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National Ethics Bureau™
Frequently Asked Questions

Compliance FAQ’s For Financial Services Companies 2008

1. What is the National Ethics Bureau?

The National Ethics Bureau™ (NEB) is a leading advocate for business ethics in the financial services industry. NEB is similar to the Better Business Bureau (BBB), but with more stringent requirements for membership (see question #3 below). NEB promotes ethical business practices through its trade-magazine columns, conference presentations, monthly newsletter, and website content. It also maintains a membership community of background-checked advisors who have agreed to uphold its principles and membership standards.

NEB also sponsors related services such as Preferred Risk E&O™ insurance and state-approved ethics and compliance continuing education courses for licensed insurance agents and securities brokers. For the general public, NEB provides the ability to purchase a background check on any financial professional prior to doing business.

NEB is not a financial designation, nor does it endorse any products or services offered by its members or sponsors..

2. Is the National Ethics Bureau a commercial business, non-profit organization, or trade association?

NEB is a California-based commercial business that, like a trade association, has a community of members. NEB also provides non-members such as employers, consumers, and financial services companies the ability to purchase background checks, acquire identity theft prevention services, access compliance guidance, subscribe to ethics motivational content, as well as other related products and services. In addition, NEB offers state-approved ethics and compliance continuing education courses for all licensed insurance agents and securities brokers, as well as for those holding accredited designation such as: the Certified Financial Planner (CFP), Chartered Life Underwriter (CLU), and Chartered Financial Consultant (ChFC).

3. What is the main difference between the National Ethics Bureau (NEB) and the Better Business Bureau (BBB)?

Both are membership organizations designed to enhance consumer confidence. However, unlike BBB, which has served consumers and businesses successfully for decades, NEB has an extensive background check process designed specifically for financial professionals.
(see Exhibit #1)

4. What professional license types do you require for membership?

Currently, all members must hold at least one of the following license types:

Life/Health Insurance
Property & Casualty or Fire Insurance
Series 6 (Investment Company or Variable Contracts)
Series 7 (General Securities Registered Representative)
Series 65 (Uniform Registered Investment Advisor)
Series 66 (Uniform Investment Advisor – Combined State Law)
Real Estate Agent
Real Estate Broker
Mortgage Broker
Accounting / CPA Designation

5. What is the membership application process?

Prospective members must complete an application questionnaire and provide written permission for NEB to conduct a full background check (Ethics Check System™). If no membership-disqualifying violations are found, and if they agree to maintain NEB’s standards as outlined in our Application Questionnaire (see Exhibit #2), Membership Agreement (see Exhibit #3), and Ethics Pledge (see Exhibit #4), they are then eligible to join the National Ethics Bureau.

6. What is the Ethics Check System™?

It is NEB’s proprietary 7-year background check process. The Ethics Check System™ is used to uncover any membership-disqualifying violations that would bar an applicant from either becoming or remaining an NEB member.

7. How often does NEB check the backgrounds of its current members?

Without exception, NEB conducts its full background check process on all NEB members at least once a year, at the time of each member’s annual renewal date. NEB grants membership renewal only if a member passes its background check process and meets its current membership standards.

8. Who performs NEB’s nationwide criminal and civil background checks, and how are these checks verified?

Acxiom Information Security Services, a world leader in security information technology, conducts NEB’s criminal background checks. TransUnion, a global leader in information technology, conducts NEB’s civil background checks. Both of these entities provide written documentation of each completed background check, which is available to regulators upon request.

9. What specific background checks does NEB perform on member applicants?

The following is a list of the annual checks that make up our Ethics Check System™, with the exception of the SEC check, which we perform on a monthly basis:

Criminal Background Check – 7 Year
Nationwide skip-trace provided by Acxiom Information Security Services, a world leader in security information technology. This checks for any pending or confirmed felonies or disqualifying misdemeanors.
Civil Background Check – 7 Year
Nationwide investigation provided by TransUnion, a global leader in information technology. This checks the civil courts for any pending or confirmed disqualifying violations that have resulted in a judgment, fine, or award.
Professional License Check – 7 Year
NEB verifies the existence of one or more recognized state or federal regulated licenses to offer financial services. This may include securities, insurance, mortgage, real estate, accounting, or other financial-services professional license.
SEC (Securities and Exchange Commission) – 7 Year
NEB performs a monthly cross-check for any disqualifying violations that result from SEC disclosure of any Administrative Law Judge initial decisions and orders, administrative proceedings, reports of investigations, and litigation releases.
Bankruptcy Check – 7 Year
NEB utilizes TransUnion to conduct a comprehensive credit check. This check verifies that, effective June 1, 2007, NEB applicants have not declared bankruptcy in the prior seven years.
Department of Insurance – 7 Year
NEB checks each resident and non-resident insurance license listed by applicants. This check verifies with state insurance departments that all licenses are up to date, that applicants have no disqualifying violations, and that they have stayed current with continuing education requirements.
FINRA (Financial Industry Regulatory Authority, formerly NASD) – 7 Year
NEB reviews all CRD disclosure reports to uncover any disqualifying violations for both active and inactive licenses.
State Securities Administrators – 7 Year
NEB checks with each state securities division to uncover any ongoing investigations or disqualifying violations in addition to those discovered by other regulatory agencies.
State Departments of Real Estate
NEB checks with state departments of real estate to verify that all licenses are up to date, that applicants have no disqualifying violations, and that they have stayed current with any continuing education requirements.
State Mortgage License Regulators
NEB checks with state mortgage license regulators to verify that all licenses are up to date, that applicants have no disqualifying violations, and that they have stayed current with any continuing education requirements.
State Association of Realtors
NEB checks with state associations of realtors to verify that applicants have no disqualifying violations.
National Association of Realtors
NEB checks with the National Association of Realtors to verify that applicants have no disqualifying violations.
State Accounting Department
NEB checks with state accounting departments to verify that all licenses are up to date, that applicants have no disqualifying violations, and that they have stayed current with any continuing education requirements.

10. Have NEB’s membership standards changed over time?

Yes. NEB has continuously tightened its membership standards over time in order to adapt to industry trends and regulatory requirements. All renewing members must re-qualify each year under current standards in order to maintain their memberships.

11. What types of violations do you uncover that would disqualify an advisor from membership?

Serious marks such as felonies, theft, forgery, fraud, false statements, misappropriation, embezzlement, deceit, or other prohibited, illegal, or criminal sales practices are all grounds for disqualification. Other disqualifying marks include business-related misdemeanors, awards to customers, pending arbitration or civil litigation, adverse orders, and restricted licenses.

In addition, in order to adapt to industry trends and regulatory standards, NEB no longer allows a new applicant to have a bankruptcy, settlement to customer, selling away violation, broker-dealer termination, preventive order, or censure from an accredited organization. This tighter standard became effective June 1, 2007.

12. For what other reasons do you deny membership?

We will deny membership to those who have violated any of the standards outlined in NEB’s Application Questionnaire, Member Agreement, or Ethics Pledge during the past seven years.

13. Why do you disqualify new applicants for having a “settlement to customer” even though FINRA states that a settlement is “not an admission of guilt or wrongdoing”?

Although a settlement may not be an admission or evidence of misconduct according to FINRA, the NEB considers settlements to be an adverse mark on an advisor’s record. This is due to the fact that settlements occur in response to a serious consumer-initiated complaint. Therefore, effective June 1, 2007, NEB added settlements to the list of disqualifying violations as defined in the membership agreement. All new applicants must have a seven-year record free of settlements, regardless of the circumstances surrounding them.

14. Why do you disqualify new applicants for having a bankruptcy?

Although many bankruptcies may be the result of medical problems or divorce, and not financial irresponsibility, NEB errs on the side of caution in this regard and considers them to be an adverse mark on an advisor’s record. Therefore, effective June 1, 2007, NEB added bankruptcy to the list of disqualifying violations as defined in the membership agreement. All new applicants must have a seven-year record free of bankruptcies, regardless of the circumstances surrounding them.

15. If an advisor is considered “in good standing” with other professional organizations, as well as with state and federal agencies, why do you disqualify the person from NEB membership?

The criteria for NEB membership is based solely on maintaining a public record free of NEB disqualifying violations (as defined in the NEB Membership Application, Member Agreement, and Ethics Pledge). Admittedly, NEB standards are strict and uncompromising, which is absolutely necessary in order to maintain the integrity, reputation, and credibility of the NEB brand. Simply put, there are thousands of advisors who are approved to do business in every U.S. state, and may even hold a variety of professional credentials, who would still not qualify for NEB membership.

16. Do you ever deny applicants for violations beyond the 7-year background checks?

Yes. Even though NEB’s Ethics Check System™ looks back seven years into an applicant’s background, NEB reserves and exercises the right to deny membership for offenses that may have occurred prior to its standard 7-year look back.

17. For what reasons do you suspend membership, and what are the procedures?

NEB will suspend members if they come under investigation by any regulatory or governmental agency for unethical or illegal conduct. Once NEB learns of possible regulatory action, it immediately suspends members and notifies them in writing of this decision. While under suspension, they may not hold themselves out to be a NEB member, nor make use of the NEB brand or services. In the meantime, NEB will await a final regulatory ruling. If the outcome is negative, we will immediately expel the member.

18. For what reasons do you revoke membership, and what are the procedures?

NEB members must have a public record free of disqualifying violations as defined in the NEB Application Questionnaire, Membership Agreement, and Ethics Pledge. If NEB discovers such a violation in a current member’s background, it must revoke membership, regardless of the circumstances surrounding the violation.

19. Does NEB revoke memberships when it receives a Consumer complaint?

Not necessarily. NEB recognizes that complaints do not necessarily indicate unethical or illegal conduct. Therefore, we typically require a legal or regulatory decision that validates the complaint before we revoke membership.

However, if we receive repeated complaints about a member, which do not rise to the level of a crime or regulatory enforcement action, but that suggest a failure to adhere to the NEB Ethics Pledge or to comply with the NEB Membership Agreement, we will revoke the membership of that individual. When it comes to protecting consumers, our policy is to err on the side of caution and to remove unethical members sooner rather than later from our membership roster.

20. How does NEB implement revocation procedures?

NEB immediately issues a cease-and-desist letter to the individual. (see Exhibit #5) This letter also formally demands that all membership materials be returned to the NEB without delay.

21. How often do you deny, suspend, or revoke memberships?

NEB currently maintains a 6% rejection ratio on all applicants and renewing members. This is necessary to protect the public and to maintain the integrity and credibility of the NEB brand.

22. When communicating with the public, what terminology do you allow and NOT allow your members to use regarding their membership?

Advisors may only describe themselves as a “Member of the National Ethics Bureau” and cannot imply in any way, whether written or spoken, that NEB endorses or approves of their company, product, or services.

In addition, they must not state or imply that NEB membership is a professional designation or certification of any kind or that NEB “verifies” or “certifies” their ethics.

Finally, effective July 1, 2007, members must not use any marketing material or verbal communication that contains subjective or potentially misleading terminology when describing themselves, such as having “an exemplary record of business ethics” or referring to the NEB logo as the “Seal of Trust”. These prohibitions are in response to current regulatory requirements.

23. What are NEB’s policies regarding member use of the NEB logo?

All members must comply with the branding guidelines detailed in the NEB Membership Agreement and Member Update (Volume 3, Issue 8). Following are several key requirements:

Members must always use the current NEB logo.
Members must never use the logo to suggest that NEB has endorsed any company, product, marketing concept, service, or seminar with which they are affiliated.
Members must not alter or modify the NEB logo in any way.

24. What does NEB disclose to consumers regarding the fundamental meaning of membership? Does NEB provide a disclaimer?

NEB makes every effort to help the public understand the following 3 things about our members, which is stated throughout our website and printed materials:

1. Members have passed our 7-year background checks;
2. Members have agreed to maintain NEB standards;
3. Membership is no assurance of good character or quality advice.

In view of this, NEB prominently posts regulatory contact information on its website and printed materials for consumers to conduct their own due diligence on a member. In addition, NEB provides consumers with the following disclaimer:

“All NEB members have successfully passed our annual seven-year background checks for criminal, civil, and business violations in order to meet our membership standards. However, NEB provides no guaranteed assurance or warranty of the character or competence of its members. Always make financial decisions on the basis of your own due diligence. Contact information for various state and federal regulatory agencies can be found at www.ethicscheck.com/regcontact. NEB is not affiliated with any state or federal government agency. For details on NEB membership standards and disqualifying violations, please call us or go to our website at www.ethicscheck.com.”

25. How does NEB handle complaints about members?

Consumers may file a complaint against any NEB member by filling out a complaint form on NEB’s website or by calling the NEB Member Services at (800) 282-1831. NEB takes all complaints seriously and moves quickly to resolve them. Our complaint resolution process unfolds as follows:

NEB immediately sends an acknowledgment letter to the complainant and notifies the NEB member by telephone about the nature of the complaint.
The NEB member must respond to the consumer complaint within two weeks from the time the complaint is brought to the attention of the member.
If the complaint is not resolved to the complainant’s satisfaction within 30 days from the receipt thereof, NEB provides the consumer with contact information and directions on how to file a complaint with the appropriate regulatory authority.

26. What is an NEB Sponsor and are Sponsors considered NEB members?

NEB forms relationships with organizations such as broker dealers, financial marketing organizations, real estate agencies, accounting firms, and insurance companies in order to promote ethical conduct in financial services, and to pass along a group discount rate to their agents and brokers. There is no fee to become an NEB sponsor. However, all sponsors must agree to regularly disseminate NEB’s ethics and compliance information. Sponsors are neither endorsed by, nor are they members of, the National Ethics Bureau.

27. How does NEB promote ethics in the financial services industry?

NEB publishes a monthly member e-newsletter (see Exhibit #6) that includes compliance guidance (Red Flag Reminder) and ethics motivational content (Eye on Ethics). NEB also publishes ongoing ethics columns in a variety of leading industry trade publications. (see Exhibits #7 A-I).

In addition, NEB offers state-approved ethics and compliance continuing education courses for all licensed insurance agents, securities brokers, and for those holding the Certified Financial Planner (CFP), Chartered Life Underwriter (CLU), and Chartered Financial Consultant (ChFC) designations.

28. What services does NEB provide to the general public?

NEB provides consumers with a variety of resources that help them stay protected and informed in the financial services marketplace. These include:

A series of free, easy-to-understand consumer protection guides.
Access to a third-party identity theft prevention service.
A comprehensive, consumer-friendly contact directory of all regulatory agencies.
The ability to verify the background of an NEB member by contacting NEB’s national call center.
The ability to purchase a background check on a non-member prior to doing business.

29. Where is the National Ethics Bureau located?

National Ethics Bureau (NEB)
12707 High Bluff Drive, Dept 200 San Diego, CA 92130.
Phone: (800) 282-1831
Fax: (760) 462-3333
E-mail: info@ethicscheck.com
Website: www.ethicscheck.com

National Ethics Bureau™ Frequently Asked Questions