily take a back seat.

How does an insurance producer know, except in the extreme cases, if their agency lacks ethics? It may not always be a black-and-white situation. Sometimes the decision can only be a personal one if the agency is not noticeably to one extreme or the other. One would not expect an agency or brokerage to be outright unethical. Each state has mandated certain procedures that a company must follow which usually prevents such outright unethical behavior. It is more likely that the company would ignore unethical or questionable actions of their insurance producers which would, therefore, condone such actions.

Some examples of this might include:

EXAMPLE #1

Joan, an insurance producer, is sitting in the insurance producer's room of the agency where she works. As she is completing her paperwork on the business, she has written that week, she notices that she forgot to have one form signed. Another insurance producer in the room, Matt, suggests: "Don't worry about it. Just put one of his signatures against the windowpane and copy over it onto the one you need."

Joan: "Isn't that illegal?"

Matt: "Maybe, but everyone does it. If you're not, then you're the only one who isn't."

As Joan asks around, she discovers that Matt was correct. Virtually everyone she spoke to about it confirmed that they, too, copied signatures where one was forgotten. Joan found that nearly every insurance producer intended to get all required signatures, so it was not a matter of purposely omitting them. Rather, it was an easy way to perform below necessary levels of competence. Several insurance producers even mentioned that the management had sometimes been present when signatures were copied. They simply left the room and acted as though they had not seen it.

While we know Joan was unethical in copying the signature, there are additional ethical questions involved. Is Matt unethical for advocating that another person forges a signature? Is the agency unethical by ignoring the behavior going on? By ignoring the behavior, is the agency condoning it? If Joan had decided against forging the signature would she then be free of any other insurance producer's ethical behavior? Or, having the knowledge of what was going on, would she be unethical to remain at the workplace? Should she go elsewhere to work and leave it at that or, in the interest of ethical behavior and responsibility, should she report the behavior to the State Insurance Department and perhaps to the insurance companies as well? Since Joan had developed several good friendships among the insurance producers, how does loyalty to those friends and her responsibility to ethical conduct correspond?

As you can see, ethical behavior is not a simple matter. Do your standards of what is ethical apply only to yourself or to others as well? If your views do not correspond to the views of others, who is right?

EXAMPLE #2

Jerry, an insurance producer, is in the home of a retired couple. He is there representing a Medigap policy from a well-rated company. The company that the couple, Marge and Herb, currently have is also with a well-rated company. They purchased the policy several years before and have not used it very much since both Marge and Herb have enjoyed good health.

Jerry: "You said you haven't used your policy very much, is that right?"

Marge "Yes. Luckily both of us do enjoy excellent health. Of course, we watch what we eat and we do exercise during the week."

Jerry: "I don't want to alarm you, but the policy you have probably would not have done a very good job. The company is in financial trouble and we don't know yet if it will make it or go under."

Herb: "That is certainly a surprise. We were told it was an A-rated company when we bought it."

Jerry: "It might have been at the time. So many companies that were previously strong have had problems in the last few years. I'm sure you've seen that in the news."

Jerry does replace the policy owned by Marge and Herb. Jerry knew that their policy was actually safe because the company was not in any financial trouble. The company he gave them was also sound and did give the couple basically the same coverage they already had. There would be no problem with pre-existing conditions, so that was not a concern in the replacement. Even the price was approximately the same.

Since he did Marge and Herb no harm, was Jerry justified in replacing their policy? Jerry is basically a responsible person who will keep in touch with Marge and Herb. If they need any help with claims, the agency that employs him will help them. Even so, there is no doubt that Jerry lied in order to get the sale. Most states require that an insurance producer truthfully represent the financial status of an insurance company (theirs and others), so it is likely that what he did was illegal. Aside from that, however, was what he did serious? Is it ever acceptable to misrepresent another company? If the couple, Marge and Herb, no longer had an insurance producer representing them or if they never had any contact from their insurance producer, would Jerry be justified in taking over the business? Jerry will keep in contact and will give good service. Can the misrepresentation be rationalized from that standpoint?

EXAMPLE #3

Jenny, an insurance producer, has a lead card for a couple regarding life insurance. They sent it in about 60 days earlier. Jenny does not call but stops by their home unannounced. When she does so, she discovers that they think she is from a company who had called them on the phone and set up an appointment.

Glenda Maxwell: "Aren't you a day early? I thought we set this up for tomorrow night."

Jenny: "Oh, I'm so sorry. I thought it was for tonight."

Glenda: "Since you're here, we may as well go ahead. It really doesn't matter anyway. Ted is in the garage. I'll go get him."

While Glenda goes to the garage, Jenny notes the company name on the calendar along with their phone number and the insurance producer's name. The next morning, she calls the company and cancels the appointment using Glenda Maxwell's name.

Since Jenny supplied the couple with the insurance they were looking for, does it matter that they thought she was representing the agency that called them? Should Jenny have given the couple a chance to hear the other insurance producer's presentation which would have allowed them to compare products? Since selling is so competitive, is this merely an aspect of the selling game, having nothing to do with ethics?

When Jenny relays what happened at her agency's office, everyone tells her how lucky she was to happen into the situation. No one, including the management staff, seems alarmed that she did not straighten out the misunderstanding. No one seems alarmed at her call to the other company (pretending to be their prospect). In fact, many insurance producers seemed to appreciate her ingenuity.

If there is an ethical question here, does it only concern Jenny? Is the company she works for responsible for guidance in such situations? Since this is not something that would routinely come up, is there any need for the company to address this situation at all?

EXAMPLE #4

John works for a large investment company. John is a strong believer in environmental issues. Because of his beliefs, he will not refer any client to any stock or company that John feels harms the environment. John seldom allows his clients to see any investment that he does not agree with. John's company knows that John will not present any company that he does not agree with. The company says nothing as long as John brings in a good quantity of business. If his business is down, however, they do bring up the matter.

Is it ethical of John to only show those companies that he agrees with? Secondly, is it ethical of the company he works for to only be concerned about it if his sales are down? Could John ethically represent companies that he opposes? Which set of ethics should come first: his own regarding the companies or his responsibility to his clients to allow them to make their own choices?

If the company that employs John should require that he show all options to their clients, is John ethically bound to follow his employer’s requirements? Whose ethics come first? John's, the client's, or the employer's? Different people or groups often do not agree on what is or is not ethical. Who should decide which ethics come first? This question might come under the heading of "What is a person's responsibilities to other moral persons?"

Basically, all of these concepts or questions bring us back to the original point. A person must know why they are doing a particular thing. In the case of selling insurance, if the insurance producer does not understand the reasons why insurance policies are important to own, it would be very easy to lose track of important ethical elements. The lack of this understanding might eventually force the insurance producer to deal with the basic inquiries that come about when ethics are pushed to the background.

What are our responsibilities to other moral persons?

Most people realize that they are responsible for their actions. In sales, we often hear the statement "For every action, there is a reaction." This is generally true in life as well. It goes beyond the obvious situations (if you smack someone, they may smack you back). If you are rude to a person, you may not realize the "reaction" at that moment, but one will surely follow. The reactions may not always be noticeable to others. This is especially true when it involves emotions, such as hurt feelings. Since each of us is responsible for our actions, the question then is "Are we responsible for the reactions that follow?"

Some reactions are directly tied to our actions and are predictable. If we lie in order to obtain money, our actions are then directly tied to the reactions that occur. What we did was deliberate, and the "reaction" should be no surprise. In such situations, we are responsible for the reactions.

In other situations, we cannot be responsible for the reactions. If we act in a responsible manner and a reaction occurs that hurts or offends others, we may not necessarily have any responsibility. What a person does in everyday life is the result of multiple decisions made over their lifetime. Those decisions include our perception of who and what we are. Our character (or lack of it) is made up of our day-in, day-out decisions. The irresponsible person will not care what his or her responsibility to other moral people may be. Therefore, we will look only at what an ethical person's responsibility is towards other ethical persons.

Let's look at the example of John, the investment counselor. He would not present any investment to his clients that he did not personally agree with. Let us assume that most of John's clients are themselves ethical people. Since his clients are themselves ethical, is John wrong in making such investment choices for them without giving them a chance to bring out their own sets of ethics? What is John's responsibility to other moral or ethical persons?

Moral or ethical responsibility is not a single choice. Such choices are made daily in many things that we do. If we assume that our children are basically moral people, then what are our responsibilities towards them? This may also be said of our peers at work. If the majority of the insurance producers at the firm we work for are ethical people, do we then owe it to them to also be ethical?

Agency XYZ prides itself on being ethical. The owners and managers stress such behavior at all company meetings. While sales are certainly promoted, it is made clear that the sales must be honestly come by. XYZ Company seeks out the very best products available so that their insurance producers can present a superb policy to their potential clients. Training and education is given a top priority by the company as well.

It would probably be safe to say that XYZ Company has invested not only time, but money into their company and their sales force. Since they have stressed ethical behavior, it is also probably safe to say that they do not feel such behavior will hurt them financially. In fact, they probably feel it will benefit them financially. Given this scenario, XYZ Company has probably attracted those insurance producers who also give a high priority to ethical behavior. If an unethical insurance producer came to work there and misrepresented the products (theirs or others), XYZ Company, or any other aspect involved in the sale, how would this affect the other ethical insurance producers?

An insurance producer once relayed this true story. She had been building a client base for about two years when the agency she worked for became the subject of an investigation by the state's insurance department. Since she had always prided herself on giving her best efforts to her job and her clients, it was distressing to see the agency she worked for on the evening news. It did not matter whether the agency had actually done anything wrong. It did not matter whether she had done anything wrong. Simply being connected by virtue of employment caused credibility problems.

In this same context, the insurance producers at XYZ Company would be affected by an unethical insurance producer even though the other insurance producers were very ethical in their behavior. People believe in the old saying "It only takes one bad apple to spoil the whole barrel." Therefore, one unethical insurance producer will affect how others in the same agency are viewed. In this context, every insurance producer has a moral or ethical responsibility to all the other insurance producers. In the case of the agency being investigated, that agency had a moral or ethical responsibility to all of it's insurance producers. Of course, it is the job of the state's insurance department to investigate any complaint. That certainly does not mean that anyone is actually guilty of doing something wrong. Chances are, however, if it hits the evening news or the newspapers, it will not matter whether there is any guilt or not. Opinions will be formed. Therefore, each insurance producer and each insurance agency has an ethical responsibility to act in a way that will not cast doubt on themselves or others.

Ethics in Action

Sociologists have contended that determining our own identity is not an easy thing. Many people never realize that we are able to choose who we are by the choices that we make. Certainly, we are influenced by many things, some of which are beyond our control. Even so, most of whom and what we are, we determine ourselves.

Since reason is man's basic means of survival, it is not surprising that we have the ability to form who and what we are. This is called Objectivist Ethics. Since everything man needs has to be discovered by his own mind and produced by his own efforts, there are two basic points to becoming the person we choose to be: thinking and actions. We decide who we will be and our actions carry out those thoughts. To be an ethical person, we must, through our thinking, choose to be so, and then productively work towards it.

If some people do not choose to make any conscience choice, they will develop by imitating and repeating the actions of those around them. This is why it is so important that agencies and management staffs make ethical behavior a priority in the workplace. Those who simply repeat the actions of those around them seldom make an effort to understand their own work. Unfortunately, who is imitated is seldom a concern to these individuals. As a result, one bad apple can, in effect, spoil the barrel.

Those who do choose to think out their actions and work productively towards a goal still do, however, remain the main force. They are the people who are most likely to be copied by others. Even those who survive by using brute force, or by making others their victims in some capacity, survive only because someone else was thinking and working productively. In other words, con men survive off the thinking efforts and hard work of others. Those who use brute force to steal or loot, survive off the thinking efforts and the hard work of others. It all comes back to those who do use logic and conscience choice.

Objectivist Ethics, as a theory of ethics, holds man's life as the standard of value and his own life as the ethical purpose of every individual man. The difference between "standard" and "purpose", as used in this context, can be important. "Standard" is an abstract principle that serves as a measurement or gauge to guide a person's choices in his or her achievements or specific goals. The goal itself or the achievements obtained become the "purpose". Probably every person has some "purpose" or goal in life, but not everyone would have a "standard" of life.

Pete was born very poor. This poverty made such an impact on him in his childhood that he now strives to become wealthy. He obtains his accumulating wealth by whatever means necessary. Although Pete definitely has a goal or purpose in life (becoming rich), he does not have any standards. There is little doubt among those who know Pete that he will become very rich. Along the way, however, Pete is not finding much happiness. He has not thought out the goals he has established. Pete knows what he is doing, but he does not understand why he is doing it. Pete would be surprised (and perhaps even laugh) if someone told him that ethics are a part of finding happiness.

What does Ethics In Action mean?

Our history is full of wise men who wrote about the philosophies of life. While many of them did not agree on many points, most did agree on one: lack of ethics promotes disorganization, financial turmoil and, sometimes, even the demise of governments.

As individuals, we may often feel that we have little control over others. This is true to a certain extent, but we do actually have more control than we might realize. The control we have is the ability to choose our own way of life. There is little doubt that what we do on a day-in, day-out basis affects everyone we come in contact with. We are also impacted by others in the same manner.

Tim is driving to work and the traffic is very congested. Even so, his mood is bright and he is humming along with the radio. As he merges into another lane in anticipation of an upcoming freeway exit, the man he pulls in front of becomes angry. Perhaps he feels Tim has cut him off, or maybe he is just a sour person in general. For whatever reason, the driver is angry. The other driver whips alongside of Tim's car, rolls his window down and shouts angry explosive words full of the four-letter type. The angry driver also gives Tim a few well known hand signals.

Although Tim did not feel that he had done anything wrong, his mood instantly changes. He no longer hums with the radio. When he arrives at work, his secretary greets him cheerfully. Tim's response is short and bleak. Although he did not actually say anything bad to Jane, his secretary, she felt that he must be angry with her for some reason. Had she forgotten to do something yesterday? Jane spent her morning feeling worried and stressed.

By the afternoon, Tim had forgotten about the driving incident (or simply put it behind him), but Jane was still affected. As the day progressed, she expected some explanation from Tim about what she had done that was upsetting to him. When no explanation came, her stress mounted. That evening on her way home, Jane began to wonder if Tim was simply unhappy with her work in general. That night she barely slept.

On her way to work the next morning, Jane stopped to get her car filled with gas. When she handed the clerk a twenty dollar bill, the clerk miscounted her change. When Jane noticed she was short a dollar, she curtly pointed out the error to the clerk.

After Jane left, the clerk, Susan, felt humiliated. It was obvious to her that Jane thought she was trying to cheat her by keeping an extra dollar. Susan never became angry, but she did feel stupid and inferior. It was just one more incident that confirmed to Susan that she would never amount to much. She figured she would probably always work for minimum wages because she simply did not have the ability to do any better.

Are these examples of how we affect others an extension of our code of ethics? Often, we forget that ethical behavior is not only connected to such things as paying our taxes fairly, following the laws or telling the truth. Ethical behavior can also be connected to how we treat others. Ethics is a code of values to guide man's choices and actions. In choosing one's own actions and even goals, we must face constant alternatives. Even such things as the manner in which we speak to others are a part of our daily alternatives.

Human Nature

Some have argued than man's nature is to be selfish. In order for a person to choose various alternatives on a daily basis, he or she must have a standard of values. The term "value" presupposes an answer to the question: of value to whom or for what? This is where an inborn selfishness might be considered. What is the end goal or purpose? Who is the perceived or intended beneficiary of the action? Ourselves or others?

To be selfish is to be motivated by one's own self-interests. Insurance producers are often accused of this. For an individual to center on their own self-interests, they must have considered what constitutes their own self-interests and how to achieve it. Because a selfish person chooses his goals by the guidance of reason, it is hard to believe that selfishness is an accident (or a lack of training in the case of insurance salespeople).

Nathan, an insurance producer, has been in the business for only a year. Even so, he has been able to build up a fairly good sized clientele in the health market. Soon after he became an insurance producer, he was told that replacing his own business can bring added advantages in the commissions earned. Although Nathan continues to work to build up his clientele size, he does not miss a chance to replace business (his own or someone else's) anytime the chance arises.

Recently, Nathan realized that annuity sales could bring in good commissions. His initial intent was simply to bring in new business in the annuity field. After a while, however, he found that it was not particularly difficult to replace annuities. Of course, the client generally had early surrender penalties, but Nathan learned how to justify not only the penalties, but the new surrender period as well. Nathan was not above misrepresenting other companies to achieve his goals.

Although Nathan is fairly new to the occupation of insurance, his sales practices are well thought out. Nathan received very little training from the agency where he works. Most of what Nathan knows, he learned on his own or from other insurance producers. It might be argued that specific training might have made a difference in how Nathan looked at his sales practices. However, from an ethical context, it seems fairly obvious that Nathan is not acting irrationally. He has spent time thinking out his approach to sales. Selfishness is seldom a matter of emotions or feelings; rather they tend to be thought out actions. That is not to say that selfish people are not emotional in nature because they may be. What we are saying is that a selfish person determines their goals on a thinking or reasoning basis.

We have been talking about ethics in the workplace, but it should also be noted that ethics IS hard work. Who among us would not enjoy an extra $5 (even if it were not due us)? If our boss thought we were the one who did something wonderful, who would not like to take that credit, even if it belonged to someone else?

Being ethical can be very difficult when being unethical is sometimes more rewarding from a financial or public standpoint. The public standpoint is often overlooked. If we feel strongly about something that no one else seems to, it is very easy to keep quiet. In fact, that is precisely what gets "followers" in trouble. When a person knows something is not right, but no one else is saying anything, it is easy for the individual to simply go along with the group.

Greg works for a very large insurance agency. Greg has always had very strong religious convictions and, as a young man, took much teasing from others regarding his so-called "prudish" outlook. Over the years Greg simply found that keeping quiet was easier. After all, he reasoned, as long as he personally held his moral ground, what others did was their own business.

Mike was also an insurance producer with the same agency as Greg. As time went by Greg found mounting evidence that Mike was "clean sheeting" his applications. One day in the field Greg ran across one of Mike's clients. She was an elderly woman who obviously had some mental disorder. She could not remember simple things and was under a doctor's care.

Back at the office, Greg asked Mike how he ever got her on that policy, which was issued only 6 months previously. “I would not have even attempted it, given her medical situation,” stated Greg.

Mike replied, “I simply stated what she told me. If she didn't say it, I didn't write it.”

On two other occasions, Greg found similar circumstances in Mike's business. Greg voiced his concern to Mike: “You know those people won't be covered if something comes up. The company will simply rescind their policy.”

Mike: "You worry too much."

It became obvious to Greg that Mike did not intend to change his practices.

Since Greg is not involved and is behaving in a way that he perceives to be ethical personally, does he have any moral obligation to the clients of Mike? Since Greg considers Mike to be a friend, does he have more obligation towards Mike or Mike's clients?

Greg was still concerned so he went to his manager. The company's manager told Greg that it was not his concern as did several other coworkers. In fact, most people that he talked to within the company seemed to be viewing Greg as a potential trouble maker. Greg had heard about "whistle-blowers" and he knew he could be putting himself in a precarious position with the company if he became too vocal.

Are Greg's self-interests more important when no one really seems to care other than himself? Is it the management's responsibility (rather than Greg's) to mandate ethics?

On the surface it would be easy to say that Right is Right no matter what. It is likely that most people would, however, suggest a different course for others than they would suggest for themselves. Studies have shown that people are more likely to voice ethical behavior than follow it.

The truth is, our identity is established by our actions (a liar is known for his lies; a thief is known for his stealing, etc.). A common pitfall to proclaiming ethics, but not following them, is that an identity is established. When we allow ourselves to be defined by whatever we happen to fall into, that in itself is a choice. Who we are is established by what we do and even by what we do not do.

Who we become is a gradual thing. Seldom are we formed by one single experience although one single experience, if great enough, can change our direction or focus in life. Our "becoming" is a gradual and natural thing. So gradual that people seldom notice what is happening themselves. Without even noticing it, one can slip into a pattern of behavior which ends up being the ultimate basis by which we are judged by others. Therefore, a code of ethics must be a daily goal that we deliberately choose to follow.

We have all known someone who allowed their job to be the ultimate basis for who they were. When retirement comes for those individuals, they have nothing in their life to fill the void left by retirement. These individuals spent so much time becoming who they were within their jobs that they neglected to define who they were away from their work. Sooner or later all of us will lose our jobs. While we hope it will be through retirement, it may also happen due to layoffs or other means. When a person's identity (which includes ethical behavior) is wrapped up primarily in their work, an extreme crisis may occur when that work place is no longer there. Men seem to be particularly vulnerable to this situation and often die shortly after retirement. One wonders if those men simply could not find a reason to continue living without an identity, they were secure in.

As we stated, being an ethical person IS hard work. However, when a person learns to base who they are upon a distinct code of ethics, it is unlikely that their jobs will completely define who they are. When success in the workplace means compromises in personal ethics and values that often mean that we are allowing our employers or coworkers to define who we are. There is a song which states "You've got to stand for something, or you'll fall for anything." There is a great deal of truth in that lyric.

A sociologist, Irving Goffman, touches upon a troubling image of those who establish themselves only through their work identities. Mr. Goffman calls those who aspire to be successful at any cost as "con artists" because they do not learn the business skills but rather, they develop a way to act and present themselves in a manner which is convincing to others. In commissioned sales this may especially be true. Since commissioned salespeople are not guaranteed a paycheck each week, it becomes very important to present a professional and appealing image to others. Of course, the ideal way to do this is through education, product understanding, communication skills, and just plain hard work. Many take the short cut and, as Irving Goffman states, chooses to develop an outward appearance of education and understanding (when none actually exists).

Sales meetings often point out that sales people are, in some ways, actors and actresses. The same of course may be said for most people. Each of us generally desire to be accepted by those around us. In view of this desire, we tend to put on the "front" that we feel will be accepted by those in our company. Even such things as politeness may, in some ways, be described as "acting."

Betty is at a party given by one of her neighbors. Being fairly new to the neighborhood, Betty knows few people. Since moving across the country to this small rural town, Betty has been lonely. Her past living experiences in the big city did not prepare her for the rural living she is now a part of. As she is introduced to people, she finds herself thinking that most seem to be very ignorant individuals. Everyone is talking about weather, small school plays, their children, church activities and so forth.

The hostess, her next-door-neighbor, Sarah, comes up to Betty and warmly holds her hand: "I hope you are meeting everyone."

Betty: "Oh yes. I just hope I can remember all the names."

Sarah: "Don't worry about that. We want you to feel welcome and enjoy everyone."

Betty: "You have wonderful people in your town. I'm so glad I moved here."

Obviously, Betty simply was not a person who would have said "Everyone is stupid here" even though she was actively thinking it. It could be said that Betty was being an actress, playing a part that was not truthfully her.

Each of us does this on a day-to-day basis because our ethical standards do not allow us to be unkind to others. How do we draw the line between being a graceful "actress" or "actor" and being a "con artist?"

Just as people will have different views on what is and what is not ethical, each given person also tends to develop levels of ethics. For example, Betty was actually lying about her views on the people in the small rural town. If asked, Betty would say that lying is unethical and she does not believe in it. At the same time, Betty would say that she feels it is unethical to be cruel to others. Which is worse? Which set of values or ethics should be followed? It is likely that every person, even the most ethical, do not always tell the truth. Lies, such as the mild kind Betty told to Sarah, are often called "white lies." The term likely originated to describe lies which were told with a good intent, such as sparing another's feelings. Even so, a lie is still a lie. Is there ever such a thing as an ethical lie?

In Arthur Miller's famous play, Death of a Salesman, the main character, Willie Loman, believes that the secret of success lies in the salesman's personality. This might involve many aspects of the personality, but it comes down once again to acting. Being the person, the prospective buyer wants the salesman to be. If the buyer loves children, then the salesman loves children; if the buyer would like to travel, then the salesman either has traveled or wants to travel also. Common ground, we are told, is vital to the sale.

Being an actor or an actress, especially in sales, is a dangerous part to play. Sooner or later, it is likely that the salesperson's true identity will be exposed. The woman who tells the elderly client that she loves cats, too, will be caught smacking at the cat who attempts to climb on her lap. The man who weaves a tall tell about his traveling experiences will say something that proves him to be a liar. Sooner or later, chances are that we will blow our cover. It is simply too difficult to keep what was told to who straight. This is especially true in small towns where your clients often know each other and will compare notes. Attempts to conceal our true nature will eventually come into the light. As the Bible says, sooner or later who we are "will be declared from the rooftops."

It should be pointed out that it is possible to discontinue acting in an unethical manner, or "mend our ways" as it is often referred to. It is never too late to begin to act in an ethical way. In fact, John Newton, the man who wrote one of our most famous songs, was the captain of a slave ship. As he came to realize that slavery was wrong, he used his experiences to bring this same understanding to many others.

Of course, the most important reason to be ethical is not hard to understand. We are a reflection of our lives, our families, and our community and of ourselves. Our children will copy us (that's hard to believe during their teen-age years, but it does happen), our families and our communities will be affected by our actions and we, ourselves, must live with who we are yesterday, today and tomorrow. In fact, those around us, including our coworkers, are affected by our values (ethics). Just as a follower may follow the cheater, he or she may also follow ethical behavior. When you define the "inner" character as someone you are proud of, it will show in your daily behavior which includes your work. This will bring self-assurance which will ultimately benefit you in many ways, including financially. Personal integrity radiates confidence and everyone prefers to deal with people who seem confident.

A few years ago, the Howard Fischer Associates (one of New York's top executive search firms) conducted a survey of CEOs of the top one hundred companies in the New York area. They were looking for traits which were valued most by the leaders.

Of course, honesty and fairness were ranked at the very top. These are the other character traits which were listed:

1. Never compromise on matters of principle, nor standards of excellence, even on minor issues.

2. Be persistent and never give up.

3. Have a vision of where you are going and communicate it often.

4. Know what you stand for, set high standards, and don't be afraid to take on tough problems despite the risks.

5. Spend less time managing and more time leading. Lead by example.

6. Bring out the best in others. Hire the best people you can find, then delegate authority and responsibility, but stay in touch.

7. Have confidence in yourself and in those around you, and trust others.

8. Accept blame for failures and credit others with success. Possess integrity and personal courage.
   

There is much so-called "sound" advice circulating for achieving financial and business success. We are not here to say whether that advice is accurate or not. It is true, however, that before accepting such advice, one might wish to consider what they actually wish to accomplish during their lifetime. So often, individuals lose track of their true goals (such as rearing happy children, writing a book, etc.) and become sidetracked with making a living in a manner that makes their boss, spouse, or coworkers happy. When an individual loses track of their own goals, they are more likely to become followers rather than thinkers.

Often motivational speakers are concentrating on goals that may actually be secondary to our main desires. Yes, we all want to make a good financial living for ourselves and our families. The question is, do we want to make that money at the expense of ourselves and our families?

In an effort to become the super-salespeople that the company, agency or management staff promotes, people tend to embrace a variety of role models. That might include optimum time usage, aggressive sales techniques, becoming a superb team player, or motivational skills. Certainly, all of these avenues can have advantages in one way or another. Each method does have its place in the business and sales world. Usually, each method that is promoted contains a certain amount of useful advice because they contain certain truths. That is precisely why these books tend to sell well. Even so, these methods, whatever they may be, also have their limitations.

Insurance producers have complained that there seems to be something "missing" even when they have followed the methods precisely. Very often the why simply is not addressed. Why are you selling insurance? Only to make a living? Do you understand where a product fits? Does the product do an outstanding job of meeting another's goal? If not, you have likely missed the why of your job. It is in the why that ethics or values often play an important role. When an insurance producer does understand the role they are playing in another's life, the satisfaction gained goes hand-in-hand with ethical behavior. Clearly defined goals and purposes are essential if people are to understand what their lives in general and their work in particular are really all about.

It seems that psychology is the current rage in selling. While it may give an air of being scientific, often the "psychology" listed is more apt to resemble manipulation. When such techniques are encouraged, individual employees may feel inadequate to challenge the validity of them. This may especially be true if the concerned salesperson is not the "star" of the agency. Often, an individual may feel their job is not secure enough to question the techniques being pushed on them by their employer. Or, if the salesperson is not the super producer of that agency, they may simply feel that they have not earned to right to speak out. In actuality, ethics belong to everyone, not just the superstars of sales.

We are often told that merely feeling very good about ourselves will accomplish much in the sales field. There is certainly much truth to the concept that self-worth is tied in to many of our successes in life. In fact, low self-esteem may be tied to many of the underachievers in our country. However, high self-esteem in itself will not accomplish anything. It takes much more than that. Some of the most effective workers in the world are the Japanese people. Yet personality tests have revealed that the Japanese people traditionally have very low self-images. They are often depressed because they do not feel good about themselves. Self-esteem is important to have for many reasons, but it is not likely to insure economic success.

It has become commonplace for insurance companies and other industries to shower their salespeople with prizes, plaques and medals for selling their products. It seems that companies believe their employees will work only for material gratification. There are those who believe that attempts to build self-esteem in the work place will result in successful (financial) payoffs for the company.

Sometimes this belief can cause problems. Employees may begin to do their work for the wrong reasons. Their "ethical compass" may become misdirected. When self-esteem is tied to financial rewards, the why of the work can again become lost. Of course, financial rewards are essential, but when ethical behavior is not tied into those financial rewards, many negative circumstances can develop.

Totally fulfilling work probably does not exist. For many people, commissioned sales is something to be feared. It is probably safe to say that some amount of high self-esteem likely exists for those who enter the commissioned sales field. A person must feel they can succeed even to enter into such work. This brings us to another area of ethics. In this case, it involves those who recruit commissioned sales staffs.

Nearly every insurance producer has, at some time or another, had a company or person promise the world. The majority of workers do not enter commissioned sales. There must be a reason. If financial success were so easy, everyone would be doing it.

Sally has been unemployed for nearly 6 months. After being laid off from her job in Seattle, she thought she would easily find another one. As it turned out, the only jobs she could find paid about half of what she had been earning. In fact, her unemployment benefits would, in some cases, amount to more than she would earn if she took some of the available jobs.

Finally, Sally sees a newspaper ad which promises high income for "self-motivated" people. She makes an appointment for an interview.

When Sally arrives, she is surprised to see a roomful of people there for the "interview". Sally's first impulse is to leave, but since she has already gone to the trouble to come, she sits down.

At the appointed time, a well-dressed man enters the room and introduces himself as the Regional Manager for an insurance agency (not an insurance company). The gentleman, Mr. Randall, begins his pitch:

Mr. Randall: "Welcome to the world of excitement and money. This is not for everyone, because those who enter this world must be prepared to manage themselves and not everyone can do that. Most people need the crutch of a weekly paycheck paid to them whether they put forth any effort or not. In this job you will be responsible for your own paycheck. It can be as low or as high as you desire. You make the determination yourself based on how much time you are willing to devote to your work. Do you need an extra thousand dollars one month? Then you simply work a couple of Saturdays. It's that simple.

We offer the most comprehensive benefits around. All you do is explain those benefits to people who need them. You will be invited into people's homes as a guest because you will be offering these folks something they want and need. That does not mean that you won't be working. Selling is work. The difference is, you get paid what you are worth! Aren't you tired of having someone else tell you what you are worth? Aren't you tired of having someone else determine what hours of the day and week you will work? Isn't it time that you took your destiny into your own hands? Make life work for you instead of against you.

Last year our top producers earned well over $300,000 while working less than 40 hours a week. In fact, as time goes on, these top professionals are able to work less, not more, because they gain an understanding of what they are doing. These people work smarter, not harder. Isn't it time that you do the same? We will teach you how to earn up to your potential. It is very likely that you will earn in excess of $100,000 in the first year alone. And you will continue to earn additional income on every sale you make even after the policy is in place. As your renewals accumulate and you also continue to make new sales, your potential is unlimited."

As Sally listened, she began to feel an excitement. Looking around, she could see others getting the same excitement. Sally knew she could discipline herself to be on the job and she liked the idea of being in charge of herself; her own boss. Best of all, it sounded like high income was common.

Can ethics be a part of promotional selling? At what point does reality need to be interjected? Should the fail rate be stated?

It might be easy to state that the "dark side" should also be stated, but would you expect that in other industries? Can you imagine a new car salesman saying: "Oh, sure, the car looks great now, but it won't in a few years. They'll be wear and tear and the paint job will dull. Five years from now you'll be glad to just get rid of the car."

Should Mr. Randall be expected to tell the audience all the difficulties of commission sales right up front? Should it be disclosed that only one top producer earned more than $100,000? Or is it the listener’s responsibility to make sound decisions for them?

It is common for insurance producers to say that they would never have gotten into the business if they had known everything. And yet, now that they are in the business, they do enjoy their work. There are many aspects of commissioned sales that can scare a person out of ever entering it. Should these aspects be discussed with new recruits?

Few, if any, jobs are totally satisfying. Certainly, it is desirable to find fulfilling work, but most things in life are a mixture of things. In other words, there are times that the job seems extremely fulfilling and there are other times when the job seems absolutely terrible. Even fields of work that seem to be glamorous to others generally carry with them a certain amount of negatives. Even jobs that promise excitement carry stretches of boring mundane tasks.

And yet, promotional advertising is all around us. As viewers of this, we must be aware that glamour and excitement also carries simple hard work and frustration. Look at the ads for joining the armed forces. These ads show handsome men flying planes or jets, standing on the decks of mighty ships, or visiting exotic foreign places. They do not show kitchen duty, strenuous marches, or other mundane tasks.

Even the ads for smoking came under fire for such one-sided promotional activity. We felt that cigarette companies, and lately alcohol companies as well, should not show smoking or drinking as glamorous or exciting. The rugged cowboy who always lit up a cigarette now has cancer. Alcohol companies show young beautiful people drinking, laughing and having a good time. Alcohol companies do not show the car accidents caused by drunk drivers.

So, the question still lingers: Can ethics and promotional campaigns be integrated?

It would be wonderful if every industry was blessed with an individual whose inner greatness or qualities were able to inspire those around them with their vision and energy. In truth, few industries are graced with such people. Those people who do possess such qualities often have no desire to be promotional tools for businesses.

Perhaps one of the major reasons why ethical behavior is something that must be constantly stressed is simply the fact that being ethical is hard work. Even though it may seem to come effortlessly to a few, the majority must make a conscience effort to be ethical. Ethical people typically have a moral reason for being such. Some might tie it in to their religion (in fact, the majority of people who place high regard on ethical behavior state their religion as a major factor). We also find that people who consider ethical standards to be a high priority also value such personality traits as patience and kindness towards others. In fact, whatever the career line, the most successful salespeople state that patience and kindness is necessary in their line of work. Some state this quality as a "love of people". Topnotch salespeople do, of course, develop the necessary skills for their jobs, but their love of people motivates them to do a better job than the average person. They tend to "go the extra mile" for their clients even when that extra mile does not overtly bring them any financial rewards.

An individual who is naturally kind towards others tends to have a sensitive awareness of them. Kindness generally takes into account how another person might feel as a consequence of what we do. That is not to say that a kind person always sympathizes with others in every situation. Sometimes being kind means withholding sympathy. It does mean that empathy must be involved. Let's look at the difference:

• Sympathy (noun): (1) fellow-feeling; compassion. (2) condolence. (3) agreement; approval; accord.

• Empathy: (noun): (1) the complete understanding of another's feelings, motives, etc.

There are many differing views regarding the need for sympathy or empathy. Sympathy may not necessarily help a person and may, in some cases, increase the problem that exists. Empathy, on the other hand, tends to be aimed at correcting a given situation, and may be what is sometimes described as "tough love".

Jackie is a secretary at the XYZ Corporation. Her boss, Craig, is the supervisor for a large insurance division. Jackie is single, but Craig is married with two young children. As time goes by, a romance develops. Both Jackie and Craig are basically nice people who would not intentionally hurt anyone. They think they are keeping their affair secret, but in fact, most of the office and field insurance producers are aware of it.

One of the field insurance producers, Marsha, considers Jackie a friend. The easiest course of action would be to say nothing despite the vicious rumors that are circulating. Marsha could even tell herself that what Jackie and Craig do are their own business. After all, they are adults. Furthermore, if Marsha does confront the issue (even out of concern), Craig is likely to become angry and he has the ability to make Marsha's job miserable. In fact, if Craig wanted to, he probably has the power to have her fired.

The risks are great for Marsha and she is aware of them. Marsha also understands how Jackie became involved. Jackie has been a basically lonely person who has always had trouble making friends. Jackie has had even more trouble finding a comfortable male relationship. This affair is obviously making Jackie happy. It can be seen in how positive she has become about her day-to-day life. Marsha is worried that Jackie might never forgive her if she somehow took the relationship away from her (even out of concern).

Yes, the risks are multiple and real. On the other hand, Marsha also knows Craig's wife and children, although they are not close friends. Craig's wife, Cheryl, would be very hurt by the affair. Marsha knows it is only a matter of time before Cheryl learns of the situation. After all, many of the office and field staff know Cheryl. It is likely that when Cheryl learns of the affair, Jackie will be forced by the company to leave her job. Craig probably has enough position to keep his job, but not Jackie.

Kind people try to prevent someone else from hurting. If Marsha does not confront the situation, she knows that the hurt will eventually be even deeper than it already is. Marsha does understand how Jackie became involved and she realizes that it could easily have happened to her under the same circumstances. Understanding how it happened, however, does not mean that she sympathizes with Jackie's lack of judgment. Marsha does empathize with Jackie.

Obviously, there is no single answer to this situation. It is a matter of judgment and perception. Bad news sometimes only gets worse as time goes by. If Marsha delays the confrontation, Jackie might lose possible opportunities that would give her lasting happiness, rather than temporary happiness. Jackie might also simply tell Marsha to mind her own business and a valuable friendship might be damaged or lost entirely.

Marsha does eventually face Jackie with her feelings about the situation. Marsha decides that it is more important to her to do what she feels is right. While she does value Jackie's friendship (and she wants to be liked by Jackie), Marsha decides that the kindest thing to do is to be honest. Sometimes the kindest thing is also the toughest thing (as every parent knows). All Marsha can do is hope that Jackie realizes that she is speaking from concern, not condemnation.

Although our example looked at a personal relationship, the same principles could be applied to other situations.

Let's say that you are friends with a fellow insurance producer, Dale. The young man is friendly and outgoing. He has earnestly studied all the company's products and seems to have a good understanding of them. He likes people and people basically seem to like him. Even so, he is struggling financially because he seldom makes a sale. Since he is your friend, you agree to accompany him on a few of his appointments with potential clients.

Your first appointment is at a middle-class home with a well-groomed lawn and beautiful flower beds. The couple have two children, ages 5 and 8. The husband, Marv, is a welder and his wife, Sherry, works part-time as a waitress at a local cafe. Marv has medical insurance supplied by his union, but they do not have any life insurance.

Dale: "Your home is beautiful. Who does the gardening?"

Sherry: "I do. I guess you could say that it is my hobby. At least that is where I seem to spend every spare moment. I suppose I put too much money into it, but a person has to have some pleasure in life. Before you leave, I'll give you some flower starts."

Dale is obviously flattered. As Sherry and Dale continue to talk about the flowers, you notice that Marv is becoming bored and glancing at the television in the next room where the kids are watching a program.

You (interrupting Sherry): "Marv, how is the job going? Is it as tough as I hear in the welding trade?"

Marv: "You bet it is. Last month I only worked two full weeks. Some months, we barely make our bills."

You: "Gosh, that would be a worry. Since you mailed this card in asking for some life insurance information, I guess you are the one who realizes the financial pitfalls and obviously you care about your family. Sherry, you must feel lucky that Marv is concerned. Dale, why don't you show them the information they requested."

Dale opens his brief case and pulls out a yellow legal pad and several brochures. It is obvious immediately that Sherry is not interested. She pulls out a seed catalog and lays it in front of Dale over the brochures. Sherry opens to a page.

"Have you ever seen these colors before in the Iris?":

Dale: "No, I don't believe I have. They are beautiful."

Once again, the conversation turns to flowers. Marv becomes visibly agitated. "Put that damn book away."

Sherry: "You are so selfish. I finally get to enjoy some conversation and you act like that."

By the end of the appointment, you think you know exactly why Dale seldom makes a sale. Dale made no attempt to steer the conversation into the life insurance, but seemed to be drawn away from it at every opportunity. Even when you brought the talk back to it, with Marv becoming interested, Dale allowed Sherry to misdirect the conversation.

Two other appointments went equally bad. During the evening Dale collected several friendships, some flower starts, and a napkin full of cookies to take home to his children. Dale made no insurance sales, however.

The next day, you know you need to give Dale some guidance. While Dale was a friendly, outgoing person, he did not appear to have any concept of sales. He allowed the conversation to go in all directions, always listening and joining in, but never getting down to the actual business at hand. While only Marv outwardly acted agitated about that, the other potential clients seemed confused as to why you were there. Eventually, Dale did run over the brochures, but in such an unorganized manner that you doubt anyone really understood what he was trying to do.

You doubt that Dale has the ability to ever be a successful salesperson. You fear he will end up in bankruptcy unless he gets into another line of work . . . and soon!

The ethical question: Is it kinder to be honest and suggest that Dale leave sales or would it be better to offer a few suggestions and allow him to sink or swim, as the saying goes, on his own?

When a person is discharged, personnel managers report that they often try to soften the blow by being less than honest about the person's shortcomings. In addition, they often do not tell the next potential employer about them.

Such evasions of the truth may do more harm than good. Unless the person knows and understands the deficiencies and mistakes that led to the loss of his or her job, those deficiencies and mistakes cannot be corrected and are likely to be repeated. Certainly, kindness needs to be used when relaying the information, but honesty is still the best option.

In an issue of the Ladies' Home Journal magazine, reporter Leslie Lampert did a story on overweight people. To do the story, she was fitted with a specially made "fat suit" which instantly made her appear to add 150 pounds. Most of the people she encountered made no attempt to help her in any way. In fact, most people treated her with disgust and sometimes even open antagonism.

One particular person, however, knew how to be both kind and ethical (honest). She was a hairdresser that Leslie Lampert went to while in her "fat suit". The hairstylist, who was very thin, gently explained to Leslie that the hair style she wanted would not be right for her ample figure. Leslie stated that she was honest, but not insulting. Rather than do a hairstyle that would not aid her appearance, the woman used honesty and caring to suggest a style that would be right for her. Certainly, the hairstylist was probably very good at her trade since she understood what style would work best. It goes beyond that, however. She also was concerned about her clients and their well-being.

A person who does not know what changes need to be made, will never make any changes at all. As a result, the same mistakes will be repeated over and over again. The truth, in such a situation, may leave you disliked by the person, but it may also lead that person (such as Dale or Leslie as an overweight woman) into the possibility of success. Sometimes being liked is simply not as important as being kindly honest. It is not always kind to deny the truth to a person who truly needs to hear it.

The next question: Are you being kind in telling someone the truth, or are you getting some type of power or pleasure personally by pointing out their failure?

As the Bible says, "love envieth not." To be a truly kind person, what you say must not be a reflection of your own insecurities or envy. The ethical person can take pleasure in other's happiness or successes. We seldom have control over what recognition we receive from others, but we do have complete control over how we react to the recognition others receive.

Most of us have had someone say to us, "I don't want to hurt you, but I must offer some constructive criticism." Usually, that means someone is going to say mean things which are supposed to be for our own good. Before speaking "constructively", one needs to assess their personal motivation.

For Example:

"Dale, I don't know where to begin. You did everything wrong. You had no ability to control the conversation. There was a sale laying on every table waiting to be picked up, but you just walked away from it."

OR

"Dale, it is obvious that people like you, but I wonder if perhaps you are too concerned with having them like you. It seemed like you were avoiding getting down to the sale. Maybe we could role play and see if that helps."

Learning to be Ourselves

In sales, insincerity (which is, after all, lying) can reach epidemic levels. As previously stated, we are often told to "be just like the client". If the client gardens, then we garden; if the client cans their own vegetables, we can ours, etc. We laugh at the client's jokes even when they insult us or others; we pretend to completely like those that we can barely stand. We do whatever is necessary to get that signature and check. Sometimes what "is necessary" is so against our feelings of right and wrong that we do not enjoy the sale or the commission. We may end up depressed or irritable as a result. The question: Are there some sales that simply are not worth the price we pay personally and emotionally?

Salespeople are traditionally thought of as untrustworthy. This is unfortunate since most are good honest people. Why do you suppose this image developed? Most of us want to be trusted; we want people to believe we are as good as our word. If we say something is so, we want others to believe it. To be viewed as person of integrity is not only important in business, but in our personal lives, as well.

The Amish people hold their word in high regard. They refuse to sign written contracts because they feel that, as Christians, their word should be good enough to guarantee any agreement that is sealed with a handshake. The Amish are known for their strength of character; whatever is promised will be delivered.

Unfortunately, there are few groups of people or organizations that are honored with such high reputations. As insurance producers, we commonly call on people who feel that other insurance producers before us have misrepresented products, companies, or services. In fact, insurance producers themselves have sometimes been misled by companies which they represented. The more we are in the business world, the less we find ourselves trusting others. We are warned daily to "read the small print."

Often, problems occur not because something was specifically stated, but because something was implied. Salespeople who allow their clients to assume something that is not true will be viewed as badly as someone who openly lied. Misleading another, whether that is an insurance producer misleading a client, or an agency misleading their insurance producers, will eventually come face to face with credibility problems.

Implying that which is not true is a form of manipulation. People may make serious mistakes financially on the basis of what is implied. In some cases, this can cause serious legal problems for the insurance producer. More often, it simply means that people learn to mistrust them. In fact, insurance companies themselves may "red flag" some insurance producers if problems of "misunderstandings" seem commonplace in their client's applications. If an insurance producer continually seems to leave out pertinent medical information, the insurance producer may say that he or she asked the medical questions; the consumer simply failed to understand them. If it happens once or even twice, the insurance company will probably take the explanation, but if it happens repeatedly the insurance company surely will not.

Due Diligence

It is common for an insurance producer to go to work for an agency and simply accept whatever companies and products are given them to work with. While we would like to assume that an agency has done their homework, this may not always be the case. In addition, it is possible that the agency viewed the companies and products only from a profit point of view.

What responsibilities actually do fall on the selling insurance producer? The answer to this question will certainly vary depending upon who you ask. As little as ten years ago, due diligence was something done by broker-dealers, people selling securities and by some home offices. Seldom was due diligence thought to be an insurance producer's responsibility.

In more recent times, insurance producers are being told that due diligence is their responsibility. This statement is often the result of court actions. In other words, it is now being legally determined that individual insurance producers are responsible for the recommendations they give, the products they sell, and the companies they represent.

What does the term, due diligence, actually mean? For the insurance producer, due diligence is the analysis of a particular company's products, performance and financial standing. Where life insurance is concerned, this is often done to determine whether or not there is a reasonable expectation that the illustrated values presented can actually be achieved. Life insurance is, in some measure, the business of making long-term promises to clients. It is vital to those clients that the company be able to keep those promises they are making. Due diligence is the insurance producer's analysis of whether or not the company can, in fact, keep their promises. The term, due diligence, is primarily derived from the securities industry.

For the insurance company, due diligence is an ongoing process which insures that pricing objectives are being realized, and that integrity and consistency of internal procedures are being maintained. It is working with the insurance producers and agencies, as well as their policyholders, to preserve fairness in all parts of the operation. An insurance company that is concerned with due diligence will treat its sales force and back-up members as well as they treat their policyholders. Company due diligence also means making investments that are sound and prudent. For life insurance companies, due diligence is not a new concept, even though it is for many insurance producers.

It must be noted that the life insurance industry has moved their product design away from fully guaranteed values and benefits towards a dependency on current, sometimes more favorable parameters. This means more risk has been taken on by the consumers. The factors more often used these days also tend to be more volatile. In many cases, only the strength and the integrity of the company involved can ensure that projected, nonguaranteed elements of the policy are actually realistic.

As insurance producers and the general public have become more educated on the variety of options available, insurance has seen a change in how it is perceived. While price has always been considered, additional elements are now commonly looked at as well. Consumers want to know if the company they are considering can manage its overhead expenses, mortality expenses and investment returns in a way that allows the company to make good on its promises in the contract.

In addition, the role of the insurance producer has changed. Whereas the insurance producer was typically thought of as only the salesperson, consumers now consider the insurance producer to be someone who must give reliable information for the good of the policyholder. We no longer accept the view that the insurance producer represents only the company. This change in the general perception of an insurance producer places greater responsibility, both legal and ethical, on the insurance producer.

In the public's view, the level of service and quality of the advice given are linked directly to the insurance company and that company's performance. It must be noted that practicing due diligence makes sense from many standpoints, one of which is financial protection of the insurance producer, as well as the consumer. When an insurance producer takes the time to investigate his companies (and document that investigation), he or she is also protecting their own financial future. Lawsuits are common and it is reasonable to believe that even a good insurance producer can experience one. Due diligence is, of course, an ongoing process since companies can and do change how they operate. Due diligence might be considered as a method of self-protection through knowledge.

Many insurance producers groan when due diligence is brought up. They picture hours of work put into a schedule that is already difficult. It should brighten their day to know that there are more answers than one might imagine at their local library. A morning spent looking up the companies they are representing, or are considering, is a morning well spent. There are several reasons to do so:

1. to prevent lawsuits from angry consumers who feel they have been taken,

2. to protect the trust they have spent hours building up with their clientele, and

3. to determine if the people associated with the companies they sell have the level of integrity desired.

If an insurance producer bases his or her company affiliations on commission levels, leads provided, or where the next convention will be held, he or she is in for a few surprises down the road. An insurance producer should request a copy of the insurer's annual statement and pay particular attention to the interrogatories, because they are brief and speak to short-term changes from the previous report.

An insurance producer needs to begin his due diligence process by gathering information on the major components of the company from as many sources as possible. This would include seeking information directly from the company. In fact, this is probably the first place to seek information. Generally, such information is readily available. The insurance producer should not overlook another simple way to gather information: ask questions. Talk to your immediate manager or regional manager, the home office (especially the underwriting department), and even the company's competitor. Anytime an insurance company seems reluctant to provide information to their own insurance producers, a red flag should go up.

Often, an insurance producer can learn more than you might imagine from simply asking other insurance producers who have been with the insurance company for a relatively long period of time. Find out about the speed of the company's claim service since this is often an indicator of company solvency. Find out if commission checks seem to be consistent, correct and on time. If a financial error is made, how long does the company take to correct it?

The insurance producer should collect the three most recent sets of financial statements and study them. Does the company seem to be making excessive profits? Does the company seem to be making minimal profits? Perhaps too little to ensure continuance? Compare the surplus in relation to the amount of business being produced. Ask the state Insurance Department to see if there are any watches or cautions outstanding. How many complaints from consumers has the company experienced in the past year? You may also wish to look at complaints over a three year period to see if any pattern seems apparent. The insurance producer may also want to watch for any shifts in the management of the company since this can change the philosophy of the company.

Once a measure of information is gathered, the insurance producer must assimilate it in a manner which is easily understood and assessed. There are several ways to assess this information, but often the insurance producer simply looks at it from the standpoint of "Does it feel right?" With so many carriers to choose from, there is no need to represent any carrier that does not feel comfortable.

Other sources of information that the insurance producer should consider are the rating services, such as A.M. Best, Weiss Research or any of the ones mentioned in the previous chapter.

Rating services have not always given the public indications of trouble in a timely manner. Even so, it is important to seek out the information that they offer. A.M. Best states that the primary source of the information presented in their publication is obtained from each insurance company's sworn NAIC annual financial statement as filed with the Insurance Commissioner of the state in which the company is domiciled and licensed to conduct business. These financial statements are prepared in accordance with statutory accounting requirements established by the NAIC (National Association of Insurance Commissioners).

It should be pointed out that the ratings still reflect a certain amount of opinion regarding each company's financial strength and operating performance. A.M. Best is certainly not attempting to give any type of warranty. Neither do rating companies give any recommendations for any particular companies.

The objective of the rating services is to evaluate the factors which affect the overall performance of the insurance companies. By doing so, they provide their opinion of the company's financial strength, operating performance and ability to meet its obligations to the policyholders. The procedure, according to A.M. Best, includes quantitative and qualitative evaluations of the company's financial condition and operating performance.

As we all realize, evaluating the financial condition of a company is subject to variations depending upon the person or company doing the analysis. This is especially true when it comes to evaluating insurance companies because so many of their assets are interest and economic sensitive investments. Many of these investments are based predominantly on actuarial projections of future claim payments.

It has become increasingly difficult to predict the amount of loss reserves that must be held in order to maintain financial security. This is especially true for the property and casualty companies because of liberalization of insurance contract interpretations and the expansion of theories of tort liability. The insurance companies have the potential of much larger losses in today's world than was present in the past.

In the life insurance industry, the cash flow and liquidity necessary to meet policyholder obligations has also seen an increase in the complexity of investment oriented life and annuity products, interest rate volatility, the reduced certainty of future cash demands and growing policy owner and public perception. Today's world is simply more complex than was yesterdays. The banking systems financial problems have added additional stress as policyholders feel less secure about major institutions, including life insurance companies. All of these factors have affected even well-established major life insurance companies (some of which have ended up on the "watch" list).

Suitability Standards

Many states have mandated suitability standards for annuities because there have been errors made in the past. Most insurance producers intend to do a good job for their clients but unfortunately some insurance producers did not understand whether or not the annuity was suitable for their client’s financial situation. By mandating suitability standards (and in some cases special suitability education) the state insurance departments hope to avoid errors that may cause financial harm to its citizens. Suitability standards provide guidelines for insurance producers who may not otherwise understand how to determine product suitability.

In the absence of state mandated criteria insurance product suitability may be a matter of opinion. For example, advocates of equity indexed annuities (EIAs) may feel that there are no bad EIAs while critics may feel there are no good EIAs. While there are no so-called good or bad products, there are certainly situations that are suitable and unsuitable, based on the particular person’s circumstances. The goal of the insurance producer is to determine if his or her particular client’s situation would benefit from an annuity. If it would not, then any type of annuity product may not be suitable. It is also possible that one type of annuity may meet the client’s goal while another type of annuity would not.

Determining Suitability

There are several elements that determine whether or not a product is suitable, including the individual’s risk tolerance, financial needs, cash reserves, and personal or financial goals. In some cases, it is obvious that an annuity is not suitable or perhaps that some types of annuities are not suitable. As we know (or should know by now), there is no product that is always right for every investor. It is misleading to compare one annuity product to another if the features each offer is vastly different. We often hear this stated as “comparing apples to oranges.” Each is a fruit, but the differences are great enough that they cannot be adequately compared. The same is true for some types of annuities.

Insurance producers must stress that it is not possible to predict how the markets will perform in the future. Even looking at past performance seldom offers guidelines, as we have witnessed over the last few years. Unfortunately, clients often blame their insurance producers when investments perform poorly, so it is in the insurance producer’s best interests to have a written statement regarding the inability to make predictions. This statement should be signed at the time an annuity is purchased and kept by the insurance producer in the client’s file. Consider this signed statement future protection if the client or his or her family becomes dissatisfied with the investment’s performance.

Insurance producers must ask their clients to consider several questions when considering the appropriateness or suitability of an annuity product, especially if that product is an indexed or variable contract. The following questions are not inclusive, but they are likely to be among the necessary questions to ask:

1. What is the soonest date the investment money will be needed? In other words, when will the money need to be withdrawn for daily living requirements?

2. Will annuitization be an option or does the investor think he or she will want to withdraw the investment as a lump sum?

3. Depending upon the date of withdrawal, could the surrender penalties be imposed if funds were withdrawn and the policy surrendered (not annuitized)?

4. Does it seem likely that withdrawals will be needed that are larger than any “free withdrawals” allowed under the annuity contract? This relates to any insurer imposed surrender penalties.

5. How old does the investor expect to be when funds are withdrawn? This relates to the IRS penalty if funds are withdrawn prior to age 59½.

6. What is the intended use of the annuity investment?

7. Is the investor more interested in the highest possible gains or in preservation of principal? This relates to risk tolerance.

8. It is not possible to have both the highest rate of return and little or no investment risk. Does your client understand this?

When insurance producers ask these and similar questions of their clients their focus should be on the most adverse possibilities. For example, if the investor thinks he or she may need large withdrawals during the surrender phase of the contract it is likely that an annuity of any type may not be suitable for their personal circumstances. Even if it is only a possibility that money may be needed it would be foolish to tie up all available funds in a non-liquid investment.

Investors and insurance producers should never simply assume liquidity will be available somewhere outside of the annuity, such as home equity or amazing investment growth. Taking the optimistic view does not comply with product suitability requirements. Any investor that does not have sufficient liquidity for the surprises in life should not invest everything in an annuity; enough cash reserves should be retained in a liquid account of some kind. This is true for all investors of all ages. We all need an emergency account that can be easily accessed.

Annuities are often used to pass wealth on to heirs, such as children and grandchildren, but many financial managers feel that goal is better served with a life insurance policy. This might be true even if the money in the annuity will not be needed at any future date. The life insurance policy should be held outside of the estate to minimize delays in distributing funds. These issues should be discussed with a qualified financial planner or attorney of course, so that the best avenues are utilized.

Equity indexed annuities (EIAs) are complex; if the selling insurance producer feels the concepts are not well understood by the investor it could prove foolish to still initiate an application for the product. Perhaps a traditional fixed annuity would be better understood than an equity indexed annuity. If so, that might be a better product to place with the investor. Insurance producers should never place a product that is not adequately understood and accepted by the investor.

Annuities are considered long-term investments. Never should excessive funds be tied up in long-term vehicles. Even when the investor does not expect to need the funds it is impossible to predict future circumstances. The investor could lose their job, experience an uncovered medical emergency or simply need a new refrigerator. All adults need an emergency cash fund that is easily accessible on short notice.

Sales Practices

Insurance producers know they are required by every state to be honest in the course of practicing their profession but appropriate sales practices go beyond that. Insurance producers could adopt the medical profession’s code of “do no harm.” The first step in any financial transaction is acknowledging that wrong choices could financially affect the buyer. Unfortunately, the buyer is often unaware that he or she has been adversely affected until years later when they reach retirement or some other pre-planned goal.

Product Replacement

There are situations that call for replacing one existing product with a newer insurance product, but this is not true in every case. Insurance producers should never replace an existing product with another unless there are specific reasons for doing so – and those reasons are sensible. Especially when an annuity is the investment tool involved, there are times when replacement might be unwise. This would especially be true if the annuity owner’s contract was past the surrender period. Putting the buyer into a new annuity with a new surrender period should not be done without serious thought.

Obviously, insurance producers must observe all state-mandated replacement procedures. Most states have specific replacement procedures, which must be followed.

Deceptive Sales Practices Forbidden

Some insurance producer practices are considered deceptive. These would include high-pressure sales, quick change tactics, or anything that is less than an honest presentation of the product facts. Just as insurance producers must correctly and honestly present their own products, they must also correctly and honestly present other products, such as the policy the insurance producer is attempting to replace.

Full Disclosure

As we know some products are more complex than others. A criticism of equity indexed annuities, for example, is their complexity; even many insurance producers avoid presenting them purely due to lack of product understanding. Only when the insurance producer understands the product will he or she be able to adequately communicate all aspects of the investment to their clients.

It is very important to fully disclose all product characteristics, including product limitations. Buyers will make better decisions when they understand the various products and are able to make an informed decision. More importantly for the insurance producer’s commission is the fact that buyers will keep the product when they are satisfied that an informed decision was made.

Product Knowledge

Insurance producers must know the products they represent and be able to adequately communicate the product’s characteristics to potential buyers. For example, even advocates of equity indexed annuities admit that they are more complex than most other types of annuities. Since EIAs are not all the same, an understanding of one EIA product does not guarantee understanding of all EIA products. Although the basic concept may be understandable, that does not automatically mean the insurance producer or investor understands the individual products being marketed. Even experienced financial planners often have to read the actual equity indexed annuity policy to gain an understanding of how the individual product performs. Certainly, insurance producers must read and fully understand any product they plan to present to consumers.

Identifying Suitability Issues

Suitability issues seem to arise for some basic reasons, including (though not limited to):

1. The insurance producer believes he or she understands the annuity product but does not know how to convey the terms and limitations to their clients, so they adopt a “trust me” mythology when selling them.

2. The insurance producer realizes he or she does not understand the “details” of the product but believes the details are not important enough to worry about and markets the product anyway.

3. The insurance producer mistakenly believes he or she understands the product they are selling. Even though it may result in an unintentional insurance producer error, the end result can cause great financial harm to the investors. Financial harm often results in lawsuits.

4. When investors clearly misunderstand how a product works, only a fool will sell the product anyway. When insurance producers know their clients have misunderstood the proposed investment under no circumstances should the product be placed until the investor’s error is corrected.

Just because an investment product, such as equity indexed annuities, are complex does not necessarily mean they should not be sold. If insurance producers understand the mechanics well enough to relay a full understanding to their clients that will likely be sufficient. The point is to understand the ups and downs well enough so clients do not get nasty surprises later on. Many insurance producers will gain a full understanding of just one or two equity indexed annuities and sell only those particular EIA products. This prevents any harm done to their clients as long as suitability standards are observed.

The states have a very difficult job. They must attempt to eliminate use of the “trust me” technique used by insurance producers to place annuity products regardless of client suitability. It is doubtful that the states will ever be able to completely eliminate unethical insurance producers but with required suitability standards the states at least have an avenue to punish those who refuse to act ethically.

Every product has advantages in the right circumstances and disadvantages in the wrong situations. The goal is to place products where they are most likely to be advantageous for the investors.

There is no question that annuities are long-term investments and, as such, lack liquidity. Large early withdrawals – prior to the end of the surrender penalties – could result in loss of principal due to penalties. Therefore, large withdrawals are not suggested during the surrender penalty years. Many products allow smaller withdrawals during the surrender penalty years without any insurer fees so this may be an avenue for those who sometimes need to withdraw cash. All annuity investors must be aware of the Internal Revenue Service penalty of 10% on withdrawals prior to age 59½, called early withdrawal penalties.

It is due to these early withdrawal fees, both from the IRS and the insurer, that make it theoretically possible for equity indexed annuities to lose money; this is not true of traditional fixed rate annuities where the principal is guaranteed. According to NASD, the guaranteed minimum return for an EIA is typically 90 percent of the premium paid at a 3 percent annual interest rate. If, however, the investor surrendered his or her EIA early, he or she could end up paying a significant surrender charge and a 10 percent tax penalty that would reduce or even eliminate any returns and might even reduce principal.

Since many equity indexed annuities products only guarantee a return of 90 percent it is possible to lose money on equity indexed annuities, whereas traditional fixed rate annuities guarantee 100 percent of the amount deposited into the annuity product. Obviously one way to avoid this is to look for equity indexed annuities that guarantee 100 percent of the premiums paid.

Some equity indexed annuities do not pay earnings until maturity, which is usually the point at which the surrender penalties end. In other words, some contracts will not credit the annuity with the index-linked interest if it is surrendered early.

It is Not a Liquidity Issue but Rather a Suitability Issue

Annuities of all kinds are typically long-term investments so the issue is never about liquidity (there is none) but rather about suitability. When the topic seems to snag on liquidity it is usually a sure sign that the insurance producer should not place an annuity with the investor. In most cases annuities are only suitable for those who will not need to withdraw significant sums during the contract term. Even small withdrawals should not be an issue when addressing product suitability. Withdrawals prior to the annuity term should never be a goal – period.

Although some annuities may have provisions for withdrawals under specified conditions, such as medical need, if the investor has set aside sufficient liquid reserves (outside of any annuities purchased) even that should not be a topic. Insurance producers and financial planners should assess liquid reserves prior to determining annuity suitability – prior to suggesting buyers consider an annuity of any kind.

Some investors tend to be spenders and will spend funds if they are available, even if set aside for other purposes. Such people have difficulty maintaining emergency cash funds because they are constantly removing the funds for other purposes. For such individuals an annuity might seem attractive because they are long-term, illiquid financial vehicles. The lack of liquidity may seem beneficial as a result. When consumers look for financial vehicles that prevent them from removing funds this is known as lock-boxing, but many are skeptical of using annuities in this way. If the investor cannot maintain an emergency fund he or she may access their annuity anyway so the illiquidity is not ultimately a successful deterrent. In fact, it may make the situation worse as insurer penalties for early withdrawal are levied.

Churning

Churning is the constant removal of policy values or replacements of policies by the writing insurance producer. Insurance producers who do this are looking for new commissions without regard to the best interest of their clients. As we know, annuities have surrender periods. If an annuity product is routinely replaced by another product, the buyer is routinely paying penalties for early surrender. Additionally, if the investor is not yet 59½, then he or she is also exposed to IRS early withdrawal penalties of 10 percent each time they surrender an annuity.

Churning can include persuading the client to replace or remove values by fraudulent, deceptive, or otherwise misleading fashion by the insurance producer for the benefit of the insurance producer. It might also include the insurance producer’s deceptive omission of the facts. When the applicant is not informed that the policy values (including cash values, dividends, and other assets of the existing policy) will not be a paid-up policy or that additional premiums will be due it could also be considered churning.

Twisting

Twisting is the act of giving inaccurate or incomplete facts for the benefit of the insurance producer. In other words, the insurance producer is “twisting” the truth in order to present the financial picture he or she needs to make their sale. It is never in the best interest of the policy owner to give a biased twist to the facts. Misrepresentation or twisting of the facts is illegal in most state and insurance producers may receive a fine for doing so.

Twisting is most often done when an insurance producer is wanting to replace an insurance policy or other insurance product using misleading tactics.

End of Chapter 9

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