From time to time, I see ads on TV from attorneys advising people who may have experienced investment losses that suing their financial advisor may be a solution.
To be sure, some FAs deserve what they get. Criminal behavior is not unique to this or any industry. But there is another side of the dark coin. It’s investors who would use the system to recover losses when they are not entitled, or just outright steal money from financial advisors.
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.
How many bad-apple clients does it take to wreck a career? You know the answer, don’t you? It’s just that one. So protect yourself. In addition to the information in this article, I have created a “Save Your Business” page with important free resources for you at www.billgood.com/savegoodway.
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.
Consider some possibilities: A client could allege you misrepresented something, perhaps the risk involved in an investment. Or a client’s heirs could allege your recommendations were unsuitable.
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 and eaten.
If your first line of defense is doing the right thing, your second line is proving you did the right thing. Your primary tool is a disciplined contact management process.
Contact management is the process of capturing, recording and retrieving information about individuals and small groups one contact at a time. Here’s “The Law” that’s central to this discipline: 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.
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 remember exactly what those exceptions are. Soon your documentation process has collapsed.
Note well: it’s not just that you need to document every contact. You need to document every “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 our 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 our 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.
Capture, Record, Retrieve
I have been doing a lot of experimentation lately on the best way to capture information. I have studied college note taking systems, and have developed extensive profiles and record update forms. I have concluded that “the good way” to capture information is:
A bound notebook. I buy mine at an office supply store. It goes where I go, and when I’m talking to a client or prospect, I’m taking notes. I file my notebooks in case anyone ever questions whether the conversation occurred. Hand-written documentation is part of your second line of defense.
Printed profile. This is your questionnaire consisting of multiple profiles — family, adult children, parent profiles, business interest profile, etc. etc. Sometimes you will take notes directly on the profile. Sometimes you will add the notes after a call.
A Record Update Form (RUF).Your RUF is a piece of paper on which you write new or changed contact information. It serves as a cheat sheet to remind you of the dozens of data points you can and should review after each contact. Sometimes I write on it. But sometimes the information I would put on it pops up in the middle of a conversation. In that case, I note it in my free form notes in my note book.