Heightened regulatory scrutiny and jittery consumers have financial advisors and insurance agents scrambling to avoid exposure to liability. At the Advocis Regulatory Affairs Symposium in Toronto last month, several industry veterans shared their “best practices” tips to protect yourself and your firm.
Ralph Cuervo-Lorens, who specializes in regulatory, risk management and compliance issues with Blaney McMurtry LLP in Toronto, recommended preparing for each client meeting and deciding beforehand how to proceed. “Many of you have multiple roles, many of you have multiple licences…some of you advise and sell at the same time,” he said. “This can mean not always being alert to the conflicts of interest between advising and selling. Each case will be different. The client will be different or his circumstances will be different, or the product will be different. Ask yourselves, ‘Am I just taking an order or are there other things I need to consider?’”
Lawrence Geller, president of L.I. Geller Insurance Agencies Ltd and president of For Advisors Only in Campbellville, Ont., emphasized the importance of creating a paper trail to document your explanations to your clients. “We have a duty to warn clients about risks…failure to do so may make an advisor liable. Keep an extraordinarily complete set of files, dated in time.”
Document everything, added Wade Baldwin, a financial advisor with Sun Life Financial in Calgary. “Document the notes that you’ve made during meetings and conversations, the client’s attitude and comments. If you document everything in detail and your process is the same every time, you will be pretty well covered.”
Mr. Geller noted that today’s technology can make it difficult for an advisor to keep on top of his notes. “Clients can now reach us in our cars…or at a funeral.”
Mr. Cuervo-Lorens said it is also worthwhile to spend time with a new client explaining what you do on an everyday basis and why you do it – and document this. “Investigators will appreciate that you took the time to do this.”
Should a client make a complaint, it will probably come to the attention of the advisor first, Mr. Cuervo-Lorens said. “Do your own assessment of whether you made a mistake. You’ll probably find that things aren’t as bad as you thought, but if you made a mistake, don’t get overly legalistic about it, using legal jargon. That will only escalate matters.”
“Admit you were wrong and set about making it right for the client,” Mr. Baldwin added.
“Often the agent’s willingness to assist is all that the client wants,” Mr. Geller said.
Keep in mind that knowledge – your knowledge of your client and whether a product is suitable for him, and his knowledge of investing – is all-important in protecting yourself from liability, said Barry Papazian, a lawyer with Papazian, Heisey, Myers in Toronto who specializes in defending insurance brokers. “The client seems to understand…but you need to test his experience and knowledge.”
Mr. Papazian added, “Every time you end up in front of a judge, the sympathy will be with the claimant.”