Professionalism Counts, November 2022
Precept 11—Truth in Advertising
While hunting for a topic for this month’s column, this concept, which had been suggested as a webinar topic, seemed relevant: “The prevailing tendency for actuaries to knowingly oversell their capabilities or the effectiveness of their services/products/techniques for competitive advantage.”
False or misleading advertising is a topic we rarely touch on in this column, though it is covered by Precept 11 of the Code of Professional Conduct, which states:
An Actuary shall not engage in any advertising or business solicitation activities with respect to Actuarial Services that the Actuary knows or should know are false or misleading.
Annotation 11-1 goes on to define advertising and business solicitation activities as:
[E]ncompass[ing] all communications by whatever medium, including oral communications, that may directly or indirectly influence any person or organization in deciding whether there is a need for Actuarial Services or in selecting a specific Actuary or firm to perform Actuarial Services.
You may wonder how often Precept 11 comes up at the Actuarial Board for Counseling and Discipline (ABCD). Checking the ABCD annual reports for the last five years, Precept 11 is the subject of a few inquiries and requests for guidance (RFGs) in most years. The reports describe some of the inquiries and RFGs as:
- False or misleading representation of products or services in marketing, advertising, or sales efforts;
- Making disparaging statements about another actuary;
- Making false and/or misleading statements about a competitor;
- Potentially misleading marketing/promotional material;
- False or misleading representation of products or services in marketing, advertising, or sales efforts; and
- Making disparaging, false, or misleading statements about a competitor.
The very fact that Precept 11 exists tells us that false and misleading advertising is a recurring issue in the profession (though to be fair, not unique to the actuarial profession, as evidenced by truth-in-advertising laws). Indeed, in a survey of Academy members published in 2015, respondents rated “false or misleading representation of products or services in marketing, advertising or sales efforts” as the No. 2 ethical issue facing actuaries.
(“Responding to pressure from principals and/or management to select inappropriate assumptions used in pricing or reserving” was the top issue, while “failure to take appropriate action when another actuary misrepresents information” was No. 3.)
In a competitive business environment, companies need to find a way to stand out from their competitors to gain new clients, and it may be tempting to slightly exaggerate the benefits of your company’s services. As a recent Up to Code article on Precept 11 notes, many actuaries truly believe their services are better than those of their competitors—but such claims must be substantiated, individually and in aggregate, to ensure that your marketing materials are not false or misleading.
Although your financial future may in part depend on successful marketing, you, your clients, and the profession will be better off if such marketing follows precepts 1 and 11—and is honest, truthful, and upholds the reputation of the actuarial profession.