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Record-keeping provides advisers with a safety net but it can also be a springboard to better client relationships

Good financial advisers know their clients intimately – the unwise investments, the secret shopping addiction – in some cases, they may even know more than the client’s family. But this intimacy can also be held against advisers if the portfolio underperforms.

“You should have known” or “You never told me”, the client might claim.

Keeping records of client conversations is critical protection and gives both clients and advisers peace of mind.

However, some advisers have recognised that record keeping could go further than just compliance – records can actually improve the quality of advice provided.

Legal matters

The compliance burden facing advisers has stepped up sharply in the wake of FOFA. Under the new regime, advisers are required to act in their client’s best interests – and, if necessary, prove it.  In section 961B of the Corporations Act, advisers are required to show that they have identified

  • the objectives, financial situations and needs of their client
  • the subject matter of the advice and any relevant circumstances
  • whether it is reasonable to offer a financial product
  • which financial products might achieve the client’s objectives
  • any other relevant matters or steps that would be in the client’s best interests

Case law, licence conditions and ASIC regulatory guides also impact on the type of records advisers must keep. In addition, from 23 March 2015, a new section of the Corporations Act will specify what must be recorded, in what way and how long it must be kept.

Business consultant Brendan Barratt from Licensee & Adviser Support Services sees record keeping as critical to fulfilling the best interests duty. He reminds advisers that regulators will only believe what they see written down – “if it’s not in writing, it doesn’t exist”, he says.

Jenny Brown, CEO of JBS Financial Strategists, believes record-keeping “keeps us out of jail”.

“If there’s ever a problem … I have the file notes to back me up. Because the file notes are what will save you,” she says.

But in the view of WolfThink business consultant Stephan Kasanczuk – a former ASIC investigator – some advisers focus too much on regulation.

He believes firms that implement best practice will be well protected through any regulatory changes or client disputes.

Who, where, what?
Advisers have varied approaches to record-keeping, from state-of-the-art software to notes scrawled on a napkin.

Mr Kasanczuk recommends developing a system with streamlined processes and easy-to-use pro formas.

“Advisers need to be cognisant that for any interaction they have with their client – whether it be phone calls, text messages, email or face-to-face – a file note should be maintained and put onto that person’s file,” he says.

Even off-the-cuff conversations need to be recorded, Mr Barratt warns, because even minor issues may later turn out to be game changing.

“You never know what is behind the client’s question,” he says.

According to Mr Kasanczuk, each notation should include the name of the client, the date, the time and the subject matter.

He recommends making bullet point notes as the client speaks.

“If you try and do it later on, nobody’s memory is perfect one or two hours afterwards,” he says.

Ideally, Mr Barratt believes, notes will present a clear picture of the client’s affairs to anyone accessing the file.

He also urges advisers to record any additional details such as conversations with referral partners or other third parties.

“Anyone should be able to service the client, with no additional explanation required. The file should demonstrate the client’s position and the advice given, as in what happened, why it happened and the rationale,” he says.

In particular, Mr Barratt believes in the power of recording the client’s exact words.

He suggests writing down exactly what was said – even if it was “Mr X told me to p**s off” – so that in the event of a dispute, the words can be repeated back to the client verbatim.

If a court is asked to make a ruling, Mr Barratt believes this makes for more compelling and realistic evidence.

Digital revolution

In recent years, both audio and video recording devices have become more common in practices around the country.

In Ms Brown’s firm, her advisers use Livescribe pens, which record the audio in the room as the adviser makes notes on a specialised screen.

The notes and audio are then uploaded onto a computer – when the notes are clicked, the audio from that part of the meeting starts playing.

Her practice always warns clients in advance that they will be recorded and but so far, has received no objections.

Ms Brown believes an audio recording gives her advisers an extra layer of protection by providing indisputable evidence of what was said.

“But if we say the wrong thing, it can also work the other way as well. So obviously it keeps everybody completely transparent and honest,” she says.

She believes recordings are also valuable where there is a delay in producing the file note. As scrutiny over advisers increases, she believes advisers who rely on written systems are leaving themselves open to disputes.

“I think if advisers are just using written notes, they’re not covering themselves as well as they could.

I don’t think recording is a must but in JBS, it’s mandatory,” she says.

However, Mr Kasanczuk has reservations about voice recording, warning it can be a “waste of money”.

An adviser who ends up with endless hours of tape may not be able to easily access their records, like tourists who take hundreds of holiday snaps but never look at them again, he suggests.

“All you’re doing is increasing the level of expense for storage and management of that information,” he says.
Mr Barratt is in favour of technological solutions but encourages advisers to think carefully about cybersecurity and storage, including keeping a backup offsite.

He believes the method of recording is ultimately less important than what is recorded.
“The key is making sure the content is good,” he says.

Beyond compliance

While Ms Brown originally ramped up her record-keeping as a compliance measure, she has seen the quality of advice in her practice improve as a result.

“I can go back and replay [the meeting] to help the guys talk to their clients,” she says.

“As a result, advisers then start thinking more and more about everything that they’re doing. It makes it a lot easier to be able to train them that way.”

Mr Barratt suggests record keeping can also help advisers give more nuanced, multi-layered advice.

“It increases sales because it’s a lot easier to target and identify client needs if you have a good understanding of the client,” he says.

In Mr Kasanczuk’s experience of reviewing practices, compliance is a short-term cost that leads to long-term savings. He points to large institutions that have recently been stung by enforceable undertakings as an example.

“If they had implemented proper compliance controls, the cost of hiring a compliance department is far less than the costs they now have and the reputational damage,” he says.

He believes a clearly structured compliance procedure promotes efficiency because it becomes an automatic part of the adviser’s working day.

He also finds employees following a set procedure tend to have more confidence in the advice they are providing.

“Effective compliance and risk management improves efficiency, effectiveness and productivity.

The employees who have to abide by these compliance and risk rules feel better secured because they then understand what their accountabilities and responsibilities are, and what they should or should not be doing,” he says.
Mr Barratt’s philosophy towards record-keeping is simple – it elevates the adviser’s practice to another level.

“I suggest advisers think of compliance as professionalism,” he says.

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