When advisors are sued, they are usually unable to effectively defend themselves. Why? Sloppy work processes leave them with little or no evidence to explain their interactions with clients.Harold Geller, an Ottawa-based litigator with Doucet McBride LLP explains that agents who find themselves sued typically lack proper documentation.
Currently he is working on a case involving 60 policies sold over 15 years that were subject to constant replacements. There are no notes to explain the needs analysis, the insurability or the need for insurance. There is no way to defend the case because all that he sees is what appears to be twisting and churning. With no clear documentation, there is no way to know what really happened and Mr. Geller anticipates this case will be a he-said/she-said scenario.
“In a he-said/she-said scenario a professional advisor who fails to have documents and has failed to follow a process is a target. They cannot meaningfully defend themselves except by making unsupported statements in a world where support should be available. So it comes back to process and that is largely driven by put it in writing.”
Communications with clients, such as emails must be maintained, as well as phone calls and voice messages. At the very least, Mr. Geller says agents must preserve a record of the occurrence and the key content of those communications.
He underlines that a lawsuit is not a truth-finding exercise. Lawyers take written information and oral testimony and their job is to build the best case they can with it. “So if there are lots of holes in the documentary record, a good plaintiff’s lawyer drives their truck through it and backs it up to the loading dock to load the money onto the truck. But if on the other hand, there is a good documentary record then…most plaintiff’s counsel are going to run for the hills when shown that substantive defence.”
Jim Bullock, an Ontario-based veteran life insurance advisor and a consultant who acts as an expert witness in lawsuits involving agents, recommends that advisors think defensively when conducting their practices.
He explains that advisors must recognize that if something goes wrong and the client loses money, then the agent will always be sued and blamed. “That is just a given...Therefore, he has to be prepared to explain himself and show that he did his job, that he did his best.”
For example, did the advisor disclose the risks to a client involved with a particular product? Such disclosure is an important defence for the agent if the client loses money and decides to sue. But, it is only a defence if the paperwork is available to prove it.
“Evidence is paper. Hot air has no weight at all. It doesn’t matter what the agent said he did. It matters what he can prove he did with evidence – the paperwork. That is why a letter summarizing the deal is important.”
Mr. Bullock draws on an example from his own experience. Years ago when interest rates were extremely high and the cost of insurance was quite low he was recommending and selling a lot of guaranteed term 100. The son of a friend called him and wanted to buy a whole life par policy. After six or seven years the dividend was supposed to offset the premiums for this policy.
Mr. Bullock told the client that he was not a fan of those policies and recommended that he instead take advantage of the high interest rates and buy a guaranteed policy. The client refused this recommendation and opted for the whole life par product.
When Mr. Bullock mailed the client his whole life policy, he accompanied it with a cover letter reiterating the numbers for the guaranteed product and stating that he believed it was a better deal compared to the whole life policy that the client had just purchased. In this letter, Mr. Bullock told the client that he recommended the guaranteed policy and had even bought one for himself.
Fifteen years later Mr. Bullock was contacted by a lawyer with regard to a class action suit involving the participating policy he had sold this client. “The interest rates fell, the dividends fell and the company said it won’t be eight years, it will be eleven years. It won’t be eleven years it will be 18 years. And now they are saying they’ll never offset.”
Mr. Bullock faxed the lawyer a copy of the cover letter. The lawyer phoned back and said ‘Never mind, we don’t need your file.’
“I had a Get Out of Jail Free card,” says Mr. Bullock. “Why did I have a Get Out of Jail Free Card? Because I put it there. I created it.”
Was he thinking of protecting himself when he wrote that cover letter years before? “I don’t think I was that smart,” he admits. “I was just trying to do the right thing by the client. But that is where I learned my lesson. From that point on I became a real believer in Get Out of Jail Free cards.”
Do the work
Mr. Geller says that if they want to protect themselves, advisors must simply do the work. There should be sufficient documentary evidence in the file so that if the agent is not around tomorrow, somebody else can pick up the file, understand how they got where they were and what the next steps are. “If the file is not able to support that kind of analysis, then you are not living up to the professional standards and you’re going to have a hell of a time on defence,” he says.
Some ways advisors can improve their documentation practices include investing in a Customer Relationship Management system, attending quality educational seminars and study groups, or hiring a good consultant who can help in this area, Mr. Geller suggests.