Ethical vs Unethical Behaviour
Concept
Unethical conduct advances the representative's remuneration or convenience at the client's expense. The exam wants you to recognise the named misconducts on sight and to apply the golden rule: the client's interest always ranks above commission. A transaction can be legally executed, fully documented and leave the client smiling — and still be unethical if the genuine need wasn't served.
Key rules & facts
- Churning: excessive/repeated trading or switching primarily to generate commission, not to benefit the client.
- Twisting: inducing the client to replace a product that is not in their interest, to earn fresh commission; any switch must be needs-justified, with new costs and lost benefits (e.g. surrender charges, restarted incontestability/suicide clauses, health re-underwriting) disclosed.
- Misrepresentation: false, exaggerated, or incomplete information, or material omission — including silence about a key risk.
- Secret profits / undisclosed inducements: benefits, rebates, or gifts tied to a recommendation without disclosure — avoid or fully disclose.
- High-pressure / unsuitable selling: false urgency, fear tactics, or pushing a product the fact-find shows is unsuitable.
- Priority of client's interest: recommend the more suitable product even if it pays you less.
Ethical vs unethical behaviour
| Unethical behaviour | Ethical behaviour |
|---|---|
| Churning — trade repeatedly to earn commission | Recommend changes only when the client's needs require them |
| Twisting — switch policies for fresh commission, hiding lost benefits | Justify any replacement by need; disclose costs and lost benefits in writing |
| Misrepresentation — overstate returns, omit risks | Give a balanced picture: benefits *and* risks, guaranteed vs non-guaranteed |
| Undisclosed inducements — pocket a rebate/gift tied to a sale | Avoid the inducement, or disclose it fully to the client |
| Pushing the higher-paying product | Recommend the most suitable product even if it pays less |
| Pressure / false urgency | Give the client time and full information to decide |
Worked example
A client is advised to surrender Policy A and buy Policy B. Coverage and premium are almost identical; the only real change is a higher commission to the representative, plus a surrender penalty and a fresh contestability period for the client. This is twisting — the switch serves the representative, not the client, and the lost benefits weren't justified or disclosed.
Exam angle
Scenario questions ask you to name the misconduct (churning, twisting, misrepresentation) or to pick the ethical action. Watch for switches or frequent trades whose only genuine effect is more commission.
⚠ The trap
Judging by the client's short-term satisfaction or by paperwork correctness rather than by whether the genuine interest was served — a happy client with a complete file can still be churned or twisted.
Takeaway
If the transaction benefits your commission more than the client's needs, it's unethical — full stop.
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