When it comes to policies, procedures and controls, the new regime has brought about far-reaching changes, including record-keeping.
This is a critical part of the financial adviser’s role to ensure good client outcomes across the board. Efficient and well-documented record-keeping processes allow the adviser to run a smooth business operation, manage client expectations, and, most importantly, protect clients’ best interests.
As part of our ever-expanding ‘Bring in the Experts’ webinar series (which you can access here - financialadvice.nz/bring-in-the-experts-webinar-series), compliance specialist Leigh Hodgetts recently took a closer look at what record-keeping means in relation to financial advice businesses.
As always, it was an insightful session, which I encourage you to watch in full. And if you’re short on time, here are some key takeaways.
Perhaps an obvious one, but it’s worth remembering the rationale behind the duty of record-keeping. First and foremost, record-keeping is about the client: the security of their data, their understanding of your advice, the transparency of the adviser/client relationship, and on the whole, the quality of the advice process.
From documenting your financial advice and disclosure through to professional development, adequate record-keeping allows you to prove how you’ve been making sure that your clients’ best interests were met at all times.
Of course, many advisers have been committed to record-keeping since well before the new regime was introduced. But now, with it becoming a legal requirement for all advisers, we’re further reinforcing the notion of financial advice as ‘relational’ rather than ‘transactional’. Ultimately, it’s things like these that help build trust in your business, and, more broadly, in the financial advice sector at large.
As you know, the record-keeping standard condition requires you to create and maintain adequate records in relation to your financial advice services, for at least seven years.
During our session, we talked about what the ‘seven years’ cut-off means in practice, as it’s probably one of the most common questions. Once again, I welcome you to watch the recording of the webinar on the Financial Advice NZ website for more information.
Without getting into too much technical detail here, the underlying principle of record-keeping is to maintain well-organised, up-to-date, easily accessible, and secure records. It needs to be woven into the six-step advice process, and extended to the whole client relationship – before, during and after the advice is provided.
The purpose is to have a comprehensive and well-documented ‘relationship history’ for each of your individual clients, from the very first ‘fact find’ meeting through to the communications and reviews you have over the years, and of course, anything in between.
Drawing upon her extensive expertise, Leigh had a lot of practical tips to share. One of these was as simple as it was effective. When record-keeping for advice, ask yourself: if someone who did not know anything about the client read the documentation, would they understand the client’s background, their needs, and how the advice provided meets their needs?
The regulator, and any third-party compliance person you may be outsourcing this task to, doesn’t know the client. But you do. You know their needs and goals. You know what policies they have in place, and why. You know the questions they asked, and what you said to explain your recommendations. You may have drawn a diagram on a piece of paper – if so, why not take a quick picture and add that to the client’s file?
Sometimes, especially when you’ve been working with the same client for a number of years, it can be easy to omit information that’s already been discussed in the past. But the regulator has never met the client, so documents always need to be well-prepared: they need to ‘talk’ on their own.
And here’s another piece of advice from our session: keep it simple. The more complex processes are, the easier it gets to skip important steps.
Full disclosure ensures transparency in the relationship, helps build trust, and enhances the client’s understanding of the service they’re receiving.
Far from being a tick-box exercise, once again it’s crucial to document every step. It can be a good idea to add in some extra questions to the meeting notes, to check that the client hasn’t been just informed but has also understood: (1) the nature and scope of the advice, (2) fees and expenses, (3) commission amounts or value, (4) any material conflicts of interest, etc.
Leigh made the example of an adviser who had been offered a discounted Level 5 course by a product provider. There’s nothing intrinsically wrong with it, of course. But it’s the kind of information that needs to be disclosed, explaining that it hasn’t materially impacted or influenced the recommendation, which was based on a thorough analysis of the client’s needs and circumstances.
Grappling with regulatory changes? Earlier this year, we released our webinar series ‘Ready, Set, Go’, providing adviser businesses with helpful information on all things compliance-related.
You can watch the series at financialadvice.nz/readysetgo. We also covered many relevant examples of record-keeping in several of our workbooks, available to members. Visit our website to find out more about our initiatives.
