Compliance in Sales: What Financial Companies Need to Know
Key Takeaways
- Why compliance in sales is critical to financial companies.
- The common challenges that sales teams face with compliance regulations.
- 5 best practices for ensuring compliance in your sales team and strategies.
Every financial company needs an ambitious sales team to drive business growth and foster customer relationships. However, when the sales tactics of financial organizations cross the line, the ramifications can be significant.
Take for instance, American Express, which was alleged to have engaged in deceptive sales practices for its small business credit cards between 2014 and 2017. In a statement, the U.S. Department of Justice alleges that Amex misrepresented its card rewards and fees, as well as, “whether credit checks would be done without a customer’s consent.” Besides these sales tactics, the DOJ alleges that American Express, “falsified financial information for prospective customers.” Amex was ordered to pay $230 million to settle with the Department of Justice and the Federal Reserve.
Besides substantial fines, non-compliant sales tactics can cause damage to a company’s reputation. That is why compliance in sales is so crucial for financial companies, a topic that will be explored in the beginning of this article. Following that, this article will discuss the major compliance challenges to sales departments and the best practices for maintaining compliance in sales.
Why Is Compliance in Sales Crucial?
Compliance in sales is so crucial for financial companies because they have to balance sales tactics that enable their business to grow–or simply remain profitable–with a process that remains compliant with regulations.
For a better understanding of this precarious balance, let’s break down why compliance is so important to a financial company’s sales initiatives:
- Regulatory Oversight
Each one of the regulatory agencies that govern the financial sector can have their own rules and regulations that can affect sales operations. For instance:
- The Securities and Exchange Commission (SEC) has specific rules for how investment advisers can market their products and services. This can affect the sales initiatives that RIAs undertake.
- The Financial Industry Regulatory Authority (FINRA) has specific rules for how RIAs can communicate with the public.
- And the Consumer Financial Protection Bureau (CFPB) ensures that consumers are not subject to deceptive sales tactics.
Sales teams at financial institutions must consider each one of the regulatory agencies to remain compliant.
- Risk Management
Your sales team can be another shield against compliance risk for your organization. After all, compliance regulations are meant to reduce risks such as fraud. When your sales team remains compliant, it helps to protect your company and your clients.
- Trust and Transparency
Remaining compliant doesn’t just offer another opportunity to mitigate risks, it offers your company an opportunity to promote trust and transparency. When your sales team conducts growth strategies in a transparent and honest manner, it builds customer trust while improving your profits.
- Avoiding Fines and Penalties
As noted in this article’s introduction, failing to maintain compliance in your sales can cost millions in fines and penalties.
Common Compliance Challenges in Financial Sales
Sales teams at financial companies have to deal with challenges that salespeople at other organizations may not have to deal with. These challenges include:
- Complexity
The sheer nature of financial products and services is complex, ranging from credit evaluation to transaction types to loan products with repayment terms that can cover decades. This complexity requires sales teams to have detailed knowledge of the products and services they are selling, as well as ensure that their communication of the products/services doesn’t oversimplify information and lead to potential compliance infractions.
- Digital Channels
In decades past, sales teams just had to worry about traditional media channels, which were often much simpler than today’s digital channels. Today, there’s email, newsletters, social media, video advertising, mobile devices, and sms messaging, just to name a few. Every one of these avenues is a different format, requiring sales teams (and marketing teams) to adapt their communications to remain compliant.
- The Nature of the Financial Industry
Few other industries are as highly regulated as the financial sector. Sales teams have to excel at selling and ensure that their sales tactics align with regulatory standards.
With some 20 regulatory agencies overseeing the financial industry, and with many of them having their own regulations and considerable overlapping, it’s a lot to ask of your sales teams to sell and remain compliant. Because of this, many potential problems can arise from your organization sales strategies, including:
Misleading or Inaccurate Representations
In their enthusiasm for promoting your company’s products and services, sales representatives can mistakenly exaggerate claims. This can lead them to misrepresent the risks and benefits of your products and services. And if the claims cannot meet your customer’s expectations, it can open your company up to potential lawsuits regarding deceptive marketing and sales practices.
Digital Marketing and Inadequate Disclosure
With digital channels, it can be a challenge to provide conspicuous disclosure to your customers. For example, consider the size of mobile device screens or the often limited space available for text on some social media sites. No matter what format of communication your sales team is using, disclosures of your products’ and services’ interest rates, fees, risks must be transparent and clearly communicated.
In addition, digital marketing brings on additional concerns and compliance regarding privacy laws.
Third-party Vendor Oversight
You may outsource all or aspects of your sales and marketing to third parties. This can lead to potential compliance issues because these salespeople are not in-house and your company has not had the opportunity to train them on compliance. However, because you have hired the third-party vendor, if they violate any compliance regulations while conducting sales for your business, it is your responsibility, as are any potential penalties.
5 Best Practices for Ensuring Compliance in Sales
Despite the complexities of requirements from the numerous regulatory agencies that govern the financial industry, with the right tools and practices, your sales team can balance growth with compliance. To assist your sales department with compliance, implement these best practices:
1. Train Sales Teams Regularly
Don’t expect your sales team to know everything about compliance; that’s not their focus. Instead, train them regularly on the compliance requirements that matter to their profession.
Consider what compliance standards are pertinent to their sales strategies, such as:
- Federal regulations from the SEC, FTC, CFPB, etc.
- State regulations from all 50 states.
- Often these regulations can be very strict.
- Anti-money laundering (AML) rules that were set forth by the “Bank Secrecy Act.”
- The practices that ensure ethical sales.
- Guidelines for marketing on digital channels.
Training must be ongoing, as regulations evolve. Not only does this mitigate the risk of violations by your sales team, it will encourage them to sell your products and services with complete confidence.
2. Implement a Strong Compliance Program
Don’t just train your sales team to be compliant when selling, put it into practice with a strong compliance program.
- Establish clear policies for remaining compliant.
- Perform regular compliance reviews.
- Have an effective procedure for reporting any compliance issues, including from within your sales team.
3. Document Everything
The more documentation, the better.
Ensure that your salespeople keep comprehensive records of their interactions with customers. This includes emails, phone calls, and chats, as well as contracts and disclosures. The benefits of this include:
- Proving compliance in the case of regulatory audits or legal investigations.
- Ensuring team members are following company guidelines and using approved sales strategies.
- Fostering transparency in your company’s culture.
- Providing documentation in the case of legal disputes.
4. Standardize Sales Scripts and Marketing Materials
Another way to provide your sales team with a successful path to compliance is with standardized sales scripts and marketing materials.
Create standardized sales scripts and marketing materials that your sales team members must follow when working with clients.
Use a platform like Luthor to ensure that all scripts and marketing materials have been reviewed, edited, and approved to be compliant with finance marketing regulations.
5. Leverage Technology for Monitoring
Just like employee training regarding compliance regulations is ongoing, monitoring for compliance must be never-ending. To reduce the workload burden on your sales and compliance teams, utilize platforms that can continuously monitor your team's sales and marketing materials.
For instance, Luthor has a monitoring feature that continuously checks marketing materials for the latest in regulatory standards.
Conclusion: Compliance + Sales = A Partnership for Success
The stronger and more connected your company’s compliance and sales are, the more successful your company will be. Sales (and marketing) are often the teams with the closest contact with your potential customers. That provides an opportunity for building great relationships with customers. And when your sales team is being ethical and maintaining compliance as they sell, they are also fostering trust with your customers and securing your company’s reputation.
