Compliant Advice: Paper Beats Scissors Every Time
Best Practice Advice & Compliance

Compliant Advice: Paper Beats Scissors Every Time

March 16, 2020

by Tony Vidler  CFP logo   CLU logo  ChFC logo

When it comes to compliant advice Advisers really need to grasp that they are playing a game of “Rock, Paper, Scissors” with every client engagement now. There almost certainly will be an instance where a client throws the Rock….

We try to beat it with Paper.

Complaints authority or regulator takes to the Paper with the Scissors.

Game on.


EXCEPT, in this game the right Paper beats everything.  Paper wins every time in our game.


I can say that as I’ve “been there, done that” myself on several occasions.  I still vividly recall getting that phone call from the complaints authority the first time because a client alleged that I had misled them.  Unless you’ve experienced one of those calls it is virtually impossible to describe the sinking feeling and immediate sense of paranoia…In my case I received a call from the Ombudsman’s office which began with “do you represent client X?”  Once we’d confirmed who I was and who they were and that the professional relationship did exist, they advised me verbally of the substance of the allegations.  This first preliminary step was to ascertain whether there was a case to be heard at all, so I was given the opportunity to submit my “version” before a decision was to be made on whether to hear the complaint.


The client alleged that I had sold them (a couple) a locked in retirement savings plan, which was heavily front-end loaded with fees and commissions (so much so that it took some 8 years to break even), and that I had not disclosed these charges, nor advised them that it was untouchable (locked in) until age 65 – and of course they had wanted to set up a savings plan which was flexible and could possible contribute towards a house deposit.  Their statement of claim (the allegation) was detailed and convincing – right down to quoting parts of the conversation which had apparently been had some 8 years prior, describing my pin-striped navy blue suit and red tie, and remembering what time the meeting had been along with the very words I had uttered in suitable quotation marks.


Damning stuff.


From the Ombudsman’s perspective this seemed at first glance to be a pretty open-and-shut case. I WAS their adviser. That was undisputed.  They DID have a retirement plan as they had described – complete with all the limitations they described.  That was indisputable.  It was even true that I used to get about in a pin-striped navy blue suit at one stage and had a leaning towards red ties for a while.  But there was one critical flaw in the complaint.


The clients had bought the retirement savings plan about 3 years before I met them.


I had actually met the clients as a referred lead initially, and essentially engaged in a comprehensive risk planning exercise.  While doing so and determining what cover they had we found that there was this retirement plan that had been put in place by an adviser who had since left the industry.  As a professional I obtained their written authority to obtain information on it directly from the product provider and then reported the “state of play” on that contract to them.  I was subsequently appointed by them as the “servicing adviser” by that supplier for that unserviced contract.   There was no commission or income payable to me on it, but that was of no consequence to me.  It was all part of the service as they were in fact now paying clients courtesy of the risk planning and implementation I had done.


But back to the complaint: After the initial conversation with the Ombudsman I went to the client file (yes, it was a bulky paper file!) and within about 20 minutes had sent a copy of all of the contact notes, the initial engagement letter and meeting notes, and a couple of statements and pieces of correspondence showing that I had been appointed to service an existing contract put in place by someone else.


No case to answer.  The Ombudsman thanked me for my time and the entire affair was done from start to finish in about an hour. Phew.


Paper won the game.


As it turns out, over the course of my career I have had a couple of complaints – and paper won the game every time.  Rocks were thrown,and people took to the records with scissors to try and cut out just the bits they thought might be useful to win their arguments….but the entirety of the paper trail provided solid defence.


“Paper” no longer has to be literally paper of course. In fact unlaterable digital records which are date and time stamped, and which have electronic receipts are better than mere paper.   Which gives rise to a common question I get in these hybrid days of still having paper files from 2 decades ago but engaging with those same clients today and answering fundamental service or advice questions via text, or Messenger, or whatever.  That common question basically is “how do I keep records safely and accurately when so much client engagement happens on my phone and not as much in meetings these days?“.


Screenshots is my answer.  Screenshots of text messages, messenger conversations…or even voice memo’s and recordings.  Capturing details electronically has in fact never been easier – and those electronic records can easily be emailed to self and auto-filed in client records.  It works for me.  No matter what solution you come up with though, there needs to be a solution that works for you and keps all of those engagement moments, because invariably when reviewing complaints there are 3 versions of the truth; the clients’, the adviser’, and the real one somewhere in between the other two.


What tips the balance of probability as to which version of the truth is most likely to be correct is the paper trail.  The paper trail is the evidence of what transpired as recorded at the time of the event, or advice.


Whether it is paper or not, what matters is a robust audit trail. In reality it doesn’t matter what methodology or systems you use to keep client files, as long as you keep very very accurate ones – including contact notes.  What is often perceived as onerous processes or requirements in best practice advice dictated by regulators and professional standards boards are actually helpful.  They ae good for your business. In fact they can be career savers.

One thing is absolutely worth betting on when it comes to providing defensible advice:


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