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Some time during the September/October meltdown, I saw a huge billboard. I was just turning into a wealthy subdivision. Everyone who went there saw it.

The phone number was catchy — something like 1-800-SueYourBroker. No doubt 2009 will be a banner year for the attorneys who specialize in suing financial advisors.

Those few financial advisors who go over to the dark side are not alone in their pursuit of evil. There is another side of the coin, another source of evil we rarely hear about in the media. It’s investors who would use the system to recover losses to which they are not entitled, or just outright steal money from financial advisors and their broker-dealers.

Let’s assume you have one such client in your book right now. Let’s further assume your record-keeping has been sloppy. You, my friend, are at risk of losing your business. Ask yourself this question: How many bad-apple clients does it take to wreck a career? You know the answer, don’t you? It’s just that one.

Bullet-Proofing Your Practice

So let’s talk about protection.

Obviously, your best protection is doing the right thing, which means following sound investment principles and the ethical guidelines of the industry. But sadly, today that’s not enough. You can do the right thing and still lose everything.

So you need a second line of defense: meticulous documentation that you did the right thing and did not omit any of the things you should have done.

Here are just two charges that the folks over at 1-800-SueYourBroker might bring against you.

A client could allege you misrepresented something, perhaps the risk involved in a mutual fund portfolio. Or a client could allege your recommendations were unsuitable.

Yes, the mutual fund portfolio is surely down. But what do your notes say about your discussion of risk factors? And what information do you have to back up your claim that the investment recommendations you made were suitable? While you may have done the right things, if you can’t prove it, your goose is as good as cooked.

The Law

The foundation for professional-quality documentation is “The Law” which states:

“Every contact and contact attempt with a client or prospect produces an updated record.”

YOU: Bill, that’s awfully severe. What if someone calls my assistant to wish him happy birthday? Should that generate an updated record? Suppose I run into a client at the grocery store. We chat a few minutes about the market and then go our separate ways. Should the supermarket contact produce an updated record? Isn’t that going too far?

ME: Yes, yes, and no. Yes, the birthday call should produce a note in your database. Yes, you should document the supermarket contact. And no, this is not going too far.

The problem is: When you allow exceptions to “The Law,” you will come up with other exceptions. When there are a bunch of exceptions, neither you nor anyone on your team can then remember exactly what those exceptions are. Now it becomes a free-for-all, and soon your documentation process has collapsed. One of these days — gotcha!

Note well: It’s not just contact that needs to be documented. It’s “no contact” as well. Suppose your assessment of the risk of an investment has changed, and you now believe a particular investment falls outside the risk profile of a given client.

You call six times. You leave six voice-mail messages. The client does not call. Other things come up and he slips off the screen of your electronic to-do list. Some months later, you get a letter from the senior partner of Grabber, Holder and Headbuttem advising you that your failure to communicate changed risk factors in that investment has caused your client a substantial loss. Without documentation that you made every reasonable effort to advise your client of the issue, you are heading down a two-year path to substantial legal bills, or worse, an abrupt change in career path.

Conclusion: There are no exceptions to “The Law.”

The Unsuitability Defense

As you read this, please understand I do not write as an attorney, nor do I give legal advice. That said, surely you know of FINRA 2310. You do your best to base your recommendations on financial status, tax status, investment objectives, and such other information used or considered reasonable in making recommendations to the customer.

As you read over the previous paragraph, perhaps you paused on the phrase “such other information used or considered to be reasonable.” What on earth does that mean? It’s word-for-word out of 2310. If a client were going to make an unsuitability claim, and an attorney chose to represent it, do you think this “other such information” requirement would be a fruitful area for deposition and other exploration? I’ve posted a document from my book, Hot Prospects, over at, which you can use in developing your own “Other Such Information” questionnaire.

OK. Here’s our strategy for dealing with unwarranted charges of unsuitability:

1) Gather more information than you are likely to need, thus enabling you to demonstrate you made every reasonable effort to comply with the “such other information” rule. Neither I nor anyone else on this or any other planet can tell you exactly how much is enough. So you are left with two choices: not enough, or too much. Obviously, you have to gather more information than you could reasonably be expected to have.

2) At every meeting, review at least one part of your profile. If you gather good information and then cannot document that you ever referred to it or updated it, you are at risk. So set up a disciplined process of profile review.

Three Methods of Documentation

As you decide on your documentation process, consider these options:

1) Type it in yourself. By far, this produces the worst documentation. At the end of a call, you are off onto your next call. You scribbled a few notes somewhere. Most likely, you are worth minimum wage as a typist, or worse. Because I’ve seen so many databases, without even looking at yours, I give you a D- for using this method. It’s better than nothing, but not by much.

2) Record Update Form. We call this a RUF. When speaking with a client, you can write and talk at the same time. But it is rude to type and talk at the same time. So take good notes, and then let someone else enter them into your database.

OK, so you are by yourself, and are your own computer operator. Then do the typing in its own time-block. There is most certainly a frame of mind for data entry, just as there is for sales. If you have to do them both, save your RUFs for non-optimum selling time, such as late afternoon, or even do them at night. Simply because of the time it takes to write out a decent report on a call or meeting, I give you a B for implementing this method.

3) Copytalk plus RUF. One of my very favorite productivity tools is Copytalk, a dictation service. For a few dollars a month, you call Copytalk, dictate what happened on a call or meeting, and in a few minutes a transcription of your dictation hits your e-mail box. As I dictate, I have available a copy of my RUF which also serves as a cheat-sheet to make certain I get all those little points that create a database, as opposed to merely a computerized note file.

The Copytalk e-mail goes to my assistant. She proofs it and sends it on its way.

You can get a free month of Copytalk by calling 1-866-267-9825, and mentioning my name. Get this going and you get an A.


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