Documentation key to avoiding regulatory action

Proper documentation in client files is key for advisers in avoiding regulatory action by ASIC, regardless of their experience and assumed knowledge around industry products and trends, according to a leading compliance consultant.

Addressing the recent SMSF Association National Conference 2020 on the Gold Coast, Alexis Risk and Compliance Solutions’ Christina Kalantzis said that with increasing ASIC actions against advisers for best interests duty breaches, the importance of adequately documenting every step taken in the product research and recommendation process had never been more paramount.

“I’ve represented way too many advisers where they forgot to write certain information about the client, but they’ve known the client 15 years and they can name the birthdays of every kid, their address, their interests, what their assets are but they didn't document it,” Ms Kalantzis said. 

“I don’t think they’ve forgotten anything, it just hasn’t been in the records, so you need to start writing things in your records for file notes.”


Ms Kalantzis said there were two areas where ASIC was commonly seeing advisers trip up when it came to adequately complying with best interests.

“Number one is whether you have sufficiently researched and considered the client’s existing financial products. So, when I look at the file I want to see copies of their latest super statement, and if you can get a copy of the PDS of whatever the existing fund was put it in there,” she said. 

“Then you need a client table in all your SOAs, which should be an analysis of all the products they were in and the fees, benefits and risks, and the product you recommended.

“The second one is if you have based all judgements on the client’s relevant circumstances. So things like some super funds offer staff discounts on home loans, that could be a major factor for someone to be aware of if they switch. You’ve got to put those kinds of nuances in there.”

Ms Kalantzis said it was important for experienced advisers in particular to document knowledge that may have become assumed after many years of operating in the industry, as had been illustrated in a recent case of ASIC regulatory action she had been involved in.

“This was a real life case where [ASIC] looked at the files of the adviser and said it appeared he had failed to conduct a reasonable investigation into financial products that might achieve [the client’s] objectives and meet his needs, because there’s no record of a product investigation on file,” she said.

“When we say there’s no record of a product investigation on file, this adviser had 40 years experience in the industry, he knew every rating and nuance of every product inside out. But where’s the evidence bit? That’s what they need to see.”

Documentation key to avoiding regulatory action
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